Cladding Contractors Limited v Auckland Building Construction Limited

[2024] NZHC 625

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2143

[2024] NZHC 625

UNDER

the Companies Act 1993, section 290

IN THE MATTER OF

An application to set adside a Staturory Demand

BETWEEN

CLADDING CONTRACTORS LIMITED

Applicant

AND

AUCKLAND BUILDING CONSTRUCTION LIMITED

Respondent

Hearing:

14 March 2024

Appearances:

S C Munro for the Applicant

R J Macdonald for the Respondent

Judgment:

21 March 2024

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 21 March 2024 at 12 midday Pursuant to r 11.5 of the High Court Rules.

…………………..

Registrar/Deputy Registrar

Solicitors:

Galbraiths Lawyers Ltd, Auckland MBC Law Ltd, Auckland

CLADDING CONTRACTORS LTD v AUCKLAND BUILDING CONSTRUCTION LTD [2024] NZHC 625

[21 March 2024]

Introduction

[1]    The respondent, Auckland Building Construction Ltd (ABC), supplied construction labour to the applicant, Cladding Contractors Limited (CC). ABC rendered three invoices to CC. The first was paid and two are outstanding.

[2]    On 17 August 2023, ABC served a statutory demand on CC for the amount that it says is due. CC now applies to set that demand aside.

[3]    CC argues that there is a substantial dispute as to whether the debt is owing, relying on three grounds:

(a)there is a dispute as to the hourly rate due for the labour supplied;

(b)there is a dispute regarding defective work completed by ABC; and

(c)CC has a set-off for a share of ABC’s profit.

Setting aside a statutory demand

[4]    When a statutory demand is issued under s 289 of the Companies Act 1993 (the Act), it may be set aside by the Court if:

(a)there is a substantial dispute as to whether or not the debt is owing or is due; or

(b)the company appears to have a counterclaim, set-off or cross demand and the amount specified in the demand less the amount of the counterclaim, set-off or cross-demand is less than the prescribed amount; or

(c)the demand ought to be set aside on other grounds.1

1      Link Electrosystems Ltd v GPC Electronics (New Zealand) Ltd [2007] NZCA 501, [2008] NZCCLR 19 at [13].

[5]    For an alleged debtor to succeed in setting aside a statutory demand, some material short of proof is required to support the claim that the debt is in dispute; mere assertion of a dispute will not suffice.2 In deciding an application, the task for the judge is not to resolve the actual dispute but to determine whether there is in fact a genuine and substantial dispute as to whether the debt is due.3

[6]    If the ground relied on is the availability of a set-off, the alleged debtor must show that it has “clear and persuasive grounds” for the claimed set-off with the consequence that the applicant’s claim to be a creditor is, to the extent of the set-off, seriously in doubt.4

[7]    Under s 291 of the Act, if the Court is satisfied that there is a debt due from the alleged debtor to the creditor that is not the subject of a substantial dispute, counterclaim, set-off or cross-demand, the Court may order the alleged debtor to pay the debt within a specified period. In default of payment, the creditor may make an application to put the company into liquidation.

Is there is a genuine and substantial dispute as to the hourly rate due for the labour supplied?

[8]    The contract between ABC and CC was made orally in about March 2023. Justin Allister is CC’s construction manager. In his first affidavit filed in support of the application to set aside the demand, Mr Allister deposed that the verbal agreement did not include agreement on the hourly rate for labour supplied, and he assumed that ABC would charge “standard industry rates” for builders, hammer-hands and labourers.

[9]    ABC’s director, Edison Su, says in his affidavit that he verbally agreed with Mr Allister that the hourly rate for all labour would be $45 plus GST. In his affidavit in reply, Mr Allister says:

I agreed with Edison that we would pay $45 per hour but made it clear that we only wanted qualified builders.

2 At [17].

3 At [17].

4      Bryanston Finance Ltd v de Vries (No 2) [1976] CH 63 (CA) at 78; and Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA) at [11].

[10]   There is no genuine dispute regarding what was agreed. CC agreed to pay ABC $45 per hour for labour supplied. The controversy between the parties is whether work was adequately performed by appropriately qualified people to the required standard?

Is there is a genuine and substantial dispute regarding defective work?

[11]ABC rendered its first invoice for labour supplied on 4 April 2023, for

$5,692.50 including GST. CC Paid the invoice without any issue.

[12]ABC rendered its second invoice for labour supplied on 20 April 2023, for

$25,891.75 including GST. The invoice was reissued on 21 April 2023, for the revised amount of $22,977 including GST.

[13]   Mr Allister says that he was alarmed at the number of hours charged and the “blanket” rate of $45 per hour. Mr Allister says that he was annoyed because ABC was charging $45 per hour for all staff at the rate for qualified builders, and he considered that none of the staff were qualified builders. However, there is no record of Mr Allister raising any concerns with Mr Su at the time.

[14]   Mr Allister says that around this time he began to receive complaints about the quality of ABC’s work. There is no record of CC raising any issue about the quality of ABC’s work until Mr Allister sent Mr Su a text message on 27 April 2024, saying:

Hey mate can the boys make sure they wipe off glue and paint as they go thanks.

[15]On 1 May 2023, ABC rendered an invoice for $26,470.13 for labour supplied.

[16]   Mr Allister says that the work completed by ABC was defective, and CC was required to carry out remedial work. Mr Allister has produced photographs of examples of the work that was allegedly defective. Some of the remedial work was completed by a third-party contractor at a cost to CC of $4,864 including GST. Some of the remedial work was completed by CC.

[17]   Mr Allister has prepared draft invoices from CC to ABC itemising the remedial work he says was completed by CC. It comprises 80 hours of labour at a charge of $65 per hour plus GST. The draft invoices include a further claim for $5,200 plus GST for loss of earnings from other jobs as a result of CC applying labour to the remedial work.

[18]   In addition, Mr Allister says that CC lost $15,000 profit on one of the jobs that ABC worked on as a result of ABC’s poor work. Other than Mr Allister’s assertion, no other evidence is offered in respect of that loss.

[19]   Mr Su denies that any work was defective, claiming that no complaints were made to him until the statutory demand was served.

[20]   CC has obtained an affidavit from Rhys O’Brien, a director of one of CC’s customers, Rhys O’Brien Homes Ltd. Some of the work performed by ABC was on a job for Rhys O’Brien Homes Ltd. Mr O’Brien says that the ABC team seemed very inexperienced, and the work was poor quality. He confirms that Mr Allister agreed to rectify the defects, and the work was eventually finished to an acceptable standard.

[21]   For ABC, Mr Macdonald urged me to take a robust approach in my assessment of the affidavit evidence, and to reject the evidence of Mr Allister and Mr O’Brien regarding defective work as not credible because the issues were not raised with Mr Su in contemporaneous correspondence. I am not prepared to reject the affidavit evidence.

[22]   CC has satisfied the onus upon it of establishing that there is a genuine and substantial dispute as to whether some of ABC’s work was defective, requiring remedial work performed by CC or a contractor engaged by CC.

[23]   However, the evidence adduced by CC confirms that the cost of the remedial work was, at most:

(a)$4,864 including GST charged to CC by the independent contractor; and

(b)CC’s own internal labour cost of completing work of $5,980 including GST.

[24]   I do not accept that CC has a genuine claim for additional losses arising from re-allocation of resources to remedial work, or loss of profit. At most, CC has a set- off for the cost of remedying defective work in the total sum of $10,844 including GST.

Has CC shown clear and persuasive grounds for a set-off for a share of ABC’s profit?

[25]   Mr Allister says that during his initial discussions with Mr Su about a relationship between their companies, Mr Su offered to share the profit on jobs that were referred to ABC by CC. Nothing was recorded in writing. No further particulars are offered. Mr Su says that there was no agreement for any profit sharing.

[26]   There is no evidence of Mr Allister ever seeking a share of ABC’s profit, or raising the issue in any way, prior to CC being served with the statutory demand.

[27]   There are no clear and persuasive grounds for CC’s claim for a set-off for a share of ABC’s profit.

Decision and orders

[28]   I am satisfied that there is a debt due by CC to ABC of $38,603.13 including GST that is not the subject of a substantial dispute, counterclaim, set-off, or cross- demand. The undisputed part of the debt is the amount claimed in the invoices dated 21 April and 1 May 2023, $49,447.13 including GST, less the cost of remedying the alleged defective work, $10,844 including GST.

[29]   I order Cladding Contractors Ltd to pay $38,603.13 to Auckland Building Construction Ltd within 15 working days of delivery of this judgment.

[30]   If Cladding Contractors Ltd fails to comply with the order in [29], Auckland Building Construction Ltd may make an application to put the company into liquidation.

[31]   Cladding Contractors Ltd has been unsuccessful in its application to set aside the statutory demand. Costs should follow the event. My preliminary view is that Cladding Contractors Ltd should pay Auckland Building Construction Ltd costs on this application on a 2B basis, together with disbursements as fixed by the Registrar.

[32]If the parties are unable to agree on costs then I direct that:

(a)The respondent shall file and serve submissions on costs, of no more than four pages, by 5 April 2024;

(b)The applicant shall file and serve submissions on costs, of no more than four pages, by 5 April 2024; and

(c)I will then determine costs on the papers.

Associate Judge Brittain