Principle Developments Ltd v Slotemaker

• Jurisdiction: New Zealand
• Judge: Paulsen
• Judgment Date: 08 September 2022
• Neutral Citation: [2022] NZHC 2283
• Docket Number: CIV-2022-442-000018
• Court: High Court

UNDER the Companies Act 1993

IN THE MATTER of an application to set aside a Statutory Demand

Between

Principle Developments Limited

Plaintiff

and

Dylan Slotemaker

Defendant

[2022] NZHC 2283

Paulsen

CIV-2022-442-000018

IN THE HIGH COURT OF NEW ZEALAND

NELSON REGISTRY

I TE KŌTI MATUA O AOTEAROA

WHAKATŪ ROHE

Commercial — application to set aside a statutory demand — failed sale and purchase agreement — alleged breach and cancellation of agreement — return of deposit — substantial dispute whether or not the debt was owing — solvency — principles for setting aside statutory demands — Principles of interpretation of contracts — Companies Act 1993

Appearances:

A G Stallard for Applicant

R J D Fitchett for Defendant

JUDGMENT OF Associate Judge Paulsen

This judgment was delivered by me on 8 September 2022 at 10.30 am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Table of Contents

	Para No
Introduction	[1]
Background	[5]
Setting aside statutory demands – the principles	[24]
Principles of interpretation	[26]
The evolution of cl 25.1	[30]
Issue 1 – Has PDL shown it is fairly arguable that it did not breach cl 25.1 in either of the respects alleged?
Size of the building platform	[37]
The earthworks	[56]
Issue 2 – If PDL did breach the agreement as alleged, did that entitle Mr Slotemaker to cancel the agreement?	[71]
Issue 3 – If Mr Slotemaker cancelled the agreement did the deposit become a debt due and owing by PDL for the purposes of s 289 Companies Act	[72]
Issue 4 – Is PDL entitled to an order setting aside statutory demand because it is solvent?	[76]
Issue 5 – The residual discretion	[79]
A final matter	[81]
Result	[84]

Introduction

1 Principle Developments Ltd (PDL) entered into a written agreement to sell to the defendant, Dylan Slotemaker (Mr Slotemaker), a property in the Skylark Rise subdivision at Atawhai, Nelson. It is an elevated sloping property and offers rural and sea views from a building platform PDL created on the site.

2 Mr Slotemaker has purported to cancel the agreement. He says that in breach of an essential term of the agreement PDL undertook earthworks in the vicinity of the building platform, and the building platform is not 800m ² as approved, certified and defined by PDL's resource consent.

3 Mr Slotemaker served a statutory demand upon PDL requiring repayment of his deposit of $100,000. PDL does not accept that it breached the agreement, that Mr Slotemaker has validly cancelled the agreement, or that Mr Slotemaker is entitled to repayment of the deposit. It applies to set aside Mr Slotemaker's statutory demand under s 290(4)(a) of the Companies Act 1993 on the ground there is a substantial dispute whether or not there is a debt owing or due to Mr Slotemaker.

4 The issues that arise are the following:

• (a) Has PDL shown it is fairly arguable that it did not breach the agreement in either of the respects alleged?

• (b) If PDL did breach the agreement, did that entitle Mr Slotemaker to cancel the agreement?

• (c) If Mr Slotemaker cancelled the agreement, did the deposit become a debt due and owing by PDL to Mr Slotemaker?

• (d) Is PDL entitled to an order setting aside the statutory demand because it is solvent?

• (e) If there is a substantial dispute as to the existence of the debt, should the Court nonetheless exercise its residual discretion to refuse to set aside the statutory demand?

Background

5 PDL is a property developer at Nelson. One of its projects is the Skylark Rise subdivision. This dispute concerns Lot 55 in the subdivision.

6 Mr Slotemaker lives in the United States.

7 Lot 55 was marketed on behalf of PDL by a local real estate agent. The marketing material emphasised the privacy, north facing aspect and uninterrupted sea and mountain views, with an 800m ² building platform that was “flat, certified and formed”.

8 Mr Slotemaker's father and stepmother inspected the property on his behalf on two occasions, first with the real estate agent and then with the director of PDL, James Harrington. Mr Slotemaker was able to see the property on an on-site video call during one of the inspections.

9 Mr Slotemaker engaged the law firm Pitt & Moore to act for him to negotiate an agreement to purchase part of Lot 55. PDL was represented by Stallard Law. It appears the negotiations were conducted principally by email.

10 On 12 March 2021, PDL and Mr Slotemaker entered into a written agreement for sale and purchase of part of Lot 55 using the Ninth Edition 2012(8) REINZ/ADLS form, with further terms of sale attached. The terms of the agreement include the following:

• (a) The purchase price is $695,000 of which a deposit of $100,000 was paid.

• (b) The property is an area of no less than 18,000m ² (subject to survey) being part of Lot 55 DP 545726 and being part of Record of Title 953207 (Nelson Registry) (the Head Title), as shown on a preliminary plan attached to the agreement.

• (c) PDL was to apply for a resource consent to subdivide the Head Title and to complete all physical and other works to obtain the issue of a new title for the property.

• (d) The settlement date was to be ten working days after the issue of title. However, if PDL was unable or unwilling to obtain the resource consent or complete the work for the new title, or title was not available within two years of the date of the agreement, PDL would transfer the Head Title to Mr Slotemaker at the purchase price in the agreement.

11 Clause 5 concerns risk and insurance. It provides that the property remains at the risk of PDL until possession is given and taken. Clause 5.2(2) provides that if prior to the giving and taking of possession, the property is destroyed or damaged, and such destruction or damage has not been made good by the settlement date:

If the property is not untenantable on the settlement date the purchaser shall complete the purchase at the purchase price less a sum equal to the amount of the diminution in value of the property which, to the extent that the destruction or damage to the property can be made good, shall be deemed to be equivalent to the reasonable cost of reinstatement or repair.

12 Clause 25 is at the heart of the dispute. It deals with the building platform. This clause was subject to change during the negotiation between the parties' solicitors. I will trace its evolution later in this judgment. As finally agreed, cl 25.1 reads as follows:

The Vendor agrees that it will not prior to settlement date reposition or alter the existing building platform nor carry out any earth works in the vicinity of the building platform. The parties acknowledge that it is an essential term of the contract that there is no change to the existing building platform on the property as approved, certified and defined in RM145151V2 and/or RM145153 and/or Consent Notice 11941520.12.

13 Clause 30 was headed “Disclaimer/Entire Agreement/No Reliance and provides as cls 30.1 and 30.2:

Clause 30.1

The parties acknowledge that this agreement, and the schedules and attachments to this agreement, contain the entire agreement between the parties, notwithstanding any negotiations or discussions prior to the execution of the agreement or anything contained in any brochure, report or other document.

Clause 30.2

The Purchaser acknowledges and agrees that it has not been induced to execute this agreement by any representation, … or otherwise, made by or on behalf of the Vendor or its agents other than as expressly set out in this agreement.

14 After the agreement was entered into Nelson experienced a significant amount of rainfall and difficulties with drainage and run-off caused some damage to the property. Mr Harrington says the damage was not to the building platform but if left unattended this could have placed the integrity of the building platform in issue.

15 Mr Slotemaker was aware of the damage. The matter was raised by Pitt & Moore with Stallard Law in an email of 3 August 2021. In that email, Pitt & Moore said they understood recent rain events had caused significant visual damage by way of slips, slumps and washouts on the property and asked whether PDL had a report on the extent of the damage and remedial work required to reinstate the property.

16 Stallard Law responded on 6 August 2021 advising as follows:

Our client has advised that:

• • he is aware of the damage to the property and will be undertaking in early spring remediation work to ensure ground stability.

• • he will provide a letter from a geotechnical engineer to confirm that the works undertaken are approved and signed off.

• • The material that has slipped is the top layer of topsoil and there is no structural damage to the 3604 building platform.

17 Pitt & Moore responded on 12 August 2021 as follows:

Thanks Diane.

That work is appreciated.

Clause 25.1 is an essential term of the contract which deals with the original building platform. It is important to the Purchaser that the geo technical report is extended to provide reassurance that there has been no change to the structural integrity of the platform or the drainage works that protect it or are associated with it.

Would you please ensure that these matters are included in the new report.

18 On 4 October 2021, Pitt & Moore again wrote to Stallard Law, this time purporting to cancel the agreement as follows:

Hello Diane.

We understand that there has been further damage to the property since the damage referred to in our email of 3 August.

We have attached a number of photographs showing the damage around the building platform.

As a result we understand that there will be remedial work that brings into play clause 25.1 of the agreement.

The agreement is therefore cancelled. Please return the deposit.

Our trust account details are attached.

...