Backfill Conveyors Limited v Bright
[2024] NZHC 437
•7 March 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-554
[2024] NZHC 437
UNDER the Companies Act 1993 BETWEEN
BACKFILL CONVEYORS LIMITED
Applicant
AND
JOSHUA DANIEL BRIGHT
Respondent
Hearing: 26 February 2024 Appearances:
M Hamid and S Caradus for Applicant P B McMenamin for Respondent
Judgment:
7 March 2024
JUDGMENT OF ASSOCIATE JUDGE LESTER
(application to set aside statutory demand)
BACKFILL CONVEYORS LIMITED v BRIGHT [2024] NZHC 437 [7 March 2024]
[1] Joshua Bright issued a statutory demand against Backfill Conveyors Limited (BCL) arising from a truck leasing contract entered into in July 2021. Mr Bright’s then company (it having been removed from the Companies Office Register on 20 October 2022) was called Construction Panel and Cranes Limited (CPC).
[2] The July 2021 agreement is called “Truck Lease To Buy Agreement” (the Agreement). The Agreement recorded the lessor would make the truck available to the lessee for the duration of the Agreement and that the lessee agreed to eventually purchase the truck for $95,000.00 plus GST. The lease rates are specified with cl 4 of the Agreement providing:
4. LEASE RATES It is agreed that the lessee will provide the lessor, time sheets for jobs done using the Truck the lessor will invoice the clients at the rate of $250.000 + GST per hour. The proceeds will be banked into the “FTM920 Account”. The Lessor will take 50% of the proceeds to be offset against the purchase price.
The Lessee will be paid his hours worked at the
rate of $35.00 + GST per hour.The balance will paid at the discretion of the lessee either in cash or to reduce the outstanding on the purchase.be used to
offset the cost of the Purchase of the Truck (no interest will be applied).
[3] Under the Agreement either party could give 14 days’ notice in writing to bring the Agreement to an end. If the Agreement was brought to an end, the truck had to be returned.
[4]Clause 10.6 of the Agreement provided:
In the event of termination payments already credited to the lessor to be paid in cash within ninety (90) days to the lessee.
[5] It seems the intention was that BCL would sub-contract work to CPC. CPC would provide timesheets to BCL to allow it to charge its clients for the work. The amount charged by CPC pursuant to the timesheets would be allocated according to cl 4 of the Agreement, set out above. Mr Bright’s evidence was that, rather than receive the 50 per cent of the proceeds he is entitled to under cl 4, he elected to have all of the payments applied against the purchase price of the truck.
[6] Unfortunately, the relationship between Mr Bright and David Allison, the sole shareholder and director of BCL broke down. BCL exercised the right to terminate on 14 days’ notice in writing on 16 November 2022. Notwithstanding giving the 14 days’
notice, the truck had been in the possession of BCL and it said it was retaining as the truck notwithstanding the 14 days had not expired.
[7] Mr Bright issued a statutory demand seeking $130,407.11. That amount is made up of 12 jobs, that is 12 sub-contract jobs undertaken pursuant to the Agreement. In addition, Mr Bright has identified the hours the truck was operated by BCL while the Agreement was current, that is, while Mr Bright was entitled to possession and use of the truck. BCL used the truck for its own purposes without making any payment for doing so. Mr Bright has included in the demand a claim for 154.8 hours use of the truck by BCL at $250.00 (the rate from cl 4) to claim $38,700 plus GST.
[8] In broad terms, BCL applies to set aside the demand on the following grounds. Firstly, the Agreement was in fact between BCL and CPC, not between Mr Bright and BCL and so whatever amounts that might be owing under the lease would be owed by BCL to CPC. DPD has now been removed from the Companies Register. Secondly, there are factual disputes in relation to whether timesheets were provided for some of the jobs included in the statutory demand and so the amount of any debt cannot be determined. Finally, BCL says the claim for its use of the truck is for damages for which a statutory demand cannot issue.
Setting aside a statutory demand
[9]The Court of Appeal have found:1
[16]The general principles under s 290(4) are well settled:
(a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to the existence of the debt. The Court’s task 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 available, the dispute should normally be resolved first in ordinary civil proceedings before any statutory demand is issued.
1 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578.
(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
(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.
(footnotes omitted)
[10] United Homes (1988) Ltd v Workman assists in determining the type of material an applicant must produce and how that material will be assessed.2 In that case, the applicant asserted a “clear express agreement” without substantiating the background. That assertion was considered “bare to the point of being unconvincing”. The Court said:3
If an agreement is clear and express, there should be no difficulty in identifying the date and place of its making, the persons involved in its making, and the manner of its statement and/or recording. No such details are given.
[11] Evidence need not be conclusive but it should not be equivocal. Within the time limitations applying to an application to set aside a statutory demand, supporting documents should be produced but the Courts need to keep in mind the early stage of the claimed dispute and that neither party has had the benefit of discovery, or of being able to bring other applications.
Who are the contracting parties?
[12]The contracting parties are defined in the Agreement as follows:
This Truck Lease to buy Agreement (the “Agreement”) sets out the terms and conditions upon which David Allison of Backfill Conveyors Limited (the “Lessor”), of 53 shall lease a Vehicle to Joshua Bright (the “Lessee”), of Construction Panels and Cranes Ltd of
P O Box 16455 HornbyChristchurch (together, the “Parties”).
2 United Homes (1988) Ltd v Workman [2001] 3 NZLR 447 (CA).
3 At [35].
[13]The signatures of the Parties appear as follows:
David Allison
Backfill Conveyors Limited
Signature [Signature of Mr Allison]
In respect of the lessee, there appears:
Joshua Bright
Construction, Panels and Cranes Limited Signature [Signature of Mr Bright]
[14] Neither signature purports to record that Messrs Allison or Bright were signing as director. The signatures are not witnessed as would be required when one director signs on behalf of their company.4 Throughout the Agreement the parties are referred to as lessee and lessor, albeit at times there are spelling errors.
[15] At face value, the contracting party is Mr Bright as he is defined as the lessee. The words “Construction, Panels and Cranes Limited” after the words “lessee” do not make CPC the contracting party. Mr Hamid, counsel for BCL, pointed out that the signature block for both parties was exactly the same yet Mr Bright accepts his contract was with BCL. However, the signature block begins: “In witness whereof, each of the Parties has executed this Agreement”. “Parties” is a defined term as set out at [12] above, so the signature block does not alter who the parties are – such having been earlier defined.
[16] Mr Hamid also points to communications and invoices coming from CPC in respect of the work which is the subject of the statutory demand and he relies on paras 6 and 7 of Mr Allison’s first affidavit which read as follows:5
6.The other person at the time was not interested in purchasing the Truck, however, Mr Bright, on behalf of CPCL, expressed interest in purchasing the Truck.
7.CPCL wanted to buy the Truck outright, but Mr Bright told me that CPCL did not have sufficient funds at the time to complete this transaction. BCL and CPCL agreed that BCL would lease the Truck to CPCL who would eventually purchase the Truck for $95,000.00 plus GST. During the term of the lease agreement, BCL would subcontract some of the work for BCL’s customers to CPCL, and 50%
4 Sections 180(i) and 180(ii) Companies Act 1993.
5 Companies Act 1993, ss 160(1)(a)(i) and 189(1)(a)(ii).
of the proceeds from the contracting services provided by CPCL would be offset from the purchase price of the Truck.
[17] BCL does not argue for rectification of the Agreement – its approach is based on what it says is the proper interpretation of the Agreement.
[18] I note for completeness, there is a schedule to the Agreement where approved drivers are to be listed and which provides: “The following shall be the Approved Drivers”. The only driver named is “Joshua Bright of Construction Panels & Cranes Limited (copy of drivers licence attached)”. This reference to Mr Bright of CPC can only mean Mr Bright personally as CPC is not the holder of the drivers licence.
[19] Mr Bright explains why he wanted the capital asset to be in his name while trading was undertaken through CPC. Mr Bright made the truck available to CPC and it was CPC that sent the timesheets for the use of the truck. BCL paid some invoices to CPC but by and large the amounts in the timesheets were retained by BCL as credits against the purchase price of the truck. There would need to be an accounting between Mr Bright and his company (CPC) but that is a matter between them.
[20] The Agreement was prepared by Mr Allison. Mr Allison does not give any timing in respect of the evidence he gives at paras 6 and 7 other than an earlier paragraphs when he says “in around 2021”.
[21] As BCL did not advance its application on the basis it had an arguable case for rectification of the Agreement, I do not consider Mr Allison’s evidence at paras 6 and 7 as material. The real issue is what the Agreement means. I am satisfied the contracting party is Mr Bright given the plain wording of the Parties clause in the Agreement. Both Mr Allison and Mr Bright are company directors. Objectively they would know that their signatures as directors would need to be witnessed. That has not happened albeit, it is common ground that it was BCL that was the contracting party.
[22] Accordingly, I do not accept BCL’s primary submission that its contract was not with Mr Bright and therefore Mr Bright was not entitled to issue a statutory demand.
What is Mr Bright entitled to on cancellation?
[23] There are references in the evidence and submissions on behalf of BCL that of the amount claimed by CPC in its timesheets issued under cl 4 of the Agreement, BCL was entitled to retain 50 per cent for its own benefit. That is not what cl 4 says or means. BCL sub-contracted work to CPC. It was up to BCL to add such margin as it thought fit to the amount in CPC’s timesheet when BCL invoiced its customers. Mr Hamid could not point to any provision in the Agreement that conferred a right on BCL to retain any of the money payable by BCL under cl 4 of the Agreement. As all the timesheet money was to be applied to the purchase price of the truck, it is all repayable on cancellation pursuant to cl 10.6 of the Agreement.
[24] I find BCL is not entitled to retain any of the money payable upon provision of a timesheet issued pursuant to cl 4 of the Agreement.
Quantum
[25] Of the 12 jobs included in the statutory demand, BCL does not dispute four of the jobs and it accepts a fifth in part. The total payable in respect of the accepted jobs is $24,069.28 out of $74,697.49 claimed for timesheet work. Of the disputed jobs, three pre-date the start of the Agreement. The Agreement is express that it commences on the date of its execution. Mr Bright asserts there was an oral agreement that earlier jobs would be included in the payments to be applied towards the truck, which assertion is disputed.6
[26] Mr Allison denies such an oral agreement (and further says in any event two of the three 7 July 2021 jobs have already been paid). Such a factual dispute cannot be resolved in this context nor can the dispute as to whether on the remaining jobs, timesheets were in fact provided by CPC.
6 There is some support for Mr Bright’s position in a statement of what was owed to CPC prepared by an employee of BCL in July 2022 and which included three jobs pre-dating the date of the Agreement. However, the statement contains what appears to be an error as an amount from 16 July 2021 appears to have been paid on 3 September 2021. Further, the statement does not expressly purport to be what is owed under the Agreement and it includes cross-claims unrelated to the Agreement.
A counterclaim
[27] The application states that BCL asserts it has a cross-claim “Arising out of repeated breaches of the Agreement”. However, when I asked Mr Hamid to take me through the evidence in support of the cross-claim, he said that such evidence was not included in the applicant’s material.
[28] Mr Allison in his first affidavit refers to Mr Bright informing him that CPC was going to start work for Silver Fern Farms in the refurbishment of its freezing works. Mr Allison says that problems arose because of this arrangement. He says that whenever he called upon Mr Bright to get CPC to do conveying work with the truck, he was told that CPC was too busy to perform work and that he refused to do so.
[29]Mr Allison says at para 14 of his affidavit:
Because CPCL was too occupied with its Silver Fern Farms work, it breached the Agreement by refusing to perform work for BCL and its customers. As a result of CPCL’s inability and refusal to perform its obligations under the Agreement, BCL was left with no choice but to perform that work itself.
[30]Under the heading of “Recovery of the Truck”, Mr Allison says:
16.Because CPCL refused to assist BCL’s customers as required, it held up the use of the Truck and caused significant delay in completing conveying work for BCL’s customers.
17.In around April 2022, I rang Mr Bright and told him that BCL needed the Truck to complete its conveying jobs as CPCL was not complying with its obligations under the Agreement. At this point, the Truck was on BCL’s site, and was not returned to CPCL.
[31] I note here in passing that Mr Allison says that CPC did not cover costs for fuel, routine maintenance and insurance for the truck as required under the Agreement and he asserts BCL covered these amounts, and has a claim, but he has not quantified that claim.
[32] There is no obligation on CPC or Mr Bright to undertake sub-contract work for BCL created by the Agreement. There was clearly an expectation that CPC would undertake sub-contract work but there is no obligation on it to undertake all work offered by BCL.
[33]Clause 7.27 of the Agreement reads:
7.27Lesser (sic) agrees to restraint of trade hiring conveyor truck until ownership is transferred to lessee.
[34] I assume the above clause is meant to begin with a reference to the lessee. This clause could be interpreted to mean that Mr Bright/CPC would only work for BCL until ownership of the truck was transferred, but that is not the same as Mr Bright having to undertake all work offered. It may simply be a restriction on working for other parties until the truck is paid off. Absent an obligation in the Agreement on Mr Bright to accept all sub-contract work as requested by BCL, and absent any attempt to quantify the alleged loss, the asserted counterclaim is not a defence to the amounts that I have held are not capable of dispute under the statutory demand and that is the
$24,069.28.
Mr Bright’s damages claim
[35] Under the Agreement, the lessor is obliged to make the truck available to the lessee for the duration of the lease. The lessor does not retain any contractual right to use the truck during the currency of the lease.
[36] However, it is not in dispute that during the term of the lease BCL used the truck. Absent a right to use the truck for its own purposes during the term of the lease, its dong so was a breach by BCL of the Agreement.
[37] The statutory demand in respect of this claim is for 154.8 hours at $250.00 per hour being $38,700.00 plus GST. The $250.00 per hour being the rate in cl 4 of the Agreement.
[38] Mr McMenamin, counsel for Mr Bright, wrote to BCL prior to the issuing of the statutory demand, calling for payment based on the above calculation. The hours are calculated by an hour meter in the truck and supported by photographs of the meter.
[39] I am satisfied this claim is not suitable for a statutory demand. It is a claim for damages. There may be a situation where a damages claim is essentially for a liquidated sum which cannot on any real basis be disputed. In such a case a demand
might be able to be issued assuming the “creditor” had first called up the amount due, but this is not such a claim.
[40] It does not follow from BCL’s breach of contract in using the truck without reference to or permission of Mr Bright, that Mr Bright’s loss is $250.00 plus GST per hour of use by BCL of the truck. BCL’s use of the truck without a right to do so does not give rise to what would amount to a lease between BCL and Mr Bright, which committed BCL to pay the rate in the Agreement. The real question is what loss the unauthorised use of the truck caused to Mr Bright.
[41] There is no suggestion from Mr Bright that BCL’s use of the truck caused CPC/Mr Bright to miss out on work, or that the breach caused any other loss.
[42] Truck hours are relevant to the maintenance requirements for a truck and under the Agreement, the lessee had to meet the costs of all routine maintenance and repairs due to normal wear and tear. However, there is no suggestion that BCL’s use of the truck had any maintenance implications for Mr Bright. As the lease was cancelled and the truck remained with BCL, Mr Bright has not been left with a vehicle that has “uncompensated” hours that increased his maintenance costs as a result of BCL’s actions.
[43] In short, because there is more than one way of looking at the question of the damages calculation, I am satisfied this damages claim is not suitable for a statutory demand.
[44] Accordingly, the demand is only sustained to the extent of $24,069.28 and is set aside as to the balance.
Costs
[45] While the demand has only been sustained for $24,069.28 out of $130,407.11, in my view, Mr Bright has been substantially successful. Mr Bright succeeded on the key point of who the contracting party was. I am also satisfied Mr Bright has established that BCL was in breach of the Agreement in using the truck without any contractual right to do so. BCL was also wrong to have proceeded on the basis that
CPC/Mr Bright was in breach of the Agreement when Mr Allison complains that Mr Bright/CPC were busy on the Silver Fern Farms job, when there is no obligation in the Agreement on Mr Bright to undertake all sub-contract work offered, or any evidence of such a commitment outside of the Agreement.
[46] I extend by 10 working days the time for BCL to comply with the statutory demand now reduced to $24,069.26.
Costs
[47] Accordingly, I find that Backfill Conveyors Limited is liable to Mr Bright for costs and disbursements on a 2B basis.
Associate Judge Lester
Solicitors:
Duncan Cotterill, Christchurch, for Applicant
K.J. McMenamin & Sons, Christchurch, for Respondent
0
1
0