Auckland Drainage Plumbing Services Limited v White Rose Builders New Zealand Limited
[2019] NZHC 890
•18 April 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-0964
[2019] NZHC 890
BETWEEN AUCKLAND DRAINAGE PLUMBING SERVICES LIMITED
Plaintiff
AND
WHITE ROSE BUILDERS NEW ZEALAND LIMITED
Defendant
Hearing: 15 November 2018 Appearances:
D Purusram for the Plaintiff M R Taylor for the Defendant
Judgment:
18 April 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 18 April 2019 at 3.30pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Victorian Lawyers Ltd, Auckland KiwiLawyers, Auckland
M Taylor, Auckland
AUCKLAND DRAINAGE PLUMBING SERVICES LTD v WHITE ROSE BUILDERS NEW ZEALAND LTD [2019] NZHC 890 [18 April 2019]
[1] The plaintiff (Auckland Drainage) applies for an order putting the defendant (White Rose) into liquidation. The application is made in reliance on an unanswered statutory demand issued by Auckland Drainage on 18 April 2018.
[2]White Rose defends the application on the basis that:
(a)Auckland Drainage is not a creditor of White Rose.
(b)There is a substantial and genuine dispute over the alleged debt, which has been the subject of an adjudication order under the Construction Contracts Act 2002 (the CCA). White Rose says that, under that determination, no further sums were payable by it to Auckland Drainage.
(c)White Rose is trading and is solvent.
Background
[3] White Rose contracted with the Supreme Sikh Society of New Zealand (the Society) for certain construction work to be carried out at the Society's Temple at 70 Takanini School Road, Takanini (the Temple property). On or about 28 June 2015 White Rose subcontracted to Auckland Drainage the excavation work for the project (the subcontract).
[4] The excavation work under the subcontract was carried out by Auckland Drainage over approximately three to four months between July and October 2015. Auckland Drainage says that it also performed a number of other works for White Rose, unrelated to the subcontract. It says that the total amount owing to it by White Rose, including on the subcontract, is $250,378.17.
[5] White Rose says that the excavation work was poorly carried out by Auckland Drainage. It also says that during the project, it was required to pay a total of
$167,902.87 direct to Auckland Drainage's own subcontractors, as Auckland Drainage was unable to pay them.
[6] White Rose says that it agreed to one variation to the contract for the excavation work, providing for the removal of additional fill material at a cost of
$94,000. At the conclusion of the project, it took the view that it had paid Auckland Drainage in full for the work done by it.
[7] Auckland Drainage took a different view. On 12 December 2015 its director, Mr Lal, sent an email contending that a further sum of $135,471.81 was owed to Auckland Drainage. Further demands were made, on 7 March 2016 for $148,777.20, and on 18 February 2017 for $160,000. White Rose says that additional demands totalling $132,627.20 were made in the course of various meetings between the parties in which attempts were made to resolve the dispute.
[8] The parties were unable to resolve the dispute, and in April 2018 Auckland Drainage issued the statutory demand. The amount demanded was $397,977.80, including GST. White Rose says that the statutory demand did not come to the attention of its directors at the time. One of them, Mr Singh, was overseas at the time. He has given evidence that, if the demand had come to his attention, White Rose would have applied to set it aside.
[9] The liquidation claim was filed by Auckland Drainage on or about 21 May 2018. White Rose has filed a statement of defence, in which it contends that the issue of the statutory demand was an abuse of process, as the alleged debt remained in dispute.
[10] On or about 11 July 2018 White Rose commenced an adjudication proceeding under the CCA claiming a refund of the amounts it had paid to Auckland Drainage's subcontractors. White Rose contended that those payments should be regarded as overpayments made by it to Auckland Drainage under the subcontract.
[11] On 13 July 2018, Auckland Drainage's liquidation claim was called in this Court. It was adjourned so that the adjudication process under the CCA could be completed.
[12] The claimant in the adjudication proceeding was White Rose, and the respondent was Auckland Drainage. The adjudicator was Mr David Clark. The parties filed submissions and evidence, and Mr Clark issued his determination on 21 September 2018.
[13] In its submissions to the adjudicator, Auckland Drainage contended that it was entitled to be paid the further sums it says are owed to it by White Rose. The adjudicator held that, on the basis of the evidence and submissions presented, there were no further sums due to Auckland Drainage for work performed on the subcontract. The adjudicator also found that White Rose was not entitled to any sums from Auckland Drainage for the alleged overpayments. Mr Clark directed that Auckland Drainage was to reimburse White Rose for its share (50 per cent) of the adjudicator's fees for the adjudication. White Rose says it has not yet received its share of those fees from Auckland Drainage.
The law relating to liquidation claims
[14] Auckland Drainage's liquidation claim is made pursuant to s 241 of the Companies Act 1993 (the Act) and r 31.3 of the High Court Rules.
[15] A liquidation order may be made under s 241(4)(a) of the Act if the Court is satisfied that the defendant company is unable to pay its debts. Pursuant to s 287 of the Act, a company will be presumed to be unable to pay its debts if "the company has failed to comply with a statutory demand", unless the contrary isproved.
[16] If (as in this case) the company does not comply with a statutory demand served on it by a creditor, and does not apply to set aside the statutory demand under s 290 of the Act, the onus falls on the company to establish that there is a genuine and substantial dispute as to liability to pay.
[17] The fact that the debtor company may not have applied to set aside the creditor's statutory demand is not determinative. In Yan v Mainzeal Property and Construction Ltd (in receivership and in liquidation) the Court of Appeal said:1
1 Yan v Mainzeal Property and Construction Ltd (in receivership and in liquidation) [2014] NZCA 190, at [63] and [74].
A company is not prevented from showing that indebtedness is disputed, even if it has failed to apply to set aside a statutory demand under s 290. In such a case, the failure of the debtor to apply to set aside a statutory demand means that the creditor is entitled to rely on the presumption of insolvency under s 287(a) of the Act and the onus falls on the debtor to establish that there is a genuine and substantial dispute as to its liability to pay ... Cogent evidence, short of actual proof that the debt is not payable, is required.
…
It must also be kept firmly in mind that the Court will not generally make a liquidation order if the debts relied upon are found to be in substantial dispute and not suitable for resolution in the liquidation list. That is so whether or not the disputed debts are the subject of the statutory demand.
[18] In New Y Trading Ltd v ANZ Food Holding Ltd, Associate Judge Bell referred to the decision of the Court of Appeal in Yan, concluding that the court hearing a liquidation claim is not required to make a determination as to liability. As long as the Court is satisfied that there is a genuine and substantial dispute as to liability, an order for liquidation should not be made. His Honour also noted that, if a debt is genuinely disputed, the company may have good reason not to pay the debt. The absence of payment therefore does not give rise to an inference of insolvency.2
[19] Mr Purusram accepted that a liquidation order should not be made on a debt which is disputed by the company in good faith, but submitted that where the matter in dispute is not substantial the Court hearing a liquidation claim may nevertheless decide the dispute, in order to save the expense of having the dispute decided in another forum.3 He also noted that the Court may, in an appropriate case, order the amount in dispute to be paid into Court pending the determination of the dispute.4
Evidence and submissions for Auckland Drainage
[20] Auckland Drainage relies on affidavits sworn by its director Sanjesh Lal, on 5 October 2018 and 1 November 2018. A further affidavit by Mr Lal was tendered at the hearing.
2 New Y Trading Ltd v ANZ Food Holding Ltd [2017] NZHC 2702 at [5] and [6].
3 Referring to Re Horizon Pacific Ltd (1977) 2 ACLR 495.
4 Referring to Group Rentals NZ Ltd v Pramb Wong Enterprises Ltd [1995] 1 NZLR 763.
[21] Mr Lal said that, as at 5 October 2018, the total figure due by White Rose on the subcontract was $230,074.49. In addition, he said that $20,303.68 (the balance after payments made by White Rose totalling $59,000) is owing on other contracts under which Auckland Drainage carried out work for White Rose.
[22] Mr Lal acknowledged that the original amount for the works under the subcontract was $175,000, but said that he made two verbal agreements with White Rose's director (Mr Singh) for further works on the Temple property. He said that the first (verbal) agreement was made on 9 October 2015, confirmed by email by White Rose on the same day. The second verbal agreement was made on 20 October 2015.
[23] Mr Lal said that there had been several dealings between the parties in the past, and most of those dealings were on the basis of verbal agreements which were successfully implemented.
[24] Mr Lal said that works under the subcontract started on or about 1 July 2015. The subcontract provided that the excavation was to take place by 680 loads. However, by mid-August 2015 it was discovered that the dirt that had to be removed would be more than twice what was initially anticipated. White Rose prepared a new quote for completion of the work, and Mr Lal said that the Society ended up paying White Rose more than twice its originally quoted figure.
[25] The total amount of all Auckland Drainage's invoices was $551,003, comprised in four invoices it says were issued on 1 December 2015. The amounts invoiced were as follows:
(i)
Excavation work for the originally contracted 680 loads
$175,000 $94,000
$163,195
(ii)Excavation work for a further 365 loads
(iii)Final excavation works for 635 loads
(iv)Works described in the tender document,
including rubbish and fence removal $118,808
[26] Mr Lal said that Auckland Drainage received a total of $153,025.64 from White Rose for work carried out on the subcontract, by payments made between 1 July 2015 and 23 July 2015.
[27] Mr Lal acknowledged White Rose's claim that it paid Auckland Drainage's subcontractors a further sum of $167,902.87. Allowing for those payments, the balance owing was reduced to $230,074.49 (total amount billed $551,003, minus payments made by White Rose ($153,025.64) and amounts paid by White Rose to subcontractors ($167,902.87)). With the $20,303.68 owing on other contracts, the total amount owing by White Rose on all contracts was said to be $250,378.17.
[28] Mr Purusram characterised the two alleged oral agreements as agreed variations to the subcontract. He submitted that the election by Auckland Drainage to break down the billing for the excavation works into three separate invoices is consistent with its contention that there were three separate agreements for the excavation work, namely the subcontract and the two subsequent variation agreements.
[29] The fourth invoice dated 1 December 2015, for the further sum of $118,808, referred to preliminary and general work done by Auckland Drainage as per the tender document (in fact there was no tender process, but there was a written specification for the work to be performed under the subcontract). The work was said to comprise the removal of a fence, rubbish removal, pulling sand, and preparing "geocloth" for 100mm. Auckland Drainage contends that this invoice has not been disputed by White Rose.
[30] Auckland Drainage submits that White Rose has been using delaying tactics to avoid making payments, and has not raised any genuine and substantial dispute over its claims. While White Rose claims that work was done poorly by Auckland Drainage, there is no evidence of any claim being made to that effect until this
proceeding was commenced. Nor is there evidence of White Rose having responded to Auckland Drainage's payment claim, with a payment schedule under s 21 of the CCA. By operation of s 22 of the CCA, White Rose therefore became liable to pay Auckland Drainage the sums claimed in its invoices. The unpaid amount became a debt due to Auckland Drainage, under s 23(2)(a) of the CCA.
[31] Auckland Drainage also submits that White Rose's actions in paying Auckland Drainage's subcontractors confirms the additional work and the existence of the variations for which Auckland Drainage contends. On balance, it is more probable than not that White Rose is indebted to Auckland Drainage in the sum of $250,378.17. White Rose has failed to discharge its burden of establishing that the dispute alleged by it is based on substantial grounds, and if and to the extent the Court accepts that any dispute is not of a substantial nature, it should exercise its discretion to adjudicate on the dispute in this proceeding.5 In the alternative, if the Court concludes that there is a substantial dispute, it is in the interests of justice that the amount in dispute be paid into Court, pending the determination of the dispute in a different forum.
Statement of defence, evidence and submissions for White Rose
[32] In its statement of defence, White Rose first pleaded that it did not challenge the statutory demand because it did not come to the attention of its directors.
[33] In support of its contention that the issue of the statutory demand was in any event an abuse of process (as the sum demanded was not due), White Rose pleaded the original contract and amount ($175,000), and acknowledged the variation worth
$94,000. It then said that, despite "the agreed cost of the work", it paid Auckland Drainage around $403,000 for work performed (that sum includes the $167,902.87 paid direct to Auckland Drainage's contractors).
[34]White Rose then referred to the claim made by Auckland Drainage for a further
$135,000, in December 2015. It said that no invoice was issued to support this claim, and there were no supporting documents. The amount claimed was unsubstantiated, and was for work carried out by separate contractors engaged by White Rose.
5 Referring to Re Horizon Pacific Ltd [1977] 2 ACLR 495.
[35] White Rose also referred in its statement of defence to counterclaims it says it has against Auckland Drainage, in relation to:
(i)damage caused by Auckland Drainage to a boundary fence;
(ii)damage caused to the sports field around which the car park was to be constructed; and
(iii)the unlawful dumping of material on a third party property.
[36]Finally, White Rose pleaded that it is solvent.
[37] There were three affidavits filed by White Rose in support of its defence. The first was sworn by its director, Ranvir (Lali) Singh, on 11 July 2018.
[38] Mr Singh said that, prior to the receipt of the liquidation claim, he had heard nothing from Auckland Drainage since July 2017. There had been discussions in July 2017, which followed on from various meetings held in relation to the dispute since late 2015. Mr Singh said that in the course of these meetings he made White Rose's position clear, namely that no further sums were due. He confirmed that, when the statutory demand was issued, he was overseas. He said that the demand did not come to the attention of the directors of White Rose.
[39] Mr Singh described the Temple property. There is a Sikh temple on the Temple property, and next to the temple is a sports field. The Society wished to have a car park built around the field. At the time, Mr Singh was a member of the Society, and sat on its executive committee. The committee agreed to engage White Rose to construct the car park.
[40] Plans and drawings were prepared, and a building consent was obtained. Auckland Drainage provided its quote of $175,000 including GST for the excavation work, and that was accepted by White Rose. The price was a fixed price, with the scope of the excavation work contained in the plans, drawings and building consent. The required excavation for the car park was to be to a depth of around 830mm. Other
work on the car park, including stormwater and drainage, and roadworks, were to be carried out by other contractors.
[41] Mr Singh said that there were issues over Auckland Drainage's performance from the very outset. He provided the following examples:
(i)Destruction of an area for landscape garden (on an area next to the area to be excavated). Auckland Drainage excavated this area unnecessarily, and additional work needed to be carried out to reinstate the area.
(ii)Over-excavation of the car park area. During the works, Auckland Drainage removed too much material. Replacement material had to be brought in, and additional costs were incurred.
(iii)Un-engineered imported fill material. Auckland Drainage created a large hole in the excavated area when a digger became stuck. It then dumped poor quality un-engineered fill into the hole, including pieces of concrete and rubble. White Rose incurred costs removing this material and arranging for properly engineered fill to be brought to the site.
(iv)Damage to sports field. There was damage to the sports field when an Auckland Drainage truck drove across it. A sign had been placed warning contractors to stay off the field. The truck caused considerable damage, and repair work had to be carried out, including replacement of topsoil.
(v)Damage to boundary fence. Auckland Drainage excavated too close to a boundary fence, causing it to fall over. The neighbours took the Society to the Disputes Tribunal, and the Society was told to pay to replace the fence.
(vi)Disposal of excavated material. Auckland Drainage had obtained consent to place excavated material on a site in Drury. However, it stopped using the Drury site part way through the project, and began carting the material to a different site in Otahuhu. Then, it started to cart the material to a site in Bombay, and later to a different site just around the corner from the Temple property. This last site was owned by a local church, and it had not consented to the placing of the fill on its property. A lawyer for the church wrote to the Society, estimating that $300,000-$500,000 would have to be paid to remove the material. The church owner was looking to recover that cost from the Society.
[42] Mr Singh said that he showed this lawyer's letter to Mr Lal and his partner, Ms Swamy, at a meeting in Mr Singh's office on a date in late December 2015. He said that he explained at that meeting why Auckland Drainage's claims were disputed. He sent a letter to Mr Lal on 24 December 2015, attaching the letter from the church's solicitors, and requesting that Mr Lal handle the matter direct. The letter made no mention of any of White Rose's other concerns with the work carried out by Auckland Drainage.
[43] Mr Singh acknowledged receiving the email from Mr Lal dated 12 December 2015, claiming that White Rose owed Auckland Drainage $135,471.81. Invoices and a spreadsheet were attached setting out the amounts claimed and the amounts said to have been paid by White Rose. Mr Singh said that, when he received the email, he immediately called Mr Lal to discuss his position and the disputed claims.
[44] Nothing further was heard until 7 March 2016, when White Rose received a letter from a solicitor, Peter Broad, contending that White Rose owed Auckland Drainage $132,627.20 plus $15,000 for further excavation work. The letter set out various claims made by Auckland Drainage.
[45] In his July 2018 affidavit Mr Singh prepared the following table summarising the claims made in Mr Broad's letter and White Rose's response:
Description & Cost My response Connection of services (water and power) from house to site office 18 hours x $120 = $2,160 This was done by White Rose. We supplied a site office, power and water to the [Temple property].
This was not work done by[Auckland Drainage] and was not within their scope of work.
Removal of 15 existing trees from site
$4,800
I have no knowledge of what this claim relates to. I'm not aware of any large trees on the [Temple property] and none are shown on the plans. If some plants were removed in the course of the excavation then this would have been part of the [subcontract] scope
of work.
Excavation of sediment pond and stockpile on site
19 hours x $120 = $2,280
This was done by the drainlayer. It was not work carried out by [Auckland Drainage] and it was not
part of the [subcontract] scope of work.
Removal of topsoil and landscaping along right hand side southern boundary
65 hours x $120 - $7,800
I have no idea what this claim relates to. It hasn't been explained to me and it is not clear why [Auckland Drainage] could claim
for this work.
Excavation of test pit holes at 20 metres intervals for inspection 20 hours x $120 = $2,400 I have no idea what this relates to. It is not shown on the plans. It was not [Auckland Drainage's] scope of work. I don't consider that it was work carried out by [Auckland
Drainage].
Hire of pressure spreading mats to allow work to continue during winter and reduce mud transfer to road
$23,000
I understand that [Auckland Drainage] hired some rubber mats to provide protection to the ground area surrounding the excavation. I don't understand why this is being
claimed or why White Rose should have to pay for this.
Water blasting of the hired mats 235 hours x $30 = $7,050 Same comment as above. Further,
235 hours seems extraordinarily excessive to waterblast some mats.
Preparing the haul road 35 hours x $120 = $4,200 I don't understand what this claim relates to. I don't know what the "haul road" is. I don't understand why we are being charged for this. Cartage of Surge for haul road from Higgins yard to gurdwara site
70 truck loads at $86 a load = $6,020
Same comment ass above. Traffic management (cones and barriers in carpark) = $15,000 This was not done by [Auckland Drainage]. This work was done by White Rose. We installed security fencing, signage, cones and safety
barriers to the carpark in order to
keep the public away from the construction site. Stockpile Knight and Dickey black sand
80 hours x $80 = $6,400
This was done by Higgins as they carried out the actual construction of the carpark (road) which included the use of black sand in the basecourse layer. Annexed and
marked 'RS8' is a payment claim from Higgins.
Removal of unsuitable fill material (soft sub-grade)
24 loads x $257 = $6,168We don't know what this claim is about. We didn't receive any notification of this during the [subcontract]. I'm unclear whether
the work was even carried out by [Auckland Drainage].
Removal of material for Geotech area due to soft sub-grade
$3,000
We don't know what this claims is about. We didn't receive any notification of this during the [subcontract]. I'm unclear whether
the work was even carried out by [Auckland Drainage].
Cleaning of carpark
180 hours x $60 = $10,800
We don't understand why we're being charged for cleaning of the
carpark.
Dismantling, removal and disposal of existing fence
$5,100
This is in relation to the fence that was damaged by [Auckland Drainage]. I don't understand why we would be charged for this when the fence was damaged by [Auckland Drainage] and it was his
responsibility to address.
Excavation and removal of concrete and rubbish from Geotech area
30 loads x $257 = $7,100
We don't understand what this claim is about. We have had no explanation. Legal costs
$1,150
[46] Mr Singh noted that these sums were claimed for alleged variation works which were not accepted by White Rose. He said that White Rose did not receive any notification from Auckland Drainage during the course of the project that it considered that it was carrying out variation work for which additional sums would be claimed over and above the agreed fixed price (and the $94,000 variation).
[47] Mr Singh acknowledged that he did not respond to Mr Broad's letter. He said that the claims in the letter were nevertheless not accepted, and that that was raised with Mr Lal at various further meetings.
[48] Mr Singh referred to a meeting in late April/early May 2016 at the Temple property. He said that Mr Lal was unable to produce any support or documentation for Auckland Drainage's claims. There was no resolution, and he told Mr Lal that White Rose would not be paying anything further.
[49] There was a further letter from Mr Broad in February 2017, claiming the same amount. Mr Singh said that that led to further exchanges and meetings between him and Mr Lal's representatives. Mr Singh referred to a telephone call from Mr Lal on 26 June 2017, in which Mr Lal asked for a further meeting. Mr Singh refused to meet him, as he did not consider anything could be resolved.
[50] There were further unsuccessful meetings in an attempt to resolve the dispute, one of which lasted over 3 hours. Mr Lal was represented at these meetings by his partner, Ms Swamy. Mr Singh said that neither she nor another associate of Mr Lal's who attended the meetings, Carmen Hetaraka, was able to explain or substantiate Auckland Drainage's claims.
[51] Mr Singh said that he had never seen or been provided with copies of the alleged second and third agreements Auckland Drainage claims to have entered into with White Rose on 9 and 20 October 2015. White Rose did not sign any such agreements. Nor did Mr Singh see invoices relating to the alleged second and third agreements until they were provided to his lawyer with an email dated 15 June 2018.
[52] Mr Singh produced copies of eight invoices which he said had previously been submitted by Auckland Drainage. These invoices totalled $264,666.50.
[53] Mr Singh described White Rose as a successful and solvent business, able to meet its debts as they fell due.
[54] The second affidavit for White Rose was provided by a chartered accountant, Mr Dinesh Raniga. Mr Raniga's firm have acted for White Rose for more than 6 years.
[55] Mr Raniga said that White Rose has been actively and successfully trading. Its shareholders have supported the business throughout.
[56] Mr Raniga said White Rose continues to operate as a going concern. It had a net surplus of assets over liabilities of $730,996.70 at 31 March 2018. The corresponding figure at March 2017 was $800,033. Mr Raniga described modestly successful trading years for White Rose in each of the three financial years to March 2018 (profit before shareholder remuneration in those years ranging between
$168,397.23 and $203,715.33). He expressed the view that White Rose was solvent, and able to pay its debts as they fell due.
[57] Mr Singh provided a further affidavit on 31 October 2018. With it, he attached a copy of the adjudicator's determination, given on 17 September 2018. He also produced copies of the submissions presented to the adjudicator. He contended that, on the basis of the evidence and submissions presented to the adjudicator, the adjudicator had held that no further sums were due to Auckland Drainage for work performed under the subcontract.
[58] Mr Singh then addressed Mr Lal's substantive affidavit in support of the liquidation claim. He denied that there were multiple contracts, contending that there was only one fixed price contract for $175,000, with a verbally agreed variation worth
$94,000. He said the adjudicator accepted that that was the position.
[59] Mr Singh said that Mr Lal's "discovery" that additional material would need to be excavated from the site was what led to the discussions and agreed variation for additional works at $94,000. That work has been paid for by White Rose.
[60] Mr Singh denied that there was any evidence of additional work performed by Auckland Drainage. He reiterated that White Rose did dispute the claims made by Auckland Drainage.
[61] Mr Singh contended that Auckland Drainage retrospectively issued some of its invoices, which he had not seen prior to Auckland Drainage's response to the adjudication claim. The relevant invoices were provided years after the project was complete.
[62]Mr Singh also denied Mr Lal's contention that White Rose only paid a total of
$153,025.64. The adjudicator accepted that payments of $239,000 had been made to Auckland Drainage direct (in addition to the payments it made to various subcontractors of Auckland Drainage). Mr Singh said that the total amount White Rose paid to Auckland Drainage (or on its behalf) for the works performed, was
$406,902.87.
[63] Mr Singh said that Mr Lal's assertion that Auckland Drainage is owed for work done on other projects, was asserted for the very first time in Mr Lal's affidavit. At no previous stage had there been correspondence from Mr Lal relating to the alleged debt for work on other projects.
The adjudicator's determination
[64]White Rose claimed the sum of $137,902.87 from Auckland Drainage.
[65] The adjudicator noted that the arrangement between the parties started with a fixed price contract for the excavation works, for $175,000 including GST. He then recorded that on 28 September 2015 there was an oral variation which varied the original fixed price sum by adding an additional $94,000 (including GST) to cover further work to be carried out by Auckland Drainage. The adjudicator recorded White Rose's contention that it had paid $239,000 (GST inclusive) to Auckland Drainage, and the $167,902.87 paid to various subcontractors of Auckland Drainage. White Rose's claim of $137,902.87 was the difference between the total amount it claimed to have paid ($406,902.87) and the agreed subcontract price (as varied) of $269,000.
[66] The adjudicator then recorded Auckland Drainage's contentions, including its contention that it did not enter into a fixed price contract but (in effect) three separate contracts (the subcontract on 28 June 2015, the first oral agreement on 9 October 2015 for work valued at $102,305, and the second oral agreement on 20 October 2015 for work valued at $163,195).
[67] The adjudicator recorded Auckland Drainage's contention that the original agreement was effectively based on a "cut to fill" measure, calculated at the rate of
$257.00 per load. A total of 1,692 loads were removed from the Temple property. In
addition to those claims, Auckland Drainage claimed that it had undertaken separate work at the request of White Rose, for which it had invoiced $118,808. It submitted that it had performed work to a total value of $551,003, but had only been paid
$153,025.24. On that basis, the balance due to it by White Rose was said to be
$400,626.76.
[68] The adjudicator referred to a "significant evidentiary dispute" between Mr Singh and Mr Lal over "fundamental aspects of what constituted and defined the excavation works". He found that it was impossible to reconcile the documents with what had or had not been allegedly paid.
[69] On the claim by Auckland Drainage for $400,626.76, the adjudicator found that there was insufficient evidence to support the contention that Auckland Drainage was entitled to charge on a "cut to fill" basis. In order to establish that it was entitled to any sums over and above the $269,000 accepted by White Rose, Auckland Drainage first had to prove that the subcontract was not a fixed price contract. The adjudicator considered that any such contention would be difficult to reconcile with the subcontract, which stated:
This is an agreement between [Auckland Drainage] and [White Rose] to complete the excavation job at [the Temple property] at the cost of $175,000 including GST.
(Emphasis added)
[70] The adjudicator said that, on the face of it, there appeared to be a fixed price contract to complete the work, subject only to the $94,000 variation accepted by White Rose. Even if that were not the case, the adjudicator considered that there was insufficient evidence to determine whether other payments (if any) were due to Auckland Drainage (Mr Singh contended that he had never received the request for further variations, and only agreed to the $94,000 variation).
[71] The adjudicator pointed out that this finding did not mean to say that additional claims by Auckland Drainage could not be upheld in another jurisdiction – the adjudicator was simply not satisfied that there was sufficient evidence before him to find that Auckland Drainage was entitled to the further sums it claimed.
[72] The adjudicator applied similar reasoning in refusing White Rose's claim for the $137,902.87 alleged overpayment. The adjudicator noted that White Rose clearly agreed to make the payments that it did to the subcontractors and, in doing so, arguably accepted that making the payments to Auckland Drainage's subcontractors became part of its obligations under the subcontract. In the adjudicator's view, White Rose could not turn around and assert that it was wrong to make those payments to the subcontractors, at least without further and cogent evidence as to how the payments came to be made in the first place. And even if White Rose had made out its contention, its claim for $137,902.87 would arguably be reduced by $30,000, being the difference between the $269,000 it agreed to pay to Auckland Drainage and the
$239,000 actually paid.
Reply evidence from Mr Lal
[73] Mr Lal said that he did not believe the adjudicator had carefully considered all of the evidence given for Auckland Drainage in the adjudication proceeding. In particular, the adjudicator incorrectly concluded that there was no variation to the subcontract, or he failed to take note of the fact that Auckland Drainage had issued undisputed invoices under the CCA which had not been paid. Also, the adjudicator had failed to consider any correspondence between the parties, or their previous dealings. Figures published by the Society clearly indicate that White Rose was paid for the excavation work carried out by Auckland Drainage.
[74] Mr Lal then contended that, if the adjudicator was satisfied that White Rose could not claim a refund of the amounts paid by it to Auckland Drainage's contractors, that would also imply that the existence of those payments was evidence of the subcontract variations for which Auckland Drainage was contending.
[75]In response to Mr Singh's evidence that the agreed oral variation under which
$94,000 would be paid covered any and all excavation work to be carried out by Auckland Drainage at the Temple property, Mr Lal referred to a chart prepared by a Mr Prameet Sharma of the company Prime Civil Ltd. Mr Lal had said in his earlier affidavit that Mr Sharma was the main contact person from Prime Civil for the tipping work, but was also involved in project management for White Rose. (White Rose
denies that Mr Sharma was ever involved in any relevant project management work for it.) Mr Lal said the chart prepared by Mr Sharma, which was presented to the Society, claimed variation money from the Society for work that Auckland Drainage had performed. Mr Lal accused White Rose of being unwilling to pay that money on to Auckland Drainage. He said the amount of extra work carried out by Auckland Drainage was far greater than that contemplated by the $94,000 variation that White Rose says it agreed to, and that the receipt by White Rose of money for work carried out by Auckland Drainage constituted an "unauthorised profit". (In his supplementary affidavit, Mr Singh had said that White Rose did not make any profit from the job, as it performed its work for the Society at cost. He said that in any event the arrangements between the Society and White Rose had nothing to do with Auckland Drainage.)
[76] In response to Mr Singh's contention that some of the Auckland Drainage invoices were produced retrospectively, and that Mr Singh did not see them until he received Auckland Drainage's response in the adjudication proceeding, Mr Lal said that the invoices were issued under the CCA and emailed to White Rose. He said that White Rose has never disputed the invoices, and that there is no evidence provided by it in support of the challenges it now makes to the invoices.
[77] On the amounts paid by White Rose, Mr Lal said that Auckland Drainage bank statements (produced in evidence) show that it only received $153,025.64 from White Rose for work done under the subcontract.
[78] In response to Mr Singh's evidence about the work allegedly done by Auckland Drainage for White Rose on contracts unrelated to the subcontract, Mr Lal said that the invoices were discussed with Mr Singh, and a payment of $59,000 was received in 2015 from White Rose.
[79] In response to the evidence of Mr Raniga, Mr Lal pointed out that no evidence was produced showing White Rose's financial position in the year to 31 March 2016. He contended that that financial year would be crucial, as it would show the debt history during the time White Rose started defaulting on payments to Auckland Drainage. The financial statements for that year would also have reflected the fact
that the work done by White Rose for the Society was done at cost (if that was in fact the case).
Further affidavit of Mr Lal produced at the hearing
[80] At the hearing, Mr Purusram tendered a further affidavit of Mr Lal, attaching copies of certain emails to White Rose relating to the subcontract. I received the affidavit on the basis that Mr Taylor would consider it during the course of the hearing and let me know if he had any objection to it, or if his client wished to file any evidence in response. Mr Taylor did not object to the affidavit coming in, or seek any right to reply to it.
[81] The affidavit attached copies of emails between Mr Lal (or Ms Swamy on his behalf) and Mr Singh. The first email, dated 12 October 2015, was an email sent by Ms Swamy to Mr Singh attaching an invoice for the excavation work at the Temple property. The email said that 60 per cent of the job had been completed, and that the total due to be paid was $61,410.
[82] There were further emails from Mr Lal to Mr Singh on 2 December 2015 and 5 December 2016. The email dated 2 December 2015, referred to a "below email", which was presumably a reference to an email from Mr Lal to Mr Singh dated 1 December 2015, attaching all the invoices that Auckland Drainage then considered were due for payment "for all the extra work [Auckland Drainage] has done at the [Temple property] plus the amount outstanding for the excavation". The 1 December 2015 email said that Mr Lal had done a cost break down as requested by Mr Singh, and listed every detail to make things clear for understanding. Mr Lal invited Mr Singh to look through the documents and arrange to discuss them with him. The attachments referred to in the 1 December 2015 email were not provided with Mr Lal's affidavit.
[83] The email from Mr Lal dated 5 December 2015 referred to the "attached invoices", but copies of the attached invoices were not provided with Mr Lal's further affidavit. The email of 5 December 2015 expressed concern at the delays in making payment of Auckland Drainage's accounts. Mr Lal asked the reason why his company was not being paid.
[84] The last of the emails was dated 16 December 2015. In this email, Mr Lal referred to several emails he had sent to Mr Singh without response. The email referred to an Excel spreadsheet Auckland Drainage had provided which was said to have clearly listed all the extra costs Auckland Drainage had catered for which were not part of the initial contract. Again, the spreadsheet was not provided with the affidavit, but it was presumably a spreadsheet Auckland Drainage had provided with an email from Mr Lal dated 12 December 2015. Mr Lal said he could not understand why Auckland Drainage should have to meet these costs when White Rose had been paid for them. Mr Lal indicated Auckland Drainage's intention to instruct solicitors if it was not paid.
The issues
The overarching issue
[85] White Rose's failure to comply with the statutory demand, or apply to set it aside, entitles Auckland Drainage to rely on a presumption that White Rose is insolvent.6 However, that failure is not necessarily fatal to White Rose's arguments. The issue is whether, notwithstanding that failure, White Rose has shown there is a genuine and substantial dispute over the claim against it.7
The subsidiary issues
[86]The following preliminary issues fall to be determined:
(1)Did Auckland Drainage's invoices to White Rose constitute "payment claims" under the CCA, which Auckland Drainage is entitled to recover as debts due under s 23(2)(a) of the CCA?
(2)Is there a genuine and substantial dispute over whether (a) the subcontract was for a fixed price of $175,000, or (b) Auckland Drainage was entitled to bill under the subcontract according to the number of loads it removed from the site?
6 Companies Act 1993, s 287(a).
7 Yan v Mainzeal Property and Construction Ltd, above n 1
(3)Is there a genuine and substantial dispute over White Rose's contention that Auckland Drainage's claims for alleged additional excavation work carried out by it under the subcontract were to be capped at $94,000?
(4)Is there a genuine and substantial dispute over whether the parties agreed, on or about 20 October 2015, that White Rose would pay for an additional 635 loads (billed by Auckland Drainage at $163,195)?
(5)Is there a genuine and substantial dispute over whether White Rose agreed to pay for the work described by Auckland Drainage in its invoice of 1 December 2015 as "Preliminary & General Work Done by [Auckland Drainage] as per Tender Document Job Description for Proposed Car-Park", and billed by it at $118,808?
(6)Is there a genuine and substantial dispute over White Rose's contention that it paid Auckland Drainage $239,000 for work performed by Auckland Drainage under the subcontract (and not the $153,025.64 for which Auckland Drainage contends)?
(7)Is Auckland Drainage entitled to a liquidation order based on White Rose's alleged failure to pay the balance of $20,303.68 said to be owing to Auckland Drainage on projects unrelated to the subcontract?
[87]I will address each of those issues in turn.
Issue (1) — Did Auckland Drainage's invoices to White Rose constitute "payment claims" under the CCA, which Auckland Drainage is entitled to recover as debts due under s 23(2)(a) of the CCA?
[88]Mr Purusram relied on the following provisions of the CCA:
14Parties free to agree on payment provisions in construction contract
(1)The parties to a construction contract are free to agree between themselves on a mechanism for determining—
(a)the number of payments under the contract:
(b)the interval between those payments:
(c)the amount of each of those payments:
(d)the date when each of those payments becomes due.
(2)To avoid doubt, the parties to a construction contract may expressly agree to a single payment under subsection (1)(a).
20Payment claims
(1)A payee may serve a payment claim on the payer for a payment,—
(a)if the contract provides for the matter, at the end of the relevant period that is specified in, or is determined in accordance with the terms of, the contract; or
(b)if the contract does not provide for the matter in the case of a progress payment, at the end of the relevant period referred to in section 17(2); or
(c)if the contract does not provide for the matter in the case of a single payment expressly agreed under section 14(1)(a), following the completion of all of the construction work to which the contract relates.
(2)A payment claim must—
(a)be in writing; and
(b)contain sufficient details to identify the construction contract to which the payment relates; and
(c)identify the construction work and the relevant period to which the payment relates; and
(d)state a claimed amount and the due date for payment; and
(e)indicate the manner in which the payee calculated the claimed amount; and
(f)state that it is made under this Act.
(3)A payment claim must be accompanied by—
(a)an outline of the process for responding to that claim; and
(b)an explanation of the consequences of—
(i)not responding to a payment claim; and
(ii)not paying the claimed amount, or the scheduled amount, in full (whichever is applicable).
(4)The matters referred to in subsection (3)(a) and (b) must—
(a)be in writing; and
(b)be in the prescribed form (if any).
21Payment schedules
(1)A payer may respond to a payment claim by providing a payment schedule to the payee.
(2)A payment schedule must—
(a)be in writing; and
(b)identify the payment claim to which it relates; and
(c)state a scheduled amount.
(3)If the scheduled amount is less than the claimed amount, the payment schedule must indicate—
(a)the manner in which the payer calculated the scheduled amount; and
(b)the payer's reason or reasons for the difference between the scheduled amount and the claimed amount; and
(c)in a case where the difference is because the payer is withholding payment on any basis, the payer's reason or reasons for withholding payment.
22Liability for paying claimed amount
A payer becomes liable to pay the claimed amount on the due date for the payment to which the payment claim relates if—
(a)a payee serves a payment claim on a payer; and
(b)the payer does not provide a payment schedule to the payee within—
(i)the time required by the relevant construction contract; or
(ii)if the contract does not provide for the matter, 20 working days after the payment claim is served.
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.
(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.
[89] Mr Taylor submitted that at no time prior to the filing of the written submission by counsel for Auckland Drainage did Auckland Drainage ever assert that the invoices issued by it constituted payment claims for the purposes of s 20 of the CCA, which might entitle the plaintiff to claim the amounts invoiced as statutory debts under s 23 of the CCA (White Rose not having filed any payment schedules under s 21 of the CCA). Mr Taylor said that the contention that statutory debts existed under s 23 was never made in the correspondence between the parties' solicitors, and was not mentioned in the statutory demand. Nor did the liquidation claim assert that the amount said to be due was a statutory debt under s 23 of the CCA.
[90] I think there is some merit in those submissions, and also in Mr Taylor's submission that the issue of alleged failure to provide payment schedules was not raised by Auckland Drainage before the adjudicator. Arguably Auckland Drainage
waived any point over the absence of payment schedules when it elected not to put that issue before the adjudicator.
[91] In any event, I am satisfied that there is a genuine and substantial dispute as to whether the substantial invoices issued by Auckland Drainage which have not been paid (the invoices for $163,195 and $118,808, both dated 1 December 2015), satisfied the requirements of s 20 of the CCA. If they did not, White Rose would have been under no obligation to submit payment schedules under s 21, and no statutory debt could have arisen under s 23(2)(a)(i).
[92] The invoice for the $163,195 contained the following description of the work carried out:
Excavation completed for 635 loads @ $257.00 per load
[93]Towards the bottom of the invoice, the following statement appeared:
This is a Payment Claim under the Sub-Contractors Act 2002
[94] I accept Mr Taylor's submission that this invoice arguably did not comply with s 20(2)(c) of the CCA, in that it did not state the relevant period to which the payment claim related. Nor did the invoice appear to comply with s 20(2)(d) — it did not contain any statement of the due date for payment.
[95] Further, I accept Mr Taylor's submission, based on T R Welsh v Gunac South Auckland Ltd, that there was arguably no sufficient statement in this invoice that the claim was made under the CCA.8 The recipient of a payment claim made under s 20 of the Act is entitled to have his or her attention drawn to the relevant statute, and a reference to a non-existent statute (the Sub-Contractors Act 2002) arguably did not achieve that purpose.
[96] The invoice for $118,808 arguably has similar deficiencies. It also stated that the invoice was a payment claim under the "Sub-Contractors Act 2002", and the
8 T R Welsh v Gunac South Auckland Ltd BC2008/60075, 11 February 2008 (HC), in which Allan J held (at [22]) that the requirements of s 20(2)(f) are mandatory, and not subject to the substantial compliance considerations referred to by the Court of Appeal in George Developments Ltd v Canam Construction Ltd ([2006] 1 NZLR 177) in respect of the other aspects of s 20.
invoice contained no statement as to the period to which it related. The description of the work was as follows:
PRELIMINARY & GENERAL WORK DONE BY [AUCKLAND DRAINAGE] AS PER TENDER DOCUMENT JOB DESCRIPTION FOR PROPOSED CAR-PARK.
REMOVE FENCE RUBBISH REMOVAL
PULL SAND AND PREPARE GEOCLOTH FOR 100MM
[97] While Auckland Drainage's invoices for excavation and removal work generally indicated that the amount charged was based on the number of loads removed, there appears to be nothing in this invoice which would have amounted to compliance with the s 20(2)(e) requirement that the payee must indicate in his or her payment claim the manner in which the claimed amount has been calculated.
[98] Quite apart from those issues, there appears to have been no compliance with s 20(3), which requires that a payment claim must be accompanied by an outline of the process for responding to the claim and an explanation of the consequences of failing to respond.9
[99] While the Court of Appeal held in George Developments Ltd v Canam Construction Ltd that technical defects in a payment claim should not invalidate the claim and thus frustrate the CCA's purpose of securing cash flow and speeding up payments in the construction industry,10 I am satisfied that it is reasonably arguable for White Rose that the combinations of the deficiencies in these two invoices were each sufficient to raise a substantial issue over their validity as payment claims under the CCA.
[100] That is sufficient to deal with the plaintiff's contentions on Issue (1). The two major invoices which have not been paid arguably did not qualify as valid payment claims under s 20 of the CCA. There is accordingly a genuine and substantial dispute
9 Prior to 1 December 2015, when these two invoices are said to have been sent, this requirement was restricted to payment claims served on residential occupiers.
10 George Developments Ltd v Canam Construction Ltd, above n 8, at [43].
over the plaintiff's contention that it is entitled to recover the amounts of these two invoices as statutory debts under s 23(2)(a) of the CCA.
[101] In view of my findings below that it is arguable for White Rose that there was a fixed price contract for the total sum (as varied) of $269,000, it is not necessary to consider whether the other invoices issued by Auckland Drainage constituted valid payment claims under s 20 of the CCA. White Rose has sufficiently raised a genuine and substantial dispute on this issue.
Issue (2) — Is there a genuine and substantial dispute over whether (a) the subcontract was for a fixed price of $175,000, or (b) Auckland Drainage was entitled to bill under the subcontract according to the number of loads it removed from the site?
[102] I am satisfied that White Rose has raised a genuine and substantial dispute on this issue.
[103] On the face of it, the subcontract was for a fixed price contract under which Auckland Drainage would "complete the excavation job" at the Temple property for
$175,000 including GST. However Mr Lal said that it was expressly written down in the agreement that the amount of loads to be excavated would be 680 loads, and that as the work progressed it was decided that more than twice that amount of dirt would have to be excavated and removed. He produced a copy of the subcontract on which someone had added a handwritten note stating "As per initial plan 680 load was to be excavated and dumped by [Auckland Drainage]". However, that note did not appear on the copy of the subcontract produced by Mr Singh, who said that the subcontract was a fixed price contract, with the scope of the excavation work contained in the plans, drawings and building consent obtained for the work.
[104] Mr Lal also said in his affidavit that the load amount of 680 loads was "in conformity with the load amount in the initial plan approved by Auckland Council on 30 October 2014". He produced copies of an email from Prameet Sharma dated 28 July 2015 about the original load figure confirmation, and a copy of the concept plan for the work. Working from the concept plan, Mr Sharma calculated the original volume to be excavated and tipped was based on 4,915 square metres of carpark multiplied by a depth of 800 mm — total volume 3,932 cubic metres. Allowing for
six cubic metre loads, Mr Sharma calculated a total of 653 loads. However, in his email of 28 July 2015 which was addressed to Mr Singh and copied to Mr Lal, Mr Sharma noted that the calculation of 3,932 cubic metres did not allow for a one metre wider dig Auckland Drainage would have to do to be able to build kerbs on both sides. Nor did it allow for any rain gardens or drainage materials to be removed.
[105] Mr Sharma referred to a plan showing volume calculations based on actual widths and works done on site. He mentioned that the scope shown now allowed for the one metre extra, and also for the existing ground being on average 400 mm higher. The result of his calculations was that the new total volume for the excavation work was double the original scope — allowing for 6 cubic metres per truck, Auckland Drainage would need to remove 1,120 loads.
[106] Mr Sharma's email of 28 July 2015 was sent a month after the subcontract was signed. In my view it does not appear to support Mr Lal's contention that, "it was expressly written down in the agreement that the amount of load to be excavated was to be 680 loads". It appears from Mr Sharma's 28 July email that what the parties had originally worked on was a car-park area of 4,915 square metres that would have to be excavated to a depth of 800 mm. Based on those estimations Mr Sharma did not come up with a figure of 680 loads, but a figure of 653 loads.
[107] While Mr Sharma calculated that more work would have to be done to perform the subcontract than the parties may have originally allowed for, that in my view would not necessarily be sufficient to convert what was on its face a fixed price contract for
$175,000 including GST into a "charge-up" contract based on the number of loads to be removed from the site. The issues raised in Mr Sharma's email might have entitled Auckland Drainage to claim for extra work, or it might be that a Court would take the view that Auckland Drainage, having inspected the plans (and presumably inspected the site) took the risk that its fixed price tender might not be sufficient for it to properly carry out the work. I do not need to decide that for the purpose of answering the question posed by this issue, and there is in any event insufficient evidence for me to do so. It is enough to find, as I do, that White Rose's contention that the subcontract was for a fixed price of $175,000 including GST, and not a charge-up contract
according to the number of loads removed from the site, raises a genuine and substantial dispute. I therefore find for White Rose on Issue 2.
Issue (3) — Is there a genuine and substantial dispute over White Rose's contention that Auckland Drainage's claims for alleged additional excavation work carried out by it under the subcontract were to be capped at $94,000?
[108] Mr Singh says that the only contract White Rose entered into with Auckland Drainage for the Temple property was the subcontract. He said he had never previously seen or been provided with the second and third contracts which Auckland Drainage alleges were entered into on 9 and 20 October 2015. However, he accepted that it was agreed that Auckland Drainage would carry out additional work at a cost of
$94,000.
[109] On 21 September 2015 Prameet Sharma sent an email to a number of parties, including Mr Beaurain of Dodds Civil, the engineers for the project, Mr Singh, and Mr Lal. Mr Sharma noted that the original cut-to-fill plan done by Dodds Civil showed the final design of the finished car-park versus the existing ground level. Mr Sharma considered that the total excavation volume would be substantially greater than that contemplated by the original plan.
[110] Mr Sharma wrote to Mr Beaurain again on 8 October 2015, with a copy to Mr Singh. He appears to have sent the email in his capacity as project manager for Higgins Contractors Ltd, the company who would complete the remaining works after the earthworks had been completed by White Rose by the end of October. Mr Sharma said that he would like to have a meeting regarding changes to the scope of the work at the Temple property. He said that all that was needed was a variation order from Dodds Civil to the Society confirming the extra/wider excavations, and also capturing a further eight listed items not allowed for in the original work schedule. Mr Beaurain responded to Mr Singh and Mr Sharma by email also dated 8 October 2015. Mr Beaurain said that all he needed to verify all the variations was the original schedule of quantities. Mr Beaurain proposed to compare that with what Mr Prameet had said was required in his email.
[111] The next step that is apparent from the correspondence produced by the parties is that on 9 October 2015 Auckland Drainage emailed to Mr Singh a draft form of agreement dated 9 October 2015. The first paragraph of this draft agreement read:
9th October 2015
This is an agreement between [Auckland Drainage] and [White Rose] to complete the excavation job at [the Temple property] at the cost of $102,350 including GST.
The payment of $ of this job will be divided as below %.
· $60,000 — deposit.
· $22,350 — half completed.
· $20,000 — final payment.
Also this job has already started and will be completed by Saturday 10th October.
…
[112] Later the same morning Mr Singh acknowledged receipt of the draft agreement. He said that White Rose also needed the original contract for $175,000 including GST, as that "will help us to justify the variations". He asked for the copy of the earlier contract asap.
[113] In a supplementary affidavit, Mr Singh acknowledged that there was a verbal arrangement agreed with Auckland Drainage to vary the subcontract by providing for payment of an additional $94,000. He said that Mr Lal's discovery that additional material would need to be excavated from the Temple property was what led to the discussions and to the oral variation of $94,000. He said that the $94,000 has been paid by White Rose, and it represented payment for any additional work which was required.
[114] In its response filed in the adjudication proceeding, Auckland Drainage said that after the "second contract for $102,350" was emailed to White Rose on 9 October 2015 that agreement was discussed at the office of White Rose. Auckland Drainage contended that Mr Singh said that "for now we will go with $94,000 and you continue working. Once I am back from overseas we will sort out your payment then".
[115] Mr Singh did not accept that description of the events in his evidence in the adjudication proceeding. He said that there was a meeting at his office on 28 September 2015, and he and Mr Lal then agreed to an additional $94,000 for the completion of the work. Mr Singh said that he agreed to pay that as a variation, even though he considered the work was required to remedy Auckland Drainage's breach of contract and failure to properly perform the work.
[116] Mr Singh then referred to the spreadsheet sent to White Rose by Auckland Drainage in support of its claims on or about 12 December 2015.
[117] The schedule accompanied the email from Mr Lal dated 12 December 2015, in which Mr Lal asserted that, as of 12 December 2015, White Rose owed Auckland Drainage the total sum of $135,471.81 referred to in the Schedule. The Schedule contained a section headed "Extra Over Above Original Quote". Underneath that heading the following appeared:
"Item Unit Quantity Rate Total Extra over excavation due to unforeseen/agreed LS [ie "lump sum"] rated to remove extra material, excavate load and remove off site including
tipping.
LS
1
$94,000
$94,000"
[118] On 15 June 2018, Mr Michael Keall, the barrister then acting for Auckland Drainage, sent an email to White Rose's counsel, in which he referred to the three contracts for which Auckland Drainage was then contending (the subcontract, a second contract entered into on 9 October 2015, and a third contract entered into on 20 October 2015). In respect of the alleged second contract, Mr Keall said that the invoice relating to this contract was "slightly discounted from the contract amount". That statement appears to be consistent with an agreed reduction in the amount of the claim based on the alleged 9 October 2015 agreement, from $102,350 to $94,000.
[119] Mr Purusram submitted that the fact that White Rose elected to make substantial payments direct to Auckland Drainage's subcontractors confirms that White Rose accepted responsibility for variation payments going far beyond the additional $94,000 it says it agreed to pay Auckland Drainage. But there is no
sufficient evidence of the basis on which White Rose paid these subcontractors — for example, payments may have been required simply to get the work completed when Auckland Drainage was not paying its subcontractors, with the work done by the subcontractors under new arrangements entered into by the subcontractors with White Rose. Whether that is what occurred or not is not clear, but if that is what occurred it does not necessarily follow that there was a corresponding variation to the subcontract (beyond the agreement for payment of an additional $94,000). Alternatively, if there was a fixed price contract as White Rose contends, the effect of White Rose paying Auckland Drainage's contractors (thereby discharging Auckland Drainage's own responsibilities to that extent) may have been to create a corresponding liability owed by Auckland Drainage to White Rose. None of that is clear, and the evidence falls far short of what would be required to justify a finding on this issue in Auckland Drainage's favour.
[120] In my view it is at least arguable from the evidence produced (and particularly from the spreadsheet sent by Auckland Drainage to White Rose on 12 December 2015, with its reference to a "lump sum") that there was an agreement on a fixed price of
$94,000 for any extra work Auckland Drainage had to perform. It appears that Mr Sharma had identified by 21 September 2015 at latest the volume of material to be excavated and removed over and above what Auckland Drainage says it contemplated when it signed the subcontract, and Mr Singh says that a lump sum of $94,000 for the additional work was agreed between he and Mr Lal on 28 September 2015. While Mr Lal submitted a draft contract for the extra work containing a price of $102,350 on 9 October 2015, the evidence shows that Auckland Drainage arguably did agree to accept the figure of $94,000 that White Rose says was agreed for any additional excavation/removal work. For those reasons I find that White Rose has raised a genuine and substantial dispute on its contention that Auckland Drainage's additional charges for the allegedly unanticipated excavation/removal work were to be capped in the sum of $94,000.
Issue (4) — Is there a genuine and substantial dispute over whether the parties agreed, on or about 20 October 2015, that White Rose would pay for an additional 635 loads (billed by Auckland Drainage at $163,195)?
[121] It follows from my conclusion on Issue 3 that there must be a genuine and substantial dispute on this issue, and that it is not suitable for determination in the context of a liquidation claim. I refer also to Mr Singh's denial of any contract allegedly entered into on 20 October 2015 that would have entitled Auckland Drainage to charge a further $163,195, and the absence of any explanation from Mr Lal as to why White Rose would have agreed to pay such a substantial additional sum so soon after the parties had agreed on a lump sum of $94,000 to complete the excavation and removal work.
[122] There is also a dispute over whether invoices were ever submitted for this work, at least before they were provided by Auckland Drainage's lawyer. Mr Singh specifically denies ever receiving an invoice dated 1 December 2015 from Auckland Drainage for the sum of $163,195 (including GST), and he alleges that the invoice must have been created later by Auckland Drainage.
Issue (5) — Is there a genuine and substantial dispute over whether White Rose agreed to pay for the work described by Auckland Drainage in its invoice of 1 December 2015 as "Preliminary & General Work Done by [Auckland Drainage] as per Tender Document Job Description for Proposed Car-Park", and billed by it at $118,808?
[123] The same result must follow on Issue (5) — Auckland Drainage has failed to point to any specific agreement by White Rose to pay for preliminary and general work done as claimed by Auckland Drainage. The work appears to relate in general terms to the excavation and removal work carried out by Auckland Drainage under the subcontract as varied, and if it is arguable for White Rose (as I think it is) that all of the work performed by Auckland Drainage was to be carried out for a total fixed price of $269,000 (including the $94,000 variation), it follows that there must be a substantial dispute over Auckland Drainage's claim for an additional $118,808 for preliminary and general work. I note also the various challenges to the claims that Mr Singh made in his evidence, as summarised in the table at paragraph [45] of this judgment (as best I can tell, the claims made in the invoice for $118,808 appear to be among those discussed by Mr Singh in that table).
[124]I find for White Rose on Issue (5).
Issue (6) — Is there a genuine and substantial dispute over White Rose's contention that it paid Auckland Drainage $239,000 for work performed by Auckland Drainage under the subcontract (and not the $153,025.64 for which Auckland Drainage contends)?
[125] The evidence of precisely what was paid by White Rose, how it was paid, and to whom, is by no means clear. However, in the spreadsheet prepared by Auckland Drainage and sent to White Rose on 12 December 2015 Auckland Drainage appeared to accept that White Rose had made payments totalling approximately $403,000, including payments made to Auckland Drainage subcontractors who had not been paid by it. I think that document, and the claim made at the time by Auckland Drainage for a sum of only approximately $135,000, makes it clear that there is a genuine and substantial dispute over whether White Rose has paid Auckland Drainage all it was entitled to under the subcontract as varied. If it is arguable for White Rose that Auckland Drainage was entitled to no more than $269,000 for the work, and Auckland Drainage appears to accept that White Rose has paid an amount in excess of that figure (including by payments made to Auckland Drainage subcontractors), then for present purposes the precise detail of what White Rose has paid and to whom does not matter. I accordingly find for White Rose on Issue (6).
Issue (7) — Is Auckland Drainage entitled to a liquidation order based on White Rose's alleged failure to pay the balance of $20,303.68 said to be owing to Auckland Drainage on projects unrelated to the subcontract?
[126] The claim for the $20,303.68 was not included in the statutory demand or in the liquidation claim, and no application was made by Auckland Drainage to amend its claim. It is apparent from Mr Lal's affidavit that the claim goes back to 2015, before the subcontract work was undertaken, and Mr Lal offered no explanation for the apparent delay in pursuing this debt (if it is a debt).
[127] In his supplementary affidavit, Mr Singh said that this claim has not previously been asserted by Auckland Drainage, and at no stage has he received any correspondence from Mr Lal in respect of it. He said that White Rose paid Auckland Drainage in full for all work performed, including for the invoices produced by Mr Lal covering the relevant work.
[128] In a reply affidavit, Mr Lal said that he discussed the invoices with Mr Singh, and the total payment of $59,000 made by White Rose in 2015.
[129] Mr Lal did produce copies of Auckland Drainage's bank statements showing deposits which are said to constitute the $59,000 paid by White Rose for this work, but apart from a deposit of $40,000 made on 19 October 2015 that had the reference "Lali" (an apparent reference to Mr Singh), the statements generally did not show the payer of the various sums deposited.
[130] In circumstances where (i) the amount was not referred to in the liquidation claim, (ii) White Rose claims that it has paid everything, and (iii) Auckland Drainage appears to have done nothing to pursue the debt for approximately three years, I consider that White Rose has raised a genuine and substantial dispute on this claim, and that it is not suitable for determination in the context of a liquidation proceeding.
Other Matters
[131] There were a number of other matters raised by counsel that I should mention. First, Auckland Drainage produced some evidence designed to show that White Rose was paid by the Society for the work carried out by Auckland Drainage. For his part, Mr Singh denied that White Rose made any profit on its contract with the Society.
[132] I do not think any arrangements made between White Rose and the Society would necessarily affect the entitlement Auckland Drainage had under the subcontract as varied. No clear basis was put forward for any claim based on payments received by White Rose from the Society, and any issue over this must be in the "genuine, substantial dispute" category, and not appropriate for determination in a liquidation claim.
[133] Secondly, evidence was produced by White Rose (including an affidavit of its accountant, Mr Dinesh Raniga), designed to show that White Rose has been trading successfully and is solvent. In view of the fact that I have been able to determine the matter on the basis that White Rose has sufficiently shown that there is a genuine and substantial dispute over the amount claimed, it is not necessary for me to consider this
evidence, beyond noting that White Rose made a modest profit in the year ending 31 March 2018 and appears to have positive shareholders' funds.
[134] The third matter is the allegations made by White Rose of defective workmanship by Auckland Drainage. In the event, it has not been necessary for me to make any findings on those allegations to reach a conclusion on the liquidation claim. It is enough to note the existence of the claims, which, to the extent they may have any merit, provide further support for the view that the disputes between the parties are not suitable for determination in the context of a liquidation claim.
[135] The last matter to mention is that I do not consider that the disputes raised by White Rose are either sufficiently insubstantial that the Court would be justified in deciding them in this proceeding, or that this is a case where it would be appropriate to order White Rose to pay the amount in dispute into Court. The disputes should in my view be determined in an ordinary civil proceeding issued for that purpose.
Result
[136] The liquidation claim is dismissed. White Rose is entitled to costs on a 2B basis, plus disbursements as fixed by the Registrar.
Associate Judge Smith
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