Concept Builders Queenstown Limited v Triple Connection Limited

[2024] NZHC 1363

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2024-425-067

[2024] NZHC 1363

UNDER

the Companies Act 1993

BETWEEN

CONCEPT BUILDERS QUEENSTOWN LIMITED

Plaintiff

AND

TRIPLE CONNECTION LIMITED

Defendant

Hearing:	3 December 2024
Appearances:	R P Conner for Plaintiff (granted leave to withdraw) N S Tabb for Defendant
Judgment:	16 December 2024

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 16 December 2024 at 4.15 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

CONCEPT BUILDERS QUEENSTOWN LIMITED v TRIPLE CONNECTION LIMITED [2024] NZHC 1363

[16 December 2024]

[1]    Concept Builders Queenstown Ltd (Concept) has applied to liquidate the defendant company, Triple Connection Ltd (TCL). The liquidation application was filed following an unsuccessful application by TCL to set aside a statutory demand issued to it by Concept in respect of a debt arising from an adjudicator’s determination under the Construction Contracts Act 2002 (the Act) made in Concept’s favour.1

[2]    TCL now applies for an order restraining advertising and a stay of the liquidation proceeding under r 31.11 of the High Court Rules 2016 (the Rules). At the hearing TCL also relied upon r 12 of the Court of Appeal (Civil) Rules 2005 and/or  r 21.10 of the Rules.

[3]    TCL’s application was opposed by Concept. However, following the filing of submissions Concept’s lawyers applied to withdraw as the lawyers on the record and this was granted. The hearing proceeded but Concept was not represented. That, of course, does not avoid the need to consider whether TCL is entitled to the orders it seeks.

Background

[4]    Most of the relevant background appears in my judgment refusing to set aside the statutory demand issued by Concept to TCL. That is summarised here with some additional context.2

[5]    TCL entered a construction subcontract with Concept dated 26 November 2020 under which Concept provided labour for a residential construction project in Queenstown known as Jade Lake Queenstown.

[6]    Work  began and between March 2021 and June 2022 TCL paid in full the   40 invoices rendered by Concept under the subcontract, totalling $1,476,500.87 (including GST). However, from around June 2022 TCL sought to revisit Concept’s charges, which ultimately led to termination of the subcontract.

1      Triple Connection Ltd v Concept Builders Queenstown Ltd [2024] NZHC 1049.

2      Triple Connection Ltd v Concept Builders Queenstown Ltd, above n 1.

[7]    In mid-December 2022 Concept commenced an adjudication under the Act with the Building Disputes Tribunal, claiming approximately $130,000 from TCL representing the sum of nine payment claims issued by Concept to TCL under the Act between 20 June 2022 and 24 August 2022.

[8]    TCL opposed Concept’s claim, including on the ground of overcharging by Concept over the life of the construction subcontract. It relied upon a report prepared by quantity surveyors, Rawlinsons, which it considered established a significant disparity in relation to the total number of labour hours claimed by Concept on the project.

[9]    By a determination dated 16 February 2023, the adjudicator held TCL is liable to pay Concept the sum of $134,266.34 (including GST) (the determination).3

[10]   The adjudicator did not accept the Rawlinsons report because of “limitations and exclusions recorded by Rawlinsons”.4 He said:

[112] The Rawlinsons report was correct to identify those limitations and exclusions. This is especially so given my findings above as to additional work, disruption and delays. Absent Rawlinsons revisiting its review and findings taking further account of those matters, I am not prepared to accord any weight to the conclusions TCL draws in its Response.

[11]   TCL also made allegations in the adjudication that Concept’s invoices contained false, or no, descriptions of the work undertaken. The adjudicator’s findings included that Concept’s timesheets had been reviewed and approved by the construction manager of TCL and that “[i]f there was any failing or negligence on [the construction manager’s] part, then this is sheeted home to TCL and not Concept”.5 The adjudicator noted that Concept had undertaken a thorough review of the timesheets and provided detailed annotated responses to TCL’s concerns.6

3      Because of a dispute over payment of the adjudicator’s fee the determination was not released until 5 September 2023.

4      Concept Builders  Queenstown  Ltd  v  Triple  Connection  Ltd,  Building  Disputes  Tribunal,  16 February 2023, BDT22-112498 at [111].

5 At [183].

6 At [186].

[12]   On 11 September 2023, Concept served a statutory demand on TCL for the sum found to be owing in the determination. TCL’s application to set aside the statutory demand followed.

[13]   In support of the application to set aside the statutory demand, and as further support of its allegation that Concept had overcharged it, TCL raised that Concept was a defendant in other proceedings where damages were being sought from it and its director, alleging they were recipients of payments fraudulently arranged on false invoices in respect to “ghost contractors” and contractors who had not worked. The High Court had made without notice orders freezing the assets of Concept and its director,7 and a subsequent application to discharge the freezing orders had been refused.8

[14]   In addition, on 21 September 2023, TCL issued a notice of arbitration to Concept. The notice identified the disputes arising in broad terms, including:

(a)the total amount properly due and payable by TCL to Concept for the subcontract works completed by Concept between 9 March 2021 (being the date Concept commenced work on site) and 23 August 2022 (being the date TCL served Concept with a notice of termination of the subcontract agreement); and

(b)whether the total amount paid by TCL to Concept for the subcontract works exceeds the amount properly due and payable by TCL and, if so, the amount payable by Concept to TCL for the overpayment.

[15]   Beyond issuing the notice of arbitration, TCL has not progressed the arbitration since September 2023.

[16]   On 20 September 2023 TCL made a request for access to the court file in the Safari proceeding. TCL’s request was declined.9 In her judgment Dunningham J said:

7      THL (2005) v JDR Ltd [2022] NZHC 3627.

8      Safari Construction (2005) Ltd v Concept Buildings Queenstown Ltd [2023] NZHC 2387.

9      Safari Construction (2005) Ltd v Concept Builders Queenstown Ltd [2023] NZHC 2811.

[15]      While these proceedings involve the application for a freezing order, that is clearly a pre-substantive hearing stage. Although evidence has been filed, it is entirely untested. Furthermore, the pleadings in the associated civil proceeding are not finalised.

[16]      In this case, TCL appears to seek access to the documents not to identify the general nature of the allegations, because they are already aware of that from the judgment, but to seek evidence which may be supportive of a claim that some of the payments sought by Concept Builders are not valid. However, first, it is not clear to me that the allegations made in the present proceedings are the same as those TCL is pursuing. Second, I consider the judgments contain sufficient information about the allegations made to understand the general nature of them. It is not clear to me that providing the supporting affidavits could take matters any further when that evidence is untested.

[17]     TCL’s  application to set aside Concept’s statutory demand was heard on     23 April 2024 and judgment was issued dismissing that application on 2 May 2024.10 In my judgment I recorded that due to the “pay now, argue later” principle underlying the Act, TCL recognised it could not rely upon s 290(4)(a) of the Companies Act 1993 (that there was a substantial dispute whether or not the debt was owing or due) or     s 290(4)(b) (that it had a counterclaim, set-off or cross-demand).11

[18]     In those circumstances TCL’s  application proceeded solely in  reliance upon s 290(4)(c) (that the statutory demand must be set aside “on other grounds”).12 The other grounds relied upon were that TCL had a good arguable counterclaim against Concept and there was a “very high risk” that any payment made to Concept would be irrecoverable should Concept subsequently be required to repay it in other proceedings between the parties.13

[19]     In dismissing the application to set aside the statutory demand I rejected TCL’s contentions that it had a good arguable counterclaim against Concept and that there was a high risk any payment made to Concept to satisfy the demand would be irrecoverable should Concept subsequently be required to repay it. I ordered that TCL was to pay Concept the amount of the statutory demand, being $134,266.34, within five working days or Concept was able to apply to liquidate TCL.

10     Triple Connection Ltd v Concept Builders Queenstown Ltd, above n 1.

11 At [18].

12 At [18].

13     At [21], relying upon Kariiti Ltd v Donovan Drainage & Earthmoving Ltd HC Whangarei CIV-2010-488-613, 19 November 2010.

[20]     TCL did not pay Concept the amount of the statutory demand and Concept filed its application to liquidate TCL on 19 June 2024. Following service, TCL made this application for an order restraining advertising and for a stay. The application was originally to be heard in August 2024 but that did not occur due to counsel’s commitments.

[21]There have been several more recent developments. These are:

(a)TCL has appealed the decision refusing to set aside the statutory demand. That appeal is to be heard on 27 March 2025.

(b)TCL has applied to the District Court for pre-commencement discovery against Concept, its director and other third parties seeking disclosure of documents it considers will allow it to establish whether or not it has been overcharged by Concept.14 That application has not been heard.

(c)The Safari proceeding has been settled at mediation.

[22]     Finally, at the hearing of this application I asked TCL’s counsel whether TCL was prepared, as a condition of granting a stay, to pay the amount of Concept’s statutory demand into Court or to a stakeholder pending the hearing of its appeal. TCL is not willing to do so, ostensibly on the basis that it would be unfair.15 Its counsel also advised:16

I have been asked to convey to the Court that [TCL] is actively taking steps to try to obtain the proof required to verify the overcharging but the plaintiff has blocked these steps. [TCL] expects to obtain the information however this will take a little more time.

High Court Rules: r 31.11

[23]Rule 31.11 of the Rules provides:

14     See the affidavit of Jinlin Wang dated 27 June 2024 in support of application for non-party discovery at [16(b)].

15 Memorandum of Counsel for TCL dated 6 December 2024 at [2].

16 At [3].

31.11   Power to stay liquidation proceedings

(1)If an application for putting a company into liquidation is made under rule 31.3, the defendant company, or, with the leave of the court, any creditor or shareholder of that company or the Registrar of Companies, may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the court—

(a)for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and

(b)for an order staying any further proceedings in relation to the liquidation.

(2)The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.

(3)The inherent jurisdiction of the court is not limited by this rule.

[24]The relevant principles to be applied are as follows:17

(a)The Court has an inherent jurisdiction to stay liquidation proceedings where the debt upon which such proceedings are founded is the subject of genuine dispute. In those circumstances the plaintiff cannot show it has the status of a creditor or that there has been neglect by the company to pay.

(b)The jurisdiction to stay is an inherent one to prevent abuse of process. There is no inflexible rule.

(c)The governing consideration is whether the proceedings suggest unfairness or undue pressure.

(d)It is a serious matter to stay liquidation proceedings, so the decision to do so is never made lightly. The onus is on the applicant and it is normally necessary to demonstrate “something more” than the balance of convenience considerations which are usually considered on an

17     Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379; and Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 at 299 (CA).

application for an interim injunction. If the defendant company has had an opportunity to file appropriate affidavits, they are required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds or show that there are clear and persuasive grounds for a stay.

TCL’s submissions

[25]TCL says the Court should order a stay of the liquidation proceeding because:

(a)there is a genuine dispute as to whether Concept is a creditor of TCL;

(b)the proceeding is an abuse of process because:

(i)there is evidence that Concept and/or its director are guilty of fraud in respect of the claim made against TCL and others; and

(ii)Concept is refusing to provide information necessary for TCL to prove it has been overcharged by Concept; and

(c)the balance of convenience and overall justice of the case favours the granting of a stay.

Is Concept a creditor?

[26]     Insofar as TCL alleges that Concept is not a creditor, TCL again relies upon the Rawlinsons report, which it says identifies that Concept may have overcharged TCL by between $600,000 to $700,000. This argument was raised by TCL in support of its application to set aside the statutory demand and rejected.18 TCL’s position was also fully aired before the adjudicator, who found in favour of Concept. In my earlier judgment I also noted that since the adjudicator had issued the determination no attempt had been made by TCL to update the Rawlinsons report.19 Since then nothing has changed. There is nothing new presented to establish overcharging by Concept.

18     Triple Connection Ltd v Concept Builders Queenstown Ltd, above n 1, at [37]–[46].

19 At [41].

[27]     Counsel’s memorandum, to which I refer in [22] above, notes that TCL is “actively taking steps” to obtain proof of overcharging. Two points should be noted about that. First, TCL has, since prior to the adjudication hearing, been trying to establish overcharging occurred and, second, TCL has no new evidence to offer of overcharging. This is despite its former counsel advising the Court that TCL was making ongoing enquiries with the help of investigators, who are relying on informers, and had laid a complaint with police.20

[28]     To the extent the director of TCL, Mr Wang, says in his affidavit there is “information” to believe overcharging occurred, that is based only on the Rawlinsons report (which does not advance TCL’s case) and the Safari proceeding, in respect to which Mr Wang inappropriately says there is “compelling evidence of large scale fraudulent overcharging by Concept and its director Martin Lawn” without providing evidence. In any event, the Safari proceeding has now been settled, and to the extent TCL expected findings made by the Court in that proceeding would provide some support for its position that is no longer the case.

[29]     TCL argues that when applying to set aside the statutory demand it was at a disadvantage because the evidence of overcharging was within Concept’s control. I do not accept this submission for several reasons. First, as I have noted, the adjudicator found that all of Concept’s invoices had been subject to review by TCL. Second, in considering the Rawlinsons report the adjudicator noted, “[a]bsent Rawlinsons revisiting its review and findings taking further account of those matters, I am not prepared to accord any weight to the conclusions TCL draws in its Response”.21 Since 16 February 2023 TCL has apparently not had Rawlinsons revisit its review and has achieved nothing meaningful to establish any overcharging. Third, TCL has not advanced the arbitration proceeding in which it could have obtained discovery from Concept. Rather than pursue that course, which it initiated in September 2023, TCL has chosen to apply to the District Court for pre-commencement discovery which application has not been determined.

20     Triple Connection Ltd v Concept Builders Queenstown Ltd, above n 1, at [30].

21     Concept Builders Queenstown Ltd v Triple Connection Ltd, above n 4, at [112].

[30]     I am satisfied Concept is a creditor of TCL for the amount of its statutory demand. I am also satisfied TCL has not produced any evidence that it has an arguable counterclaim against Concept.

Abuse of process

[31]     Counsel submits TCL intends to argue on appeal that fraud creates an exception to the “pay now, argue later” principle in the Act. However, TCL’s counsel also confirms it has no evidence of fraud and no basis for TCL to allege Concept acted fraudulently towards it.

[32]     TCL then says Concept will not provide TCL with the information necessary for it to prove it has been overcharged. This was also raised in support of TCL’s application to set aside the statutory demand and rejected.22 I note again, however, that had TCL taken steps to advance the arbitration any discovery it now seeks could have been obtained.

[33]     TCL then suggests Concept is applying undue pressure upon it, because if Concept is allowed to liquidate TCL this would prevent it from advancing the claim that it was overcharged and entitle Concept to obtain funds to which Concept was not legally entitled. There are several responses to this submission.

[34]     First, there is presently nothing to suggest TCL has any claim against Concept. Second, TCL could have pursued such a claim by arbitration proceedings and has not. Third, the appointment of a liquidator would not prevent proceedings being taken against Concept to recover any overcharged amounts should the liquidator consider there was any evidence of that. Fourth, Concept offered to agree to a stay of this proceeding upon payment into trust of the amount owing to it pending the hearing of TCL’s appeal.23 TCL has consistently refused to agree to that. In the face of TCL’s refusal, it can hardly be heard to complain of undue pressure.

22     Triple Connection Ltd v Concept Builders Queenstown Ltd, above n 1, at [45].

23     Concept Builders Queenstown Ltd v Triple Connection Ltd HC Christchurch CIV-2024-425-067, 9 July 2024, Associate Judge Lester (Minute).

Balance of convenience

[35]     TCL argues the balance of convenience supports the granting of a stay as the making of an order for liquidation would have drastic consequences for TCL, its contractors and suppliers. It also contends any delay caused by the grant of a stay would effectively preserve the status quo and merely inconvenience Concept. I do not accept those submissions.

[36]     The balance of convenience very clearly favours refusing the application for a stay. TCL has an obligation to pay the amount owing to Concept following the determination in accordance with the “pay now, argue later” principle of the Act. Concept has now been unpaid for over two years while TCL has done all it can to avoid payment. TCL has also provided no evidence that it is solvent and will have the ability to pay Concept if its appeal is unsuccessful. While TCL asserts (with almost no evidence) that the refusal to grant a stay will cause substantial harm to its business and parties that deal with it, that could be avoided by the simple expedient of paying the sum that it has been found to owe Concept into trust pending its appeal.

[37]The application for a stay under r 31.11 is refused.

Court of Appeal (Civil) Rules: r 12

[38]     At a case management conference with Associate Judge Lester on 9 July 2024 TCL’s counsel advised that it also wished to rely on r 12 of the Court of Appeal (Civil) Rules in support of a stay. At the hearing I was told TCL also relies on r 20.10 of the High Court Rules. It was not suggested that the application of one or other provision would lead to a different result. I deal with the matter under r 12.

[39]Rule 12 provides:

12       Stay of proceedings and execution

(1)None of the matters referred to in subclause (2) operate as—

(a)a stay of a proceeding in which a decision was given; or

(b)a stay of execution of that decision.

(2)The matters are—

(a)an application for leave to appeal; or

(b)the giving of that leave; or

(c)an appeal.

(3)Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on an interlocutory application,—

(a)order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or

(b)grant any interim relief.

(4)An order or a grant under subclause (3) may—

(a)relate to execution of the whole or part of the decision or to a particular form of execution:

(b)be subject to any conditions that the court appealed from or the Court thinks fit, including conditions relating to security for costs.

(5)If the court appealed from refuses to make an  order  under  subclause (3), the Court may, on an interlocutory application, make an order under that subclause.

(6)If the court appealed from makes an order under subclause (3), the Court may, on an interlocutory application, vary or rescind that order.

(7)The Court may, at any time, vary or rescind an order made by it under this rule.

[40]     Counsel referred me to several cases where applications were made to stay a liquidation proceeding pending the hearing of an appeal from the Court’s refusal to set aside a statutory demand upon which the liquidation proceeding was based.24 Property Ventures Ltd (in rec and liq) v Gibbston Downs Wines Ltd was such a case.25 There,

Associate Judge Osborne adopted the following principles:26

(a)The Court is required to balance the competing right. First, there is the party who obtained the judgment appealed from who has the right to the benefit of the judgment. Secondly, there is the need to preserve the appellant’s position should the appeal succeed.

24 Property Ventures Ltd (in rec and liq) v Gibbston Downs Wines Ltd [2013] NZHC 781 at [11]; and Sol Trustees Ltd v Giles Civil Ltd [2014] NZHC 2008 at [27]. See also Yun Corporation Ltd v YQT Ltd HC Auckland CIV-2009-404-7656.

25 Property Ventures Ltd (in rec and liq) v Gibbston Downs Wines Ltd, above n 24.

26 At [11].

(b)The Court’s object, where it can be fairly achieved, is to arrange matters so that, when the appeal comes to be heard, the appeal Court may be able to do justice between the parties whatever the outcome of the appeal may be.

(c)Factors which may be taken into account in the balancing of the competing interests include:

(i)Whether the appeal may be rendered nugatory by the lack of a stay. This is not a determinative factor;

(ii)Whether the successful party will be injuriously affected by the stay;

(iii)The bona fides of the applicant as to the prosecution of the appeal;

(iv)The effect on third parties;

(v)The novelty and importance of the questions involved;

(vi)The public interest in the proceeding;

(vii)Issues of balance of convenience and the status quo are of modest relevance at most — to the extent they are relevant they will be covered by consideration of whether the appeal will be rendered nugatory and to the prejudice of the respondent

[41]     The Associate Judge also noted that the balance of competing interests is often met by imposing, upon successful application for a stay, a condition that an applicant give security for payment of any money judgment involved.27

[42]     TCL argues its appeal rights will be rendered nugatory without a stay. Whilst TCL accepts a liquidator could continue with the appeal, it submits in reality a liquidator is unlikely to do so and it is almost certain the appeal would not be pursued if it was put into liquidation.

[43]     If a stay is not granted it is possible that TCL might be put into liquidation prior to the hearing of its appeal on 27 March 2025. I accept that if appointed a liquidator would be unlikely to have sufficient time to prepare for the appeal which may therefore be rendered nugatory. That is a factor that weighs in support of granting a stay of the liquidation proceeding, albeit it is not determinative.

27     Property Ventures Ltd (in rec and liq) v Gibbston Downs Wines Ltd, above n 24, at [12].

[44]     Secondly, TCL says it is serious in pursuing its appeal. I accept that it has provided security for costs and the appeal has been set down for hearing.

[45]     Next, it says Concept will not be injuriously affected by the stay. In circumstances where the debt owing to Concept is long overdue for payment and TCL has not provided evidence of its solvency, I do not accept TCL’s submission. The risk of prejudice to Concept could, of course, be reduced by the imposition of a condition that TCL pay into trust the amount owing to Concept, to be paid in accordance with any order of the Court upon determination of TCL’s appeal. I shall return to that.

[46]     TCL says the effect of a stay on third parties is important, and if a stay is not granted and it is put into liquidation significant disruption would be caused to the Jade Lake Queenstown project and its stakeholders. There will almost always be disruption to third parties when a company goes into liquidation. The evidence provided is scant and I do not put much weight on this submission.

[47]     TCL also says there is an important issue of law involved as to whether fraud creates an exception to the “pay now, argue later” principle in the Act. For the reasons I have given, no such issue arises on the appeal.

[48]     TCL says whether a debt exists between TCL and Concept is a matter that is only important to the immediate parties, namely TCL and Concept. That is correct and is a reason against granting a stay.

[49]     There is no public interest in this proceeding, which is a further reason not to grant a stay.

[50]     Finally, in my view the merits of TCL’s appeal are weak. Given the way TCL argued the application to set aside the statutory demand, to succeed on appeal it would seem that TCL must establish that I was wrong to find it did not have an arguable counterclaim against Concept and had failed to show there was a high risk that any payment to Concept would be irrecoverable should TCL subsequently be required to repay it. In relation the first matter, TCL has effectively acknowledged it does not presently have evidence to support a counterclaim. As to the second matter, TCL relied

almost entirely upon the Safari proceeding and its expectation that something would come out of that proceeding to support its case. However, there is no evidence Concept conducted itself in the manner Safari alleged in its dealing with TCL and, in any event, that Safari proceeding has now been settled and there will be no decision on its allegations.

[51]     Weighing all these considerations and in recognition only of the fact that TCL’s appeal will be heard on 27 March 2025, I would have been inclined to grant a stay had TCL been prepared to pay the amount of Concept’s statutory demand into Court. TCL has stated it will not accept such a condition and no purpose would therefore be served in imposing one. In those circumstances, the stay is refused.

Result

[52]     TCL’s application for an order restraining advertising and a stay of this proceeding is refused.

[53]     Concept is entitled to costs, which I award on a 2B basis plus reasonable disbursements as fixed by the Registrar.

[54]     Concept’s application to liquidate TCL is to be listed to be heard at 10 am on 20 February 2025.

[55]     I direct that Ms Conner is to provide this judgment directly to her former client so that it is aware of the next hearing date in this proceeding.

O G Paulsen Associate Judge

Solicitors:

Hazelton Law, Wellington N Tabb, Auckland