A 2 Z NZ Powercom Limited v Steelcraft Structural Limited
[2024] NZHC 187
•15 February 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-881
[2024] NZHC 187
UNDER Section 290 of the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
A 2 Z NZ POWERCOM LIMITED
Applicant
AND
STEELCRAFT STRUCTURAL LIMITED
Respondent
Hearing: 12 February 2024 Appearances:
N C King for Applicant
G K Holm-Hansen and A J Nisbet for Respondent
Judgment:
15 February 2024
JUDGMENT OF ASSOCIATE JUDGE LESTER
(application to set aside summary judgment)
This judgment was delivered by me on 15 February 2024 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
A 2 Z NZ POWERCOM LIMITED v STEELCRAFT STRUCTURAL LIMITED [2024] NZHC 187
[15 February 2024]
[1] A 2 Z NZ Powercom Limited (Powercom) applies to set aside a statutory demand issued by Steelcraft Structural Limited (Steelcraft).
[2] The statutory demand is for $29,761.24 being costs awarded by this Court recorded in an order sealed 30 August 2022 and served shortly thereafter. When the costs were not paid a statutory demand was issued which Powercom seeks to set aside.
How did the costs award arise?
[3] I am assisted in the preparation of this part of the judgment by the decision of Lang J in Steelcraft Structural Ltd v A 2 Z NZ Powercom Ltd, which led to the costs award in issue.1 I adopt his Honour’s background to the commercial relationship and the dispute between the parties.
[4] Powercom is the owner of land situated at 443 East Tamaki Road. A building known as the “New Zealand Badminton Centre” is situated on that land. Powercom’s shareholders and directors are Mr Senthiya Devathasan (also known as Mr Senthiya) and his wife.
[5] Steelcraft designs, fabricates and installs structural steel. Between March and December 2021 Steelcraft provided structural steel for extensions that were being made to the building situated on Powercom’s land. Steelcraft issued nine monthly payment claims under s 20 of the Construction Contracts Act 2002 (the CCA) for this work. Powercom did not serve a payment schedule challenging any of Steelcraft’s payment claims.
[6] Steelcraft says it completed its obligations under the contract in or about December 2021. On 19 November 2021, Steelcraft served the ninth and final payment claim seeking payment of the sum of $252,125.88. This sum was due to be paid by 20 December 2021. Steelcraft subsequently received a payment of $60,000, leaving an outstanding amount of $192,125.88.
1 Steelcraft Structural Ltd v A 2 Z NZ Powercom Ltd [2022] NZHC 2017.
[7] On 21 December 2021, Steelcraft served a statutory demand on Powercom under s 289 of the Companies Act 1993. The demand required Powercom to pay the sum of $192,125.88 within 15 working days. Powercom failed to comply with the statutory demand. As a result, it was presumed Powercome is unable to pay its debts.2
[8] Lang J found Steelcraft had issued a valid payment claim to which Powercom had not issued a payment schedule. While Powercom asserted it had counterclaims and cross-demands against Steelcraft, his Honour concluded those arguments faced the obstacle of ss 23 and 79 of the CCA. Section 23 of the CCA provides:
23Consequences of not paying claimed amount where no payment schedule provided
(1)The consequences specified in subsection (2) apply if the payer—
(a)becomes liable to pay the claimed amount to the payee under section 22 as a consequence of failing to provide a payment schedule to the payee within the time allowed by section 22(b); and
(b)fails to pay the whole, or any part, of the claimed amount on or before the due date for the payment to which the payment claim relates.
(2)The consequences are that the payee—
(a)may recover from the payer, as a debt due to the payee, in any court,—
(i)the unpaid portion of the claimed amount; and
(ii)the actual and reasonable costs of recovery awarded against the payer by that court; and
(b)may serve notice on the payer of the payee’s intention to suspend the carrying out of construction work under the construction contract.
(3)A notice referred to in subsection (2)(b) must state—
(a)the ground or grounds on which the proposed suspension is based; and
(b)that the notice is given under this Act.
2 Companies Act 1993, s 287(a).
(4)In any proceedings for the recovery of a debt under this section, the court must not enter judgment in favour of the payee unless it is satisfied that the circumstances referred to in subsection (1) exist.
[9]Lang J concluded:
[21] It is now well established that the regime under the CCA is designed to protect cashflow for contractors in the building industry. The only means by which the recipient of a payment claim can contest it is by serving a payment schedule in response.3 This is reflected in s 79 of the CCA, which provides as follows:
79Proceedings for recovery of debt not affected by counterclaim, set-off, or cross-demand
In any proceedings for the recovery of a debt under section 23 or section 24 or section 59, the court must not give effect to any counterclaim, set-off, or cross-demand raised by any party to those proceedings other than a set-off of a liquidated amount if—
(a)judgment has been entered for that amount; or
(b)there is not in fact any dispute between the parties in relation to the claim for that amount.
[10] With the director of Powercom asserting Powercom could meet the debt, Lang J gave time for Powercom to pay, which it ultimately did.4 His Honour then fixed costs to be paid by Powercom which totalled with disbursements $29,761.24, subject to the statutory demand.5
Statutory demand principles
[11] The principles applicable to applications to set aside statutory demands pursuant to ss 289 and 290 of the Companies Act are well known:6
(a)the onus is on the applicant to show a fairly arguable basis that there is a genuine and substantial dispute as to the existence of the debt;
(b)the task of the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due;
3 Laywood v Holmes Construction Ltd [2009] NZCA 35, [2009] 2 NZLR 243.
4 Steelcraft Structural Ltd v A 2 Z NZ Powercom Ltd, above n 1, at [27]-[28].
5 Steelcraft Structural Ltd v A 2 Z NZ Powercom Ltd [2022] NZHC 2164.
6 Melbourne Ltd v Bartlett Concrete Placing Ltd [2022] NZHC 1786 at [19], citing Brookers Insolvency Law & Practice (online ed, Thomson Reuters) at [CA290.02].
(c)the mere assertion that a dispute exists is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed; if such material is not available, the dispute should normally be resolved by means other than by ordinary civil proceedings;
(d)if a counterclaim, cross-demand or set-off is suggested, an applicant must establish that it is reasonably arguable in the circumstances;
(e)it is not usually appropriate to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties; and
(f)the Court’s power to set aside a statutory demand can be limited by specific legislation inconsistent with its powers under s 290 Companies Act.7
The basis of the current application
[12] The application to set aside the statutory demand does not detail the basis of the application other than asserting there is a substantial dispute as to the net amount of the debt and asserting Powercom has a counterclaim, set-off or cross-demand that exceeds the amount claimed by Steelcraft.
[13] The only detail of the alleged cross-claim is provided by way of the director of Powercom producing a statement of claim filed in the Manukau District Court against Steelcraft. Damages are sought under various heads, including a claim for unapproved variations (the variation issue) which were included in payment claims paid by Powercom, in effect a claim for an overpayment of $84,308.81. There is a claim for liquidated late completion damages being for 144 days on stage one of the contract, said to amount to $72,000.00, and a further late completion liquidated damages claim in respect of stage two of the contract, being 84 days at $500.00 per day amounting to
7 Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd (2005) 11 TCLR 256 at [26]-[35].
$42,000.00. There is a further unquantified claim for costs incurred by Powercom having to instruct other subcontractors in respect of the contract works.
[14] At the hearing, Mr King, counsel for Powercom, advised that counsel had conferred and agreed the key issue was whether Powercom could establish that its claim against Steelcraft for late completion of stage one satisfied s 79(b) of the CCA.
Steelcraft’s position
[15] Mr Holm-Hansen, counsel for Steelcraft, submits that Powercom’s application to set aside the statutory demand cannot succeed because s 23(2)(a)(ii) of the CCA means the actual and reasonable costs awarded to Steelcraft in recovering the amount unpaid under its payment claim become a debt due for the purposes of s 79 of the CCA.
[16] Mr Holm-Hansen refers to Randerson J’s finding in Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd that:8
… recovery of debt by the lawful process of the issue of a statutory demand and the bringing of winding up proceedings against a debtor company are ‘proceedings’ contemplated by s 79.
[17] Mr Holm-Hansen submits that s 79 of the CCA operates as a complete bar to Powercom raising a counterclaim in response to the statutory demand based on the August 2022 costs award obtained by Steelcraft in its winding up proceeding determined by Lang J. In short, a costs award on the recovery of an unpaid payment claim has the same status as an unanswered payment claim.
Can Powercom rely on s 79(b) of the CCA?
[18] Under s 79(b) of the CCA, the Court can give effect to a counterclaim or set-off if: “there is not in fact any dispute between the parties in relation to the claim for that amount.”
8 Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd, above n 7, at [20].
[19] In additional submissions dated 9 September 2023, Mr King submitted that the statement of defence filed by Steelcraft to Powercom’s amended statement of claim in the District Court includes what amounts to an admission of part of Powercom’s claim for late completion damages and that admission satisfies s 79(b) of the CCA.
[20] Mr King’s submission was developed as follows. First, Steelcraft accepts in its defence the presence of the liquidated damages clause in the contract. Second, Steelcraft says the site was not made available to it by Powercom until 2 August 2021 which gives a start date. Third, Steelcraft pleads it finished its stage one works in October 2021 (but does not specify what date in October). While these start and end dates are not the dates asserted by Powercom, nonetheless Mr King submitted that if the work period was 3 August 2021 to 30 September 2021 (assuming the work finished on 1 October 2021), this was an admission that the stage one works took longer than specified in the contract and was therefore an admission that liquidated damages at the daily rate specified in the contract was accepted.
[21] Because Mr King cannot point to an exact finish date, it is not possible to fix a final quantum for this liquidated damages claim for late completion on his case. He said the smallest amount would be $17,000.00 but if the end date was the last day of October 2021, it could be $32,500.00.
[22] As I have said, this argument is based on the contents of the amended statement of claim in the District Court and the statement of defence to that amended claim. The affidavit evidence filed by Powercom in support of this application does not address the late completion/liquidated damages issue. Indeed, strictly speaking the evidence filed by Powercom does not actually verify the then original statement of claim albeit it might be said such was implied. With the lack of evidence from Powercom in relation to the liquidated damages issue, the evidence for Steelcraft on liquidated damages issues was relatively brief, the deponent for Steelcraft saying:
27.Steelcraft was delayed with the Contract works through no fault of its own by Powercom and its other trades (which Powercom engaged) holding us up, by Covid-19 lockdowns, and by variations to the works. Powercom has refused to acknowledge these delays, despite itself noting the impact of Covid-19 lockdowns on its own website. A copy of the webpage is annexed.
28.The variations were approved on site, which Powercom seems to be going back on. Steelcraft proceeded with that extra work in reliance on this, which Powercom is benefiting from, and so we understandably expect to be paid for it.
[23] Powercom’s cause of action for damages for late completion is denied by Steelcraft in its District Court defence.
[24] In short, Mr King’s submission amounted to saying that with Steelcraft giving a date when it was given access to the site and when it finished work on site and with that period being longer than the contractual period provided for the work, Steelcraft acknowledged it was liable for late completion damages. I do not accept that submission. That a start date and an end date is accepted is not enough to say Steelcraft accepts liability for liquidated damages for late completion. The contents of the statement of defence would not, in my view, found the ability for Powercom to seek judgment on the basis the defence contains an admission of liability or sufficient admission of pleaded facts to permit judgment to be entered on that basis alone.
[25] The evidence in this Court as to why Steelcraft’s work took longer than provided for in the contract, is set out at [22] above. That evidence was not replied to. Mr King in effect seeks to contradict that evidence by reference to Steelcraft’s statement of defence, however, the District Court defence as a whole is consistent with Steelcraft’s evidence in this Court, at least in how the statement of defence refers to the variation issue.
[26] The contract between the parties does not contain a mechanism for the granting of extensions of time. If variations requested by Powercom or breaches by Powercom of its management of the site meant Steelcraft could not meet the timeframe specified in the contract, then the prevention principle would prevent Powercom from relying on the liquidated damages clause.9 There is the further complication here that the period covered by the above dates coincided, at least in part, with the Auckland Covid-19 lockdown. If the prevention principle is successfully engaged, then “time is no longer of the essence”, that is, it is not restricted to the completion date specified
9 See the discussion in Meredith Kaulsen and Morgan Coakle “Concurrent delay”, the prevention principal and extension of time clauses” (2019) NZLJ 16.
in the contract but is “at large”.10 The contractual completion date ceases to be binding and construction need only be completed within a reasonable time.11 While construction contracts routinely contain extension of time provisions as I have noted, none are present here.
[27] The following factors led me to conclude that Powercom cannot satisfy s 79(b) of the CCA:
(a)whether Steelcraft can be liable for liquidated damages for late completion cannot be separated from the variation issue as a variation may well require an extension of time depending on its nature;
(b)the issue concerning the disputed variations and the other broadly stated reasons for late completion cannot be resolved in this application, meaning that it cannot be said there is “not in fact any dispute …” in relation to the liquidated damages claim;
(c)the dates admitted in the statement of defence only beg the question of why Steelcraft’s work was not to be completed within the time specified in the contract;
(d)Steelcraft denies in its statement of defence liability for the liquidated damages claim; and
(e)Steelcraft’s statement of defence in the District Court denies it sent numerous unapproved variations and pleads that written and/or verbal notice was given by Steelcraft to Powercom of any variations which Powercom did not object to.
[28] As I have said, I am satisfied that Steelcraft’s statement of defence is not a basis for saying there is no dispute between the parties in respect of at least part of the liquidated damages claim for stage one.
10 At 117.
11 “Concurrent delay, the prevention principle and extension of time clauses), above n 9, at 117.
[29] It follows I am satisfied there is no basis for setting aside the statutory demand based on the claims for liquidated damages by Powercom in the District Court as s 79 of the CCA prevents Powercom raising a counterclaim, set-off or cross-demand in respect of the costs award, unless such is in fact not disputed. In short, Powercom’s application fails for the same reasons as set out in Lang J’s judgment of August 2022.
Costs
[30] There is no reason why Powercom should not pay costs to Steelcraft. Unless submissions on costs are filed within five working days of the date of this judgment, not more than five pages in length, then the order of the Court is that Powercom is to pay to Steelcraft costs on a 2B basis together with disbursements as fixed by the Registrar.
Associate Judge Lester
Solicitors:
Sinisa Law, Auckland (for Applicant)
Copy to counsel:
N King, Barrister, Auckland (for Applicant) Hesketh Henry, Auckland (for Respondent)
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