Buchan Group New Zealand Pty Limited v Gorge H Development Limited
[2023] NZHC 1516
•19 June 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-897
[2023] NZHC 1516
UNDER the Companies Act 1993 BETWEEN
THE BUCHAN GROUP NEW ZEALAND PTY LIMITED
Plaintiff / Respondent
AND
GORGE H DEVELOPMENT LIMITED
Defendant / Applicant
CIV-2022-404-898 BETWEEN
THE BUCHAN GROUP NEW ZEALAND PTY LIMITED
Plaintiff / Respondent
AND
STOKE GROUP LIMITED (formerly the REDWOOD GROUP LIMITED)
Defendant / Applicant
CIV-2022-404-902 BETWEEN
THE BUCHAN GROUP NEW ZEALAND PTY LIMITED
Plaintiff / Respondent
AND
EAST LINK LIMITED
Defendant / Applicant
Hearing: 25 May 2023 Appearances:
Paul Murray/K M Paterson for the Applicants Morgan Brady for the Respondent
Judgment:
19 June 2023
THE BUCHAN GROUP NEW ZEALAND PTY LIMITED v GORGE H DEVELOPMENT LIMITED [2023] NZHC 1516 [19 June 2023]
JUDGMENT OF ASSOCIATE JUDGE C B TAYOR
[Interlocutory applications for leave to appeal and an order for stay of proceedings]
This judgment was delivered by me on 19 June 2023 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
TABLE OF CONTENTS
Paragraph
Introduction [1]
Background [3]
Legal principles [6]
Analysis [8]
The merits of the appeal – arguable error of law or facts? [10]
Genuine and substantial dispute in respect of the invoices due and payable?[12]
Conclusion in relation to genuine and substantial dispute in respect ofthe invoices due and payable [17]
Defective payment claims [19]
Conclusion in relation to the payment claims [27]
Statutory demands are an abuse of process [30]
Conclusion in relation to an abuse of process [34]
The importance of the appeal [36]
Conclusion in relation to the importance of the appeal [41]
Stay of the proceedings and advertising [43]
Result [45]
Orders [46]
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Introduction
[1] The applicants, Stoke Group Limited (formerly known as Redwood Group Limited ) (Stoke), Gorge H Development Limited (Gorge) and East Link Limited (East), have applied for leave to appeal against the judgment of the Court delivered on 16 December 20221 (the Judgment) and for an order staying the proceedings.
[2] Buchan Group New Zealand Pty Ltd (Buchan), the respondent, opposes the application for leave to appeal and stay of the proceedings.
Background
[3] Buchan provided architectural services to Gorge, East and Stoke. Anthony Gapes is the sole director and shareholder each company.
[4] Buchan issued statutory demands to each of Gorge, East and Stoke on 18 May 2022. The statutory demands all expired, unremedied, and no applications were made to set them aside. On 10 June 2022, Buchan filed liquidation proceedings against Gorge, East and Stoke.
[5] On 27 June 2022, Gorge, East and Stoke brought applications to restrain advertising and stay the liquidation proceedings. Buchan opposed and on 16 December 2022 the Court gave the Judgment in favour of Buchan dismissing the application to restrain advertising and stay the proceedings.
Legal principles
[6] The requirement for leave to appeal has been described as a “filtering mechanism” to ensure that unmeritorious appeals or appeals against interlocutory
1 Buchan Group Pty Ltd v Gorge H Development Ltd [2022] NZHC 3462.
orders are of no great significance to either of the parties or, more generally, do not unnecessarily delay the proceeding.2
[7] In Greendrake v District Court of New Zealand,3 the Court of Appeal recognised the following considerations as relevant on an application for leave to appeal:
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of general public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delay;
(e)the ultimate question is whether the interests of justice are served by granting leave.
Analysis
[8] In considering whether to grant the application for leave, two questions ae to be determined:
(a)The merits of the appeal, i.e. is there an arguable error of law or fact?
(b)The importance of the appeal and issues of delay.
[9]I deal with each of these issues in turn.
2 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].
3 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].
The merits of the appeal – arguable error of law or fact?
[10] Ms Paterson, for the applicants, submitted that the arguable errors of law that led to dismissal of the applications were:
(a)The applicants had not discharged the onus of showing there is a genuine and substantial dispute in respect of the invoices alleged to be due and payable;
(b)the payment claims under the Construction Contracts Act 2002 (CCA), apart from those which Buchan acknowledged are not valid, are valid payment claims and are debts due under s 23(2)(a)(i) of the CCA; and
(c)there is not sufficient evidence before the Court that the issue of the statutory demands is an abuse of process.
[11]Each of these matters is discussed below.
Genuine and substantial dispute in respect of the invoices due and payable?
[12] Ms Paterson acknowledges that Buchan is entitled to rely on the presumption of insolvency of the applicants following the unremedied statutory demands, with the onus falling on the applicants to establish a genuine and substantial dispute as to their liability to pay. She submits that the applicants’ case is that the Payment Arrangement and Updated Payment Arrangement (which were in place for the relevant developments, and applied to the invoices claimed in the proceedings) give rise to a genuine and substantial dispute that the invoices underlying the statutory demands issued to the applicants are not due and payable.
[13] Ms Paterson submits that the Judgment erred in finding there was not sufficiently cogent evidence of the Payment Arrangement or the Updated Payment Arrangement to establish that the invoices underlying the statutory demands were not due and payable. She submits cogent evidence, short of actual proof that the debt is not payable, is required and she relies on the following evidence:
(a)There had been no written agreement recording the terms of the engagement between the parties;
(b)Mr Gapes’ evidence regarding the Payment Arrangements which, in summary, was that:
(i)invoices were issued and payment would be drip-fed until the project went live;
(ii)all invoices might not necessarily be due and payable, either:
A. following the global wash-up and after the project went live; or
B. in some instances were not payable if the project did not proceed; and
C. in some instances, payments would have been made before a project was funded.
[14] Ms Paterson points to Mr Gapes’ evidence of the Payment Arrangements in operation for other developments where Buchan provided services, and which were consistent with the Payment Arrangement citing the following examples:
(a)in relation to the project known as “The Alex”, the first drawdown came through in late March 2019. For the period from 31 August 2017 to 28 February 2019, Buchan invoiced $255,830.43 and of that amount, as at 28 February 2019, Buchan had been paid $93,232.67. For the period 28 February 2018 to 28 February 2019, the amount owing to Buchan fluctuated close to or over $100,000 and the outstanding
$162,5978.76 was cleared on 28 March 2019;
(b)in the project known as the “Timaru MegaCentre” the first drawdown came through in February 2021. For the period from 25 September 2020 to 14 February 2021, Buchan rendered invoices totalling
approximately $322,000. None of the invoices were paid until funding came through in February 2021 when all but approximately $2,700 was paid over the period 15 to 23 February 2021;
(c)in relation to the Gorge Project and Te Rakau Project, it was accepted that Gorge had paid some invoices but had not paid the outstanding invoices. However, the project had not been financed and no further payments were made. The same was the case for the East Link project, and Ms Paterson submits that these are consistent with the Payment Arrangement.
[15] Ms Paterson also submits that the applicants rely of the absence of any evidence from Buchan, and the fact that Buchan did not comment on the Payment Arrangement or the Updated Payment Arrangement. She submits therefore that Mr Gapes’ evidence in relation to the Payment Arrangements remains unchallenged. She submits in these circumstances the applicants put sufficiently cogent (and unchallenged) evidence of the Payment Arrangement and the Updated Payment Arrangement before the Court, the Payment Arrangements raise a genuine and substantial dispute.
[16] Ms Brady for Buchan, on the other hand, submits that the Court correctly concluded that there were no genuine or substantial dispute that the invoices underlying the statutory demands are not due and payable or that there was an agreement that some of the debts would be written off. She submits that the applicants have fallen short of providing cogent evidence that the debts are not due and payable for the following reasons:
(a)There is no documentary evidence to support the Payment Arrangement and it is a mere assertion by Mr Gapes. She makes the point that if the Payment Arrangements were in place as alleged by Mr Gapes, there is an expectation there would be some reference to them in email correspondence or elsewhere but no such reference exists.
(b)She disputes that Mr Gapes’ evidence is unchallenged and submits that the Payment Arrangement was challenged by Mr Guild and Mr Shaw, whose evidence was that in the course of dealing between the parties was that regular invoices and payment claims were issued with monthly reminder statement showing the sums were overdue. No issues were raised by the applicants/Mr Gapes with the reminder notices, which would be expected if the payments were not due. Reminder notices continued to be sent after the alleged Updated Payment Arrangement was entered into.
(c)There is no evidence of any write-offs if the project did not proceed and if a debt was written off, it would be expected there would be some written communication confirming this - but there is not.
(d)The alleged Payment Arrangement “in operation” for other developments at “the Alex” and “the Timaru MegaCentre” is neither supported by documentary evidence nor relevant to this dispute. Those developments were undertaken by unrelated companies to the applicants and at best they show that Buchan previously tolerated tardy payment of invoices.
(e)The Payment Arrangement was raised for the first time in reply and does not show any write-offs of debt and, to the contrary, shows the debts were accepted. She submits Mr Gapes accepted that none of the
$20,000 were made.
Conclusion in relation to genuine and substantial dispute in respect of the invoices due and payable
[17] I am of the view that the applicants have not presented cogent evidence of the Payment Arrangement and the Updated Payment Arrangement for the following reasons:
(a)while the payment patterns show the payments are drawn out on projects for various periods, this is equally consistent with Buchan
accepting slow payments from the applicants as it is consistent with the Payment Arrangement and the Updated Payment Arrangement being in place. It is not implausible that Buchan might accept slow payments in the context of an ongoing and apparently substantial business relationship with Mr Gapes;
(b)Ms Brady has pointed to the fact that if there were write-offs of debt, then these write-offs would not have been included in the Payment Arrangement but in fact they were. The evidence of acceptance of the debts by Mr Gapes, and the absence of objections from Mr Gapes to the reminders for what were stated as “overdue debts”, is all inconsistent with the Payment Arrangements and Updated Payment Arrangements being in place;
(c)the absence of any documentary evidence referring to the Payment Arrangements and alleged debt write-offs.
[18] Accordingly, I am of the view that no arguable error is shown in the Judgment in this respect.
Defective Payment Claims
[19] The statutory demands issued to Stoke were for invoices associated with the following projects:
(a)Stafford project (invoices 21253, 21297);
(b)Palmerston North LFR project (invoices 21359, 21458);
(c)Bowen project (invoices 21054, 21153);
(d)Morningside Drive project (invoices 21360, 21758);
(e)Gapes’ residence (invoice 21755); and
(f)Invoices 20779, 20919, 21001, 21051, 21052 and the remaining amount for invoice 21150 for the Ardmore project.
[20] Of these invoices, invoices 21054, 21153, 21253, 21297, 21359 and 21360 were held in the Judgment to the valid payment claims under the CCA.
[21] Ms Paterson submits that the payment claims do not comply with s 20 of the CCA and that the Judgment erred in finding that the errors regarding the due date for payment, the lack of clarity under s 20(2)(f) of the CCA, and the fact the invoices were issued to “Redwood Group” (not “Redwood Group Limited”) are insufficient to invalidate the claims.
[22]Ms Paterson makes the following submissions in relation to the invoices:
(a)Two time periods stated in the invoices – 14 days and the 20th of the following month – the fact that two time periods are stated makes the case distinguishable from the decision in CMP Construction Ltd v Aluminium Technology Ltd.4 She submits that the uncertainty caused by the two dates is not trivial when taken alongside the other areas of non-compliance.
(b)In breach of s 20(2)(f) of the CCA, the terms of the invoices do not make it clear that the invoices are payment claims under the CCA. She submits that the terms of the invoices stating that the invoices are only payment claims if “any of the services/works to which this tax invoice relates, constitute ‘construction works’ (as defined under s 6 of the Construction Contracts Act 2002)” do not state they are made under the CCA, and leave it up to the payee to determine whether they are a payment claim or not. She submits the fact that Buchan were issuing invoices and payment claims for architectural services for projects causes further uncertainty as to whether the invoices are payment claims under the CCA. She submits that there is little difference
4 CMP Construction Ltd v Aluminium Technology Ltd [2013] NZHC 2481.
between the invoice and the “payment claims”, all of which were for Buchan’s architectural services.
(c)The invoices were issued to “Redwood Group”. The Redwood Group includes entities other than the applicants. This discrepancy creates uncertainty.
[23] Ms Paterson submits that, when taken together, the Judgment erred in finding the errors do not create any substantial uncertainty as to the work being claimed or that they are claims under the CCA or that they are claims against Stoke. The combination of deficiencies is sufficient to raise a substantial issue over their validity as payment claims under the CCA.
[24] Ms Paterson further submits that if the invoices are not payment claims then the invoices are not debts due under s 23(2)(a)(i) of the CCA and accordingly payment was only due pursuant to the Payment Arrangement and the Updated Payment Arrangement. Consistent with the Payment Arrangement:
(a)while the first invoices for the Bowen project was paid, the two later invoices were not as the project is in the early concept stages and did not go live. Accordingly, an original drip-feed contribution is all that was paid;
(b)Mr Gapes’ invoice is yet to be agreed;
(c)the Morningside Drive project is never going to happen and the payment of those two invoices has not been made.
[25] Ms Brady, on the other hand, submits that the Judgment is correct in finding that the payment claims issued by Buchan (save for those expressly acknowledged as invalid) are valid payment claims and compliant with s 20 of the CCA. She submits the alleged errors raised by Stoke in relation to the payment claims are “mere technical quibbles”, referring to the CMP Construction decision,5 and do not invalidate the
5 Above, n 4.
claims, whether considered on their own or taken together. She submits Stoke was not confused about the date for payment but complied with neither of the dates for payment. The valid payment claims attach the mandatory form, which clearly demonstrates Buchan was making a payment claim.
[26] Ms Brady also points to the decision in Cambria Commercial 2009 Ltd v Petley6 where the Court took the view that where there is no error in substance or confusion created by a mistake, and that error or mistake is taken up in defence of a payment, that is the encapsulation of a “technical quibble”.
Conclusion in relation to the payment claims
[27] In my view the Judgment did not err in finding that the relevant invoices were valid payment claims under the CCA. I agree with Ms Brady’s submission that the errors, even taken together, are all technical quibbles and the applicants would have been well aware of the payments being claimed as payment claims under the CCA.
[28] I adopt the words of Associate Judge Doogue in Loveridge Ltd v Watson Hughes Construction Ltd7 (referred to in the Cambria Commercial decision) where the Judge said:
My view is that, in broad agreement with that approach, if a reasonable reading of the document as a whole would convey the required information, differences in terminology will not be important.
[29] Accordingly, my view is that the Judgment did not err in respect of the finding that the relevant invoices were relevant payment claims under the CCA and the debts are recoverable pursuant to s 23(2) of the CCA.
Statutory demands are an abuse of process
[30] Ms Paterson submits that the Judgment erred in finding there was not sufficient evidence before the Court that the issue of statutory demands is an abuse of process.
6 Cambria Commercial 2009 Limited v Petley HC Palmerston North, CIV-2011-454-457, 7 December 2011 at [51].
7 Loveridge Limited v Watson Hughes Construction Limited HC Tauranga, CIV-2011-470-275, 29 September 2011 at [22].
[31] Ms Paterson submits that from Mr Gapes’ perspective, the reason behind issuing the statutory demands are directly in issue and the affidavit provided by Mr Guild in respect of the proceeding against Stoke does to deny the allegation nor does Mr Guild respond to the allegation. This is in contrast to the affidavits of Mr Bruce Shaw in respect of Gorge and East Link proceedings. She submits therefore that in the Stoke proceedings at least, there is evidence that the statutory demands were issued to put undue pressure on the applicants.
[32] On the other hand, Ms Brady submits that the Judgment is correct to find that the issue of the statutory demands were not an abuse of process. She submits that there is no “Redwood Group” and Mr Gapes has opted to incorporate stand-alone companies for each of his developments. Accordingly, the issue of the statutory demand in circumstances where substantial sums of money are owed by one company to another is a perfectly normal step and is not an abuse of process.
[33] In addition, Ms Brady points to the fact that Mr Gapes has deposed that the applicants are no longer trading and that Coronet Villas Ltd and the Timaru MegaCentre GP Limited plan to bring their own claims against Buchan. Accordingly, she submits there can be no undue pressure brought by the issuing of a statutory demand to a company which is no longer trading.
Conclusion in relation to abuse of process
[34] In my view, the Judgment was correct in finding there was insufficient evidence of abuse of process put before the Court. Really, the only evidence was Mr Gapes’ assertions that the proceedings were brought to bring pressure in relation to claims against Buchan by the companies with which he is associated. An equally plausible explanation is that, as Mr Gapes is no longer using Buchan’s services, toleration of slow payments by the applicants during the ongoing relationship came to an end and Buchan was now pursuing payments of outstanding debts in the normal course of business.
[35] Accordingly, in my view the applicants have not established that the Judgment erred in this respect.
The importance of the appeal
[36] Ms Paterson submits that the appeal is sufficiently important to the applicants to outweigh any lack of general or precedential value. She submits that if leave is not granted, Buchan will advertise the proceedings which will prejudice the applicants. She submits that, given the impact on the applicants, the circumstances and nature of the proceedings warrant incurring further delay. In the meantime, Buchan’s position is not prejudiced. She submits the liquidation proceeding will remain on foot and, if successful, time periods for any liquidator to seek recoveries remain unchanged. Accordingly, in the circumstances, the interests of justice are served by granting leave.
[37] Ms Brady, on the other hand, submits that the applicants accept that no matters of general or public importance arise from the Judgment. She submits there is no real importance to the proposed appeal to the applicants. She submits the applicants are no longer trading and therefore will be likely wound-up. She points out that Mr Gapes has incorporated a new company called “Redwood Group Limited” and has renamed the company formerly known as Redwood Group Limited (which is the applicant in this proceeding) to the Stoke Group Ltd. Consequently she submits that if Mr Gapes thought there would be prejudice by advertisement of these liquidation applications, he would not have named his new company “Redwood Group Limited”.
[38] Further, Ms Brady submits that Mico Developments Limited, another company controlled by Mr Gapes, was recently placed in liquidation. Accordingly, she makes the point that if Mr Gapes is concerned that a company associated with him has been placed in liquidation, that has already happened.
[39] Ms Brady submits that Buchan will be prejudiced by further delay. Buchan has other debts owed by Redwood and the applicants have provided no evidence they have funds to meet the debts that form the basis of the statutory demands or the costs award. She notes that the costs award from the application to restrain advertising has not been paid and Buchan has incurred further costs from this application, and will incur further costs in dealing with any appeal.
[40] Finally, she submits that the lack of general precedential value is not outweighed here by the importance of the appeal to the applicants. The circumstances do not warrant any further delay and is not in the interests of justice to grant leave. She submits that in the circumstances, where there is no evidence that there are funds in the applicant companies, it is in the interests of justice for letting the liquidation process continue without further delay.
Conclusion in relation to the importance of the appeal
[41] In my view, the circumstances of the appeal do not warrant granting leave and the further delay. I note, in particular, Ms Brady’s submissions that the applicants have put forward no evidence as to their ability to make payment of the outstanding demands and given the applicants have ceased trading, it would seem advertisement of the liquidation proceedings would not cause significant harm to the commercial reputations of the applicants.
[42] Accordingly, I am of the view that the importance of the application to the applicants does not outweigh any lack of general or precedential value, and accordingly should not be granted on this basis.
Stay of the proceedings and advertising
[43]The applicants also seek a stay:
(a)of the proceedings pending a determination of their application for leave to appeal and, if leave is granted, until the determination of the appeal;
(b)of advertising of the proceedings pending determination of their application for leave to appeal and, if leave is granted, until the determination of the appeal.
[44] By minute dated 9 June 2023, I ordered that advertisement of the proceedings is restrained, and the proceedings are stayed, in each case pending determination of this leave to appeal application made by the applicants.
Result
[45] As a result of the conclusions I have reached at [27]. [34] and [41] and [44], I am of the view that the application for leave to appeal and to stay the proceedings should be dismissed.
Orders
[46]I make the following orders:
(a)The applicant’s application for leave to appeal the Judgment and, subject to [46](b), for an order staying the proceedings is dismissed.
(b)Buchan shall not advertise the proceedings or take any further steps in the proceedings for a period of 20 working days following the date of this judgment.
(c)My preliminary view is the Buchan, as the successful party, is entitled to costs against the applicants on a 2B basis plus disbursements. Counsel are directed to endeavour to agree costs within 20 working days of the date of this judgment, failing which counsel for Buchan is to file a memorandum as to costs (not to exceed five pages) within 10 working days of expiry of the 20 working day period and counsel for the applicants is to file a memorandum in reply (not to exceed five pages ) within 5 working days of receipt of counsel for Buchan’s memorandum. A decision on costs will then be made on the papers.
…………………………….. Associate Judge Taylor
Solicitors:
Paterson Legal Limited (K M Paterson), Newmarket, Auckland, for the Applicants Tompkins Wake (Morgan Brady) , Hamilton, for the Respondent
Copy for:
Paul Murray, Barrister, Akarana Chambers, Auckland, for the Applicants
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