Aluminium Cladding Services Limited v Harford Residential Limited
[2020] NZHC 2623
•6 October 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-001095
[2020] NZHC 2623
BETWEEN ALUMINIUM CLADDING SERVICES LIMITED
ApplicantAND
HARFORD RESIDENTIAL LIMITED
Respondent
Hearing: 26 August 2020 Counsel:
Jose San Diego for the Applicant
Rachel Harford for Respondent in Person
Judgment:
6 October 2020
JUDGMENT OF MOORE J
This judgment was delivered by me on 6 October 2020 at 4:00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar Date:
ALUMINIUM CLADDING SERVICES LIMITED v HARFORD RESIDENTIAL LIMITED [2020] NZHC 2623
[6 October 2020]
Introduction
[1] This case has its origins in a building contract between Aluminium Cladding Services Limited (“Aluminium Cladding”) and Harford Residential Limited (“Harford”).
[2] Aluminium Cladding subcontracted Harford to carry out remedial work on four residential units situated at 2 Otahuri Crescent, Greenlane (“the properties”).
[3] Aluminium Cladding claims that there were material defects in the way in which the work was undertaken by Harford. As a consequence, Aluminium Cladding cancelled the contract and engaged a third party, Build Construction and Interior Limited (“Build Construction”), to complete the work.
[4] Harford issued invoices to Aluminium Cladding seeking payment for the work undertaken. Aluminium Cladding did not pay the invoices and so Harford brought proceedings to recover the debt in the Disputes Tribunal (“the Tribunal”).
[5] Certain procedural irregularities followed which led to Aluminium Cladding not defending Harford’s claim. Judgment was entered in favour of Harford.
[6] Harford then issued a statutory demand. It is that statutory demand which Aluminium Cladding applies to have set aside and is the subject of this decision.
Background facts
[7] In late 2018 Mr Sigvertsen, a director of Aluminium Cladding, negotiated a contract for Aluminium Cladding to carry remedial building works on the properties after discovery of weathertightness issues. The properties consisted of four units situated in Greenlane.
[8] Shortly afterwards he subcontracted Harford to carry out the works. The role of Aluminium Cladding was limited to the installation of the exterior weatherboards.
[9] According to Mr Sigvertsen the work undertaken by Harford was defective. A detailed list of those defects is set out in his affidavit.1
[10] According to Mr Sigvertsen there were numerous onsite meetings between him and the principals of Harford to discuss the defects, apparently with a view to resolution. It would seem that no resolution was reached and on 8 July 2019 Mr Sigvertsen terminated Aluminium Cladding’s contract with Harford. He then engaged Build Construction to remediate the works carried out by Harford and to finish the units. Despite the engagement of Build Construction, Mr Sigvertsen continued to correspond with Harford representatives until September 2019.
[11] During the construction period Harford sent Aluminium Cladding a series of invoices. The present dispute relates to work undertaken on Units 1 and 3.
[12] In respect of Unit 1 the amount claimed totals $12,072.12. This figure, apparently, is made up from the combined total for the cost of Harford’s work on Unit 1 with some adjustments as agreed between the parties. In particular, the costs claimed cover the deck reconstruction, the pick up of materials from the building supplier and steel installation.
[13] The invoices issued in relation to Unit 3 totalled $14,981.57. The work related to the removing and replacement of framing timbers and related costs. Again, the figure includes certain agreed reductions.
[14] The invoices were not paid by Aluminium Cladding and, as a consequence, Harford issued two separate sets of proceedings in the Tribunal in Auckland, CIV-2009-044-001468 (“1468”) and CIV-2009-044-001469 (“1469”) seeking recovery for the outstanding amounts relative to Units 1 and 3 respectively. 1468 was set down to be heard on 5 May 2020 and 1469 set down to be heard on 6 May 2020.
[15] I assume it was due to the COVID-19 restrictions that arrangements were made for the parties to be connected to the Tribunal by telephone rather than appear in person.
1 Dated 6 July 2020.
[16] According to Mr Sigvertsen, on 5 May 2020 he waited to receive a call from the Tribunal relative to 1468. He received no such call because, it would seem, the matter was moved to the following day without him being advised.
[17] The following day, that is 6 May 2020, Mr Sigvertsen waited to hear from the Tribunal. He says that he was unaware that his cellphone battery had gone flat and only realised that the hearing had gone ahead without his involvement after he re-charged his phone later that afternoon. As a result, at 4:04 pm, he sent a detailed email to the Tribunal. He recorded that in respect of 1468 he was at his home on 5 May 2020 waiting fruitlessly for the conference call. He said he received no communication that the matter had been placed in the list for the following day. He asked the Tribunal to provide him with an update as to the case’s status and why it was he had not been contacted. He advised that he would be lodging a counterclaim.
[18] As noted, in respect of 1469 Mr Sigvertsen advised that on 6 May 2020 he was waiting for the call but was unaware that the battery on his phone was flat.
[19] Mr Sigvertsen advised that he intended to lodge counterclaims against both claims including additional claims for costs incurred by the owners of Units 2 and 4. He asked for advice as to the next steps and invited the Tribunal to contact him by phone.
[20] Shortly afterwards the Tribunal sent Mr Sigvertsen an email which advised him that although the files were managed in Auckland, they had been sent to the North Shore for hearing. 1468, although sent, could not be located until the previous afternoon. He was advised that the Referee intended to deal with both matters on 6 May 2020 but was unable to because of the difficulties Mr Sigvertsen was having with his phone. The Registrar advised that both matters would need to be rescheduled and confirmed that any counterclaims and new claims would need to be filed.
[21] On 11 June 2020 Mr Sigvertsen filed applications for rehearing. These are scheduled to be heard on 24 September 2020.
[22] Mr Sigvertsen explains that the delay in compiling the necessary information to support his counterclaim and defence was due to him being overwhelmed by the volume of information. He is a builder and says that throughout his 55 years in the industry, he has never before been involved in any Court proceedings. He has now obtained legal representation and has undertaken to file a counterclaim which he says will likely exceed more than $30,000 and, if so, will need to be transferred to the District Court.
Legal principles
[23] The legal principles for applications to set aside a statutory demand are well settled.
[24]Section 290 of the Companies Act 1993 (“the Act”) provides a statutory basis:
“290 Court may set aside statutory demand
(1) The court may, on the application of the company, set aside a statutory demand.
…
(4) The court may grant an application to set aside a statutory demand if it is satisfied that—
(a) there is a substantial dispute whether or not the debt is owing or is due; or
(b) the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c)the demand ought to be set aside on other grounds.
(5) A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.”
[25] In determining whether there is a genuine substantial dispute as to the existence of the debt, the Court of Appeal has set out the following principles:2
(a)the onus is on the applicant to show there is arguably a genuine and substantial dispute as to the existence of the debt. The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due;
(b)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;
(c)if such material is not available, the dispute should normally be resolved other than by means of proceedings in the Companies Court;
(d)an applicant must establish that any counterclaim or cross-demand is reasonably arguable in all of the circumstances. The obligation is not to prove the actual claim. Such an obligation would amount to the dispute itself being tried on the application; and
(e)it is not usually possible 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.
[26] The purpose of a statutory demand under s 289 of the Act is to create a presumption of insolvency if the company served with the demand does not comply with it within 15 working days of service. It is a rebuttal presumption.3 The general purpose of s 290 is to allow statutory demands to be set aside.
[27] Under s 290(4)(b) a demand may be set aside if the company has a counterclaim, set-off or cross-demand and the amount in the demand less the amount of the cross-claim is less than $1,000.
2 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
3 Companies Act 1993, s 287(a).
Preliminary matters
[28] Before me, Mr San Diego, for Aluminium Cladding, sought leave to file affidavits of Douglas William Sigvertsen and Roger William Cartwright. They are unsworn due to complications associated with the COVID-19 restrictions. Mr San Diego has complied with r 9.73(4) of the High Court Rules 2016,4 and in the absence of opposition from the respondent, I was satisfied that it is appropriate to grant leave and record that I did so at the hearing.
[29] The second matter is whether Mrs Harford may appear for the respondent, Harford. This issue was raised in earlier case conferences.
[30] The general rule is that a company may only be represented in Court proceedings by a barrister or solicitor.5 In summary, the rationale behind this rule is:
(a)the Court can be assured the company’s interest are protected;
(b)solicitors are bound by duties owed by them to the Court and are objective;
(c)such proceedings tend to involve significant legal and procedural roles; and
(d)both sides are better served where a proceeding runs simply and quickly.
[31] Notwithstanding the above principles, the Court maintains a discretion to permit non-lawyers to appear on behalf of a company in rare, if not exceptional, circumstances. Examples include emergencies where counsel is not available or where the hearing involves straightforward, relatively minor matters where counsel is not needed and the legal costs would be obstructive.
4 Replaced, on 9 April 2020, by r 17 of the High Court (COVID-19 Preparedness) Amendment Rules 2020
5 Re G J Mannix Limited [1984] 1 NZLR 309 (CA). See too Dreamtech Designs & Productions Pty Limited v Clownfish Entertainment Ltd [2015] NZCA 491 at [8]-[12]; Commissioner of Inland Revenue v Chesterfields Preschools Limited [2013] NZCA 53, [2013] 2 NZLR 679 at [33].
[32] At the hearing, I advised that I was satisfied that Mrs Harford, who is a director of the respondent company, should be granted leave to appear. My reasons follow.
[33] First, she has a good working knowledge of the factual background to this matter. Secondly, the issues involved are relatively straightforward, both legally and factually. Thirdly, the evidence and submissions filed by Mrs Harford are not voluminous and are commendably focused and relevant to the issues engaged in the application. Fourthly, I accept Mrs Harford’s claim that if not granted leave, the company would not be able to appear and prosecute its application. The present dispute has been financially crippling to the company and there are simply no funds available to instruct counsel. Finally, Mr San Diego consented to the grant. For these reasons I granted leave.
[34]I turn now to apply the relevant principles to the facts before me.
Is there arguably a genuine and substantial dispute as to the existence of the debt?
[35] I am easily satisfied that there is. There does not appear to be a contest that Aluminium Cladding subcontracted Harford to undertake the remediation work. Neither is there any challenge that Harford undertook the work. What is disputed is whether Aluminium Cladding should be liable to meet Harford’s costs given the former’s assertion that the work was not completed to a workmanlike or proper standard. That is the nub of the dispute. Mr Sigvertsen has set out in some detail, supported by photographs, why he claims the work was substandard. Mrs Harford, in comparable detail, refutes Mr Sigvertsen’s claims and sets out, in a cogent and detailed fashion, why Harford takes that position.
[36] Plainly, I cannot, nor should not, attempt to resolve that conflict. That will be for the Tribunal or the District Court to determine.
[37] Furthermore, it is noteworthy that Aluminium Cladding formally cancelled its contract with Harford and engaged a third party, namely Build Construction, to undertake the remedial work. Those steps predated the filing of the claims and provide strong evidence that at least from Mr Sigvertsen’s subjective point of view, Aluminium
Cladding was sufficiently dissatisfied with the work undertaken by Harford that it engaged a third party to remedy the defects and complete the work.
[38] It follows that I find there is arguably a genuine and substantial dispute as to the existence of the debt. That being the case, I am satisfied the proper course is to set aside the statutory demand on that ground alone. However, there is another ground; whether Aluminium Cladding has a counterclaim against Harford and it is to that question I now turn.
Is Aluminium Cladding’s assertion it has a counterclaim against Harford reasonably arguable?
[39] Although he has not filed proceedings yet, Mr Sigvertsen claims that he has a strong counterclaim against Harford. This is on the basis that Aluminium Cladding was obliged to cancel the contract with Harford and engage Build Construction to remediate Harford’s poor workmanship and complete the contracts relative to not only Units 1 and 3, but also work undertaken on the other units. Harford disputes this but, again, it is a controversy which I am neither required to resolve, nor should I resolve.
[40] I need to be satisfied that any counterclaim or cross-demand is reasonably arguable in all the circumstances. For the same reasons set out above I am so satisfied.
Are there other grounds on which the demand should be set aside?
[41] Section 290(4)(c) expressly leaves open the categories which might permit a statutory demand to be set aside. On the facts before me I am satisfied it is also in the interests of justice to grant the application because not to do so would be to cause a miscarriage of justice.
[42] Mr Sigvertsen’s uncontradicted evidence is that he expected the claims to be heard via a telephone conference with the Tribunal. On the day the first claim was scheduled to be heard he was given no notice that the Tribunal had decided not to hear the claim that day but rather to consolidate it with the second claim for hearing the following day. Mr Sigvertsen’s explanation for not participating in the hearing on the second day is that the battery on his mobile phone went flat. This claim is supported
by the email he sent the Registry later that same day enquiring into the status of the claims and explaining why he had not connected with the Tribunal.
[43] Judgment was entered on both claims without Mr Sigvertsen having the opportunity to advance his defence. The omission to appear and advance a defence was caused by Mr Sigvertsen’s oversight. No fault of any kind can be attributed to Harford. However, due process, fairness and natural justice was denied to Mr Sigvertsen. To refuse Aluminium Cladding’s application to set aside would be to compound that breach.
[44] Mr Sigvertsen has since applied for a rehearing and this will be heard later in the month.
[45] Now that Mr Sigvertsen has sensibly engaged counsel, I am reassured that the proceedings will be advanced in an expeditious and timely fashion and that Aluminium Cladding’s counterclaim will be filed promptly so as to avoid further delay and prejudice to Harford which is entitled to have this matter determined expeditiously.
Conclusion
[46] For these reasons I am satisfied that proper grounds have been made out to set aside the statutory demand and that the application should be granted.
[47] As the applicant is the successful party, it is entitled to costs. I would invite the parties to consult with a view to agreeing on the quantum of costs. I record my view that on the material before me it would appear that Harford were very much within their rights to make the statutory demand because Mr Sigversten appears not to have engaged effectively with them relative to the claimed debt until after it was issued. Their alternatives were limited. In the event the parties are unable to agree, they are each to file memoranda not exceeding three pages no later than
5:00 pm on Thursday, 19 November 2020 and I will determine the question of costs on the papers.
Moore J
Solicitors:
Mr San Diego, Auckland
Copy to:
The Respondent
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