Condor International Limited v Steelhaus 2014 Limited
[2019] NZHC 296
•1 March 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-1603
[2019] NZHC 296
UNDER Section 290 of the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
CONDOR INTERNATIONAL LIMITED
Applicant
AND
STEELHAUS 2014 LIMITED
Respondent
Hearing: 25 October 2018 Appearances:
I J Thain and I E Scorgie for the Applicant H L Quinlan for the Respondent
Judgment:
1 March 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 1 March 2019 at 3.00pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
DLA Piper, Auckland Anthony Harper, Auckland
CONDOR INTERNATIONAL LTD v STEELHAUS 2014 LTD [2019] NZHC 296 [1 March 2019]
[1] The applicant Condor International Limited (Condor) applies to set aside a statutory demand issued by the respondent Steelhaus 2014 Limited (Steelhaus) on 11 July 2018. The amount claimed in the statutory demand was $105,327.08.
[2] The amount claimed is the amount awarded by the adjudicator under an adjudication determination issued on 2 July 2018 under the Construction Contracts Act 2002 (the CCA). In essence, Steelhaus says that the adjudication determination is binding, and Condor cannot contend that there is a reasonable and substantial dispute over the claimed debt.
[3] Condor takes a different view. It says that the adjudicator’s determination is amenable to judicial review because the adjudicator erred in law in two particular respects, and/or exhibited bias in failing to require evidence from Steelhaus of the value of the installation work carried out by it.
Background
[4] Mrs Catherine Shumane and her husband, Mr Wissam Shumane, were in the process of constructing a family home (the home) on a piece of land in Paremoremo Road, Auckland (the home property).
[5] Mr Shumane is a chartered professional engineer, and operates a consultancy business under the name Shumane Consultancy. Mrs Shumane is the director of Condor, which operates an importing business. Condor is owned by the Shumanes' family trust.
[6] The owner of the home property was a company called Millenium Proprietors Ltd (Millenium), of which Mrs Shumane was the sole director. Two thirds of the shares in Millenium were owned by a family trust, of which Mr and Mrs Shumane and Mr Patrick Kennerly were the trustees.
[7] Steelhaus provides supply and installation services for steel framing. It was approached by Mrs Shumane to supply and install steel framing for the home, based on plans which had been approved by Auckland Council.
[8] On 17 March 2017, Steelhaus provided Mrs Shumane with three separate quotes for the supply and installation of the steel framing for the home. The first quote, for the sum of $187,753.54, was for the manufacture and supply of an engineered framing system, pre-cut, assembled and fastened together. The second quote, for the sum of $15,363.08, was for framing for a gym/workshop to be built on the home property. The third quote was for the installation of the framing. Steelhaus quoted
$129.95 per m2 for doing the installation work.
[9] The Shumanes decided to engage Steelhaus to provide the steel frame materials and carry out the installation work. They told Mr Altenburg of Steelhaus, and he sent them a credit application form to complete.
[10] The credit application form was completed in the name of Condor. Mrs Shumane said that she used Condor for this purpose because it had a good credit rating, and the building work could commence and continue without any payment hiccups.
[11] Although it was Condor who applied for and obtained a credit account with Steelhaus, Mrs Shumane said that Condor had not previously been involved with the home project, and it did not pay any of the Steelhaus invoices that were paid — the payments that were made were made by Mr and Mrs Shumane personally, or by their family trust.
[12] Mr Altenburg asked Mrs Shumane to sign the quotes Steelhaus had provided, and she did sign the two quotes that related to the supply of materials. She did not sign the installation quote however. She said it was just a metre rate, and she "thought that Mr Altenburg was interested in just the materials as the credit form application seemed only to be for the supply of goods side".
[13] Although there appears to have been no written agreement relating to the installation of the steel framing, correspondence between the parties in October 2017
shows that an agreement was made at some point for Steelhaus to carry out the installation work.1
[14] Materials were fabricated by Steelhaus and delivered to the home property in the course of the period through to 13 November 2017. As the adjudicator later recorded, there were agreed variations totalling $9,953.71, making a total adjusted price for the project of $347,698.53 (including GST). Invoices were issued by Steelhaus along the way, in each case addressed to Condor. A total of $176,530.52 was paid on these invoices.
[15] By November 2017, a substantial dispute had arisen, and on 13 November 2017 Mr Shumane advised Steelhaus that it would no longer be required for the installation of the steel framing.
[16] On 14 November 2017, Steelhaus sent final invoices to Mrs Shumane, addressed to Condor, setting out what it considered remained unpaid for the materials it had supplied for the construction of the home, and for the value of the installation work it had completed to date. Those invoices were disputed by Mrs Shumane, and the matter was then referred to adjudication by Steelhaus.
[17] The adjudicator issued a determination on 2 July 2018 (the Determination). The adjudicator concluded that Condor should pay Steelhaus $79,781.94 plus interest of $6,671.46, plus ongoing interest accruing at the rate of $34.21 per day. The adjudicator also directed Condor to pay the adjudicator’s fees of $16,600, and costs of
$2,000.
[18] Steelhaus served the statutory demand on 11 July 2018. Condor's setting aside application was filed on 25 July 2018, and a notice of opposition was later filed by Steelhaus.
1 In an email to Mr Altenburg dated 4 October 2017, Mrs Shumane said: "Your quote to do the building work was $113 per square meter. The building is 1036 square meters. Therefore your contract is worth $117,068 plus GST. The "progress payments should [be] as follows …". … "I am going to work out what the above stage is worth and how much each progress payment is fair before end of this week and then come back to you."
The Determination
[19] The adjudicator was Mr Derek Firth, an experienced adjudicator under the CCA.
[20]The parties had put three principal issues to the adjudicator:
(1)Who should be the correct respondent? (Condor had contended that Steelhaus' real contracts were not with it but with Mr and Mrs Shumane.)
(2)Was Steelhaus entitled to the unpaid balance of the amounts invoiced by it, being $79,781.94?
(3)Steelhaus' claim for the balance of the contract prices, as damages.
[21] On issue (1), the adjudicator determined that Condor was the correct respondent, not the Shumanes. He noted that anyone in the position of Steelhaus would have assumed that Condor became the contracting party, even if the earlier position was that there could have been or was a contingent contract with the Shumanes personally. On 17 April 2017 the Shumanes clearly abandoned any position as contracting party and put forward Condor as the purchaser/customer. Subsequent conduct, including Steelhaus' invoices addressed to Condor being paid without comment on the addressee of the invoice, were considered to be totally consistent with Condor being the purchaser.
[22] The adjudicator then addressed Condor's/the Shumanes' contention that Steelhaus had a contract direct with them for the supply and installation of customised steelwork for the construction of the home. The adjudicator said:
46. On the side of the Shumanes, if their assertion that they were personally the purchasers is correct, then there would have to be an actual or a notional "head contract" between them and [Millenium] as the owner of the land. It is possible, but extremely unlikely, that the Shumanes would personally meet the cost of this large home in the absence of any underlying arrangement between them personally and the company which was the registered proprietor of the [home land]. At the very least, one would expect some arrangement with the
trustees who own the majority shares, in order that the payments made by Mr and Mrs Shumane personally would be treated as a loan to the trust or to [Millenium].
[23] The adjudicator considered that there was little, if anything, to support the contention that Steelhaus' claims were intended to be the personal responsibility of Mr and Mrs Shumane.
[24] The adjudicator concluded this part of the adjudication by making the following statements:
48.[Condor] having stepped up to be the purchaser from [Steelhaus], it will have to have some underlying arrangement with the owner of the land and that will render [Steelhaus] a subcontractor.
49.That being the case, the Building Act 2004, Section 362B(1)(b) makes it quite clear that [Steelhaus] has not acted wrongly and it does not have the disclosure obligations set out in the Building (Residential Consumer Rights and Remedies) Regulations 2014.
[25] On issue (2), being Steelhaus' claim for the unpaid balance of invoiced amounts, the adjudicator upheld Steelhaus' claim, stating in general terms that he preferred the evidence of Steelhaus, whose explanations were credible. The adjudicator considered that virtually all of the difficulties which occurred in the case would not have arisen if there had been proper project management from the outset and Steelhaus had been able to go about its work in the sequence originally intended. The adjudicator noted that the previous invoices which had been delivered had been paid in full, and they were not challenged. He also accepted, on the balance of probabilities, that the final invoices (delivered the day after the contracts were terminated) were "an accurate reflection of the value of the materials delivered and of the installation provided up until the 13 November 2017. The adjudicator determined that Condor was obliged to pay Steelhaus the unpaid amounts of the invoices, totalling
$79,781.94 (including GST).
[26] I need not be concerned with the third issue before the adjudicator, which was concerned with a claim by Steelhaus for damages as a result of Condor's allegedly unlawful termination. In short, the adjudicator was not satisfied that this part of the claim had been sufficiently proved. The claim for an additional sum under this head was rejected.
Applications to set aside statutory demands – legal principles
[27] A statutory demand is a demand, made in accordance with s 289 of the Companies Act 1993 (the Act), by a creditor in respect of a debt owing by a company to the creditor.2 The statutory demand must be in respect of a debt that is due and is not less than the prescribed amount (currently $1,000), and it must require the company to pay the debt, or enter into a compromise or otherwise compound with the creditor, or give a charge over its property to secured payment, to the reasonable satisfaction of the creditor, within 15 working days of the date of service of the demand.3 If a company fails to comply with a statutory demand, that failure provides prima facie proof that the company is unable to pay its debts – a ground on which the creditor may apply to put the company into liquidation.4
[28]Section 290 of the Act materially provides:
290 Court may set aside statutory demand
(1)The court may, on the application of the company, set aside a statutory demand.
(2)The application must be—
(a)made within 10 working days of the date of service of the demand; and
(b)served on the creditor within 10 working days of the date of service of the demand.
(3)No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the court may extend the time for compliance with the statutory demand.
(4)The court may grant an application to set aside a statutory demand if it is satisfied that—
(a)there is a substantial dispute 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.
(5)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
2 Companies Act 1993, s 289(1).
3 Section 289(2).
4 Sections 287(a) and 241(4)(a).
(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
(7)An order under this section may be made subject to conditions.
[29]Section 291 of the Act materially provides:
291 Additional powers of court on application to set aside statutory demand
(1)If, on the hearing of an application under section 290, the court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the court may—
(a)order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or
(b)dismiss the application and forthwith make an order under section 241(4) putting the company into liquidation,—
on the ground that the company is unable to pay its debts.
(2)For the purposes of the hearing of an application to put the company into liquidation pursuant to an order made under subsection (1)(a), the company is presumed to be unable to pay its debts if it failed to pay the debt within the specified period.
[30] The onus is on the applicant for an order setting aside a statutory demand to show that there is a genuine and substantial dispute as to the existence of the debt. The dispute must be real and not fanciful or insubstantial; the applicant must show a fairly arguable basis upon which it is not liable for the amount claimed. The mere assertion that a dispute exists is not sufficient. An applicant must establish that any counterclaim or cross-demand is reasonably demandable in all the circumstances. The obligation is not to prove the actual claim; such an obligation would amount to the dispute itself being tried on the application.5
[31] If an application to set aside a statutory demand is made on the basis that the debt is disputed, proof of solvency is not determinative but will support the applicant’s case that the dispute is genuine.6
5 Howes & Ors Brookers Company and Securities Law (looseleaf ed, Brookers), at CA 290.02, citing North Harbour Equine Hospital Limited v Little HC Auckland CIV-2006-404-7585, 19 February 2007.
6 AMC Construction Limited v Frews Contracting Limited [2008] NZCA 389, (2008) 19 PRNZ 13 at [7].
Relevant provisions of the CCA
[32]Sections 48, 58, 59, 59A, 60, 73, 74, 77 and 79 of the CCA materially provide:
48 Adjudicator’s determination: substance
(1)If an amount of money under the relevant construction contract is claimed in an adjudication, the adjudicator must determine—
(a)whether or not any of the parties to the adjudication are liable, or will be liable if certain conditions are met, to make a payment under that contract; and
(b)any questions in dispute about the rights and obligations of the parties under that contract.
…
(3)If an adjudicator determines under subsection (1)(a) that a party to the adjudication is liable, … to make a payment, the adjudicator—
(a)must also determine—
(i)the amount payable …; and
(ii)the date on which that amount became …;
…
58Enforceability of adjudicator’s determination
(1)An adjudicator’s determination under section 48(1)(a) is enforceable in accordance with section 59.
…
59Consequences of not complying with adjudicator’s determination under section 48(1)(a)
(1)The consequences specified in subsection (2) apply if a party to the adjudication fails, before the close of the relevant date, to pay the whole or part of the amount determined by an adjudicator.
(2)The consequences are that the party who is owed the amount (party
A) may do all or any of the following:
(a)recover from the party who is liable to make the payment (party B), as a debt due to party A, in any court,—
(i)the unpaid portion of the amount; and
(ii)the actual and reasonable costs of recovery awarded against party B by that court:
…
(c)apply for the adjudicator's determination to be enforced by entry as a judgment …
(4)In any proceedings for the recovery of a debt under this section, the court must not enter judgment in favour of a party unless it is satisfied that the circumstances referred to in subsection (1) exist.
(5)In this section, relevant date means—
(a)the date that occurs 2 working days after the date on which a copy of the relevant determination is given to the parties to the adjudication under section 46(3); or
(b)if the adjudicator determines a later date under section 48(3)(a)(ii), that later date.
59A Consequence of not complying with adjudicator’s determination under section 48(1)(b) or (2)
(1)This section applies if a party against whom an adjudication determination is made fails to comply with the adjudicator’s determination under section 48(1)(b) or (2) in respect of rights and obligations under the contract.
(2)The party in whose favour the determination was made may apply for the determination to be enforced by entry as a judgment in accordance with sections 73 to 78 (but only after such date, if any, specified in the adjudicator’s determination for compliance).
60Effect of review or other proceeding on adjudicator’s determination
An adjudicator’s determination is binding on the parties to the adjudication and continues to be of full effect even though—
(a)a party has applied for judicial review of the determination; or
(b)any other proceeding relating to the dispute between the parties has been commenced.
73Enforcement of adjudicator’s determination
…
(2)A plaintiff may apply for an adjudicator’s determination to be enforced by entry as a judgment in accordance with this subpart.
(3)The application—
(a)may be made to the District Court; and
(b)must be made in the manner provided by the rules of that court (if any).
(4)Either before or immediately after making the application, the plaintiff must serve on the defendant—
(a)a copy of the application; and
(b)a statement setting out the consequences for the defendant if the defendant takes no steps in relation to the application.
(5)Despite subsection (2), a plaintiff in whose favour a determination has been made may only apply for that determination to be enforced by entry as a judgment—
(a)if any conditions imposed by the adjudicator have been met; and
(b)after the date (if any) specified in the adjudicator’s determination for compliance.
74Defendant may oppose entry as judgment
(1)If the defendant wishes to oppose the application under section 73, the defendant must, within 5 working days after the date on which the defendant is served a copy of the application, apply to the District Court for an order that entry of the adjudicator’s determination as a judgment be refused.
(2)The application for an order referred to in subsection (1) may be made only on the following grounds:
(a)that the amount payable under the adjudicator’s determination has been paid to the plaintiff by the defendant:
(b)that the contract to which the adjudicator’s determination relates is not a construction contract to which this Act applies:
(c)that a condition imposed by the adjudicator in his or her determination has not been met:
(d)that due to a change in circumstances, which was not caused in any part by the defendant, it is not possible to comply with the adjudicator’s determination:
(e)that the date (if any) specified in the adjudicator’s determination for compliance has not (yet) passed.
(2A) Subsection (2)(d) applies only if the adjudicator’s determination is a determination under section 48(1)(b) or (2).
(3)If the District Court is satisfied that any of the grounds set out in subsection (2) applies, the District Court must—
(a)refuse the application under section 73 to enforce the adjudicator’s determination by entry as a judgment; and
(b)make an order accordingly.
(4)If the District Court is not satisfied that 1 or more of the grounds set out in subsection (2) applies, the District Court must—
(a)accept the application under section 73 to enforce the adjudicator’s determination by entry as a judgment; and
(b)enter the adjudicator’s determination as a judgment accordingly.
…
77 Effect of entry of judgment
To avoid doubt, an adjudicator’s determination entered as a judgment may be enforced by execution in accordance with the District Court Rules 2014.
…
79Proceedings for recovery of debt not affected by counterclaim, set- off, or cross-demand
In any proceedings for the recovery of a debt under section 23 or section 24 or section 59, the court must not give effect to any counterclaim, set-off, or cross-demand raised by any party to those proceedings other than a set-off of a liquidated amount if—
(a)judgment has been entered for that amount; or
(b)there is not in fact any dispute between the parties in relation to the claim for that amount.
The argument for Condor
[33] Condor accepts that the adjudication procedure established by the CCA may be broadly described as “a pay now, argue later” procedure, and that the grounds for setting aside a statutory demand based on an adjudicator’s determination under the CCA are therefore limited. However, Mr Thain submitted that adjudicators’ determinations do not finally determine the substantive rights between the parties, and in this case there were serious deficiencies in the adjudicator’s determination such that the interests of justice require that the statutory demand be set aside pending the filing by Condor of an application for judicial review of the adjudicator’s determination.
Proposed grounds for judicial review
[34]The two respects in which Condor says the adjudicator erred are:
(a)The adjudicator wrongly determined that the contract was not a residential contract; and
(b)The adjudicator wrongly found that there was only one contract, rather than a contract for the supply of materials and a separate contract for the installation of those materials. The adjudicator’s misapprehension in that respect led to him misapplying the relevant law.
[35] Condor also contends that the adjudicator’s determination had the appearance of bias, as the adjudicator did not require reasonable evidence from Steelhaus of the value of the work completed by it on the installation contract. The adjudicator failed to take into account relevant consideration, or took irrelevant considerations into account.
[36] The starting point for Condor's arguments described at paragraph [34] above is Part 4A of the Building Act 2004 (the Building Act) which sets out certain requirements relating to residential building contracts. A "residential building contract" is defined in s 362B of the Building Act as follows:
362B Meaning of building work and residential building contract
(1)In this Part, unless the context otherwise requires,—
…
residential building contract—
(a)means a contract under which one person (the building contractor) agrees with another person (the client) to do building work for the client in relation to a household unit; but
(b)does not include a subcontracting agreement between a building contractor and a building subcontractor.
…
[37] Under s 362D of the Building Act, a building contractor must not enter into a residential building contract to which the section applies unless the building contractor has first provided to the client certain "disclosure information", and a "prescribed
checklist", each in the form prescribed by any regulations made under the Building Act.
[38] It is common ground in this case that neither the disclosure information nor the prescribed checklist was provided to the Shumanes or Condor before the contracts were entered into. Mr Thain noted that it is an offence under the Building Act for a building contractor to enter into a residential building contract unless the building contractor has first provided to its client the disclosure information and a checklist consistent with the Building (Residential Consumer Rights and Remedies) Regulations 2014 (the Regulations).7 He submitted that the effect of Steelhaus' omission in that respect was to render the contracts illegal and unenforceable under s 71 of the Contract and Commercial Law Act 2017 (the CCLA). If the contracts were illegal and unenforceable, the adjudicator could not have had any jurisdiction to make the Determination.
[39] Mr Thain also referred to s 362F of the Building Act, under which a residential building contract to which the section applies must: (i) be in writing, (ii) be dated, and
(iii) comply with any regulations made under s 362G of the Building Act. Section 362F(3) provides that a building contractor must not enter into a residential building contract to which the section applies, unless those requirements have been met.
[40] Condor says that all of these sections of the Building Act applied in this case, and that the adjudicator erred in finding that Steelhaus acted as a building subcontractor, contracting with a building contractor (Condor), and was thus not bound by the requirements of ss 362D and 362F.8
[41] Condor says that Steelhaus' failures to comply with its obligations under the sections of Part 4A the Building Act referred to, and under the Regulations, fatally undermined the whole process followed by Steelhaus under the CCA (including its payment claim submitted under s 20 of the CCA). In those circumstances, it says that it should not be bound to pay in accordance with the Determination: the defects in the
7 Building Act 2004, s 362D(4).
8 Building Act 2004, s 362B(1)(b).
Determination are fundamental, and notwithstanding s 60 of the CCA, they sufficiently raise a genuine dispute over Condor's liability for the amount claimed.
[42] As for the second proposed ground for judicial review, Mr Thain submitted that even if the provisions of Part 4A of the Building Act just referred to did not apply, the adjudicator erred in law in finding that there was only one contract, made on the basis of Steelhaus' standard terms and conditions. Mr Thain submitted that both parties worked on the basis that there were two separate contracts, one for the supply of materials (made on the basis of Steelhaus' standard terms) and one for the installation work (for which Mr Thain submitted that payment terms were never sufficiently agreed). If no mechanism was agreed for payment for the installation contract, the effect of ss 15 and 18 of the CCA was that payments for the installation work would be due and payable on the 20th working day after a payment claim had been served on Condor under s 20 of the CCA in relation to the payment.
[43] Mr Thain developed this submission by contending that there was no compliance with s 20 in this case; the section requires a payment claim to contain sufficient details to identify the relevant construction work, the relevant period to which the payment claim relates, and the manner in which the payee calculated the claimed amount.9 He submitted that a payment claim must be sufficiently detailed and comprehensible for the payer to understand the basis on which the claim is made,10 but in this case there was no more than a bare statement of the amount claimed, which did not meet the requirements of s 20. The adjudicator failed to consider the implication of these provisions of the CCA.
The argument for Steelhaus
[44] Steelhaus says that, even if they had any validity, none of those arguments could prevail over its rights under the Determination and under ss 58, 59(2) and 60 of the CCA. The Determination is binding under s 60 of the CCA, and Steelhaus is
9 Construction Contracts Act 2002, s 20(2)(c) and (e).
10 Referring to C J Parker Construction Ltd (In Liq) v Ketan [2017] NZCA 3, at [26].
entitled to enforce it by using the statutory demand procedure, regardless of any application for judicial review of the Determination that might be made.11
[45] In the alternative, Steelhaus says that the adjudicator was correct in finding that the parties' arrangements did not constitute a residential building contract or contracts for the purposes of Part 4A of the Building Act. The sections of Part 4A relied upon by Condor therefore have no application.
Discussion and conclusions
[46] Section 59(2) of the CCA is clear in its terms. The party who is owed an amount awarded under a determination may recover from the party who is liable under the determination, as a debt due, the unpaid portion of the amount awarded to it, together with its actual and reasonable costs of recovery. The section provides for the party owed the money under the determination to recover the amount "in any court".
[47] In Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd, Randerson J noted the clear statutory intention to limit the scope for challenging an adjudicator's determination under the CCA. His Honour noted that there is no provision for an appeal against the determination of an adjudicator, and that s 60 of the CCA provides that an adjudicator's determination under s 48(1)(a) is binding on the parties and continues to be in full effect even though a party has applied for judicial review of the determination, and notwithstanding the commencement of any other proceedings relating to the dispute between the parties. Further, under s 73 of the CCA, where an application is made to the District Court to enforce an adjudicator's determination by entry of judgment, the grounds on which the entry of judgment may be opposed are strictly limited by s 74(2). Those grounds are that the amount has been paid, that the contract was not a construction contract to which the CCA applied, or that a condition imposed by the adjudicator had not been met.12
[48] Randerson J considered that, where the debtor is a company, there is nothing in the CCA to suggest that the issue of a statutory demand under the Act is not a
11 Noting that, despite its expressed intention to do so, Condor had not commenced any judicial review proceeding as at the date of the hearing.
12 Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd (2005) 11 TCLR 256 at [18].
proceeding for recovery of a debt for the purposes of s 79 of the CCA. (Under that section, the Court is forbidden from giving effect to any counterclaim, set-off or cross-demand raised by a party to the proceeding, except a set-off of a liquidated amount and then only if judgment has been entered for that amount or there is no dispute between the parties in relation to the claim for that amount.)13
[49] Randerson J also referred in Volcanic to the "clear statutory intention" that payments found to be due following an adjudication should be promptly recoverable, with very limited opportunity for further dispute.14
[50] Freemont Design & Construction Ltd v Natures View Joinery Ltd 15 was another case where the creditor under an adjudicator's determination under the CCA sought to enforce its rights by the issue of a statutory demand. The creditor successfully contended that its position was precisely the same as the creditor in Volcanic Investments Ltd, and that there was nothing that could have prevented it from enforcing the adjudicator's determination as a judgment of the Court. Associate Judge Faire accepted that submission, and concluded that that led to the inevitable conclusion that, for the purposes of s 290(4)(a) of the Act, there was no substantial dispute as to whether or not the debts claimed in the statutory demand were owing.
[51] In this case, Condor has not paid the amount due under the Determination, and it has not pleaded that the contract or contracts to which the Determination related was not/were not construction contract(s) to which the CCA applied. Nor did the adjudicator impose in the Determination any relevant condition on Condor's obligation to pay. In all of those circumstances, Condor would have had no basis to oppose the entry of the amount owing under the adjudication as a judgment under s 74 of the CCA, and (on the basis of the decision of Associate Judge Faire in Freemont Design & Construction Ltd) the result is that Condor has no "substantial dispute", and cannot rely on s 290(4)(a) of the Act as a ground to have the statutory demand set aside.
13 At [20].
14 At [32].
15 Freemont Design & Construction Ltd v Natures View Joinery Ltd HC Hamilton, CIV-2006-419-269, CIV-2006-419-270, 26 July 2006.
[52] Nor would s 290(4)(b) (counterclaim, set-off, or cross-demand) have been available to Condor — the effect of s 79 of the CCA, as explained in the judgment of Randerson J in Volcanic Investments Ltd, effectively precluded any reliance on s 290(4)(b).
[53]That means Condor must rely on "other grounds", under s 290(4)(c) of the Act.
[54] On the approach of the Court to applications based on s 290(4)(c), Associate Judge Faire referred in Freemont Design & Construction Ltd to the judgment of Tipping J in Commissioner of Inland Revenue v Chester Trustee Services Ltd. Tipping J said:16
All cases involving s 290(4)(c) must in the end come down to a judgment by the Court as to whether the creditor's prima facie entitlement is outweighed by some factor or factors making it plainly unjust for liquidation to ensue. The ground advanced by the insolvent company must be sufficiently compelling to overcome the general policy of the Act with regard to insolvent companies.
[55] In this case, the "other grounds" relied upon by Condor are the grounds it says justify the grant of relief by way of judicial review of the Determination, and also a contention that Condor is solvent.
[56] There is no doubt that an adjudicator's determination under the CCA is amenable to judicial review in a limited range of cases. In Rees v Firth the Court of Appeal noted first that Parliament clearly contemplated the possibility of judicial review of an adjudicator's determination. The Court then considered that there was nothing in the CCA that specifically limited judicial review to errors going to jurisdiction.17 Arnold J, giving the judgment of Court, said:18
The key point, we think, is that the statutory context is such that a person who does not accept an adjudicator's determination should litigate, arbitrate or mediate the underlying dispute, rather than seeking relief by way of judicial review of the determination. Such review will be available only rarely.
16 Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA), at 398.
17 Rees v Firth [2012] 1 NZLR 408; [2011] NZCA 688, at [21].
18 At [22].
[57] The Court went on to note that an adjudicator's determination as to the payment of money remains in effect despite the issue of judicial review proceedings.19
[58] The Court of Appeal noted that one of the objectives of the CCA was to solve cash-flow problems that had become common in the construction industry, by facilitating quick payments. Critically for present purposes, their Honours said: "The issue of judicial review proceedings does not interfere with that objective as a party with the benefit of the money determination may still enforce it". The Court of Appeal considered that the creditor's ability to enforce a determination notwithstanding a pending application for judicial review reflects the "pay now, argue later" philosophy that underlines the CCA. Their Honours said: 20
Accordingly, it seems to us unlikely that a Court would be prepared to grant interim relief under s 8 of the Judicature Amendment Act 1972 in the context of judicial review proceedings challenging an adjudicator's determination as to payment.
[59] The Court in Rees v Firth considered that courts must be vigilant to ensure that judicial review of adjudicator's determinations does not cut across the scheme of the CCA and undermine its objectives. While that does not mean that judicial review should be limited to instances of "jurisdictional error", an applicant must demonstrate that the Court should intervene in the particular circumstances. That will not be easy given the purpose and scheme of the CCA; indeed, it is likely to be very difficult to satisfy a Court that intervention is necessary. In particular, given that an important purpose of the CCA is to provide a mechanism to enable money flows to be maintained on the basis of preliminary and non-binding assessments of the merits, it is unlikely that errors of fact by adjudicators will give rise to successful applications for judicial review. In the great majority of cases where an adjudicator's determination is to be challenged, the appropriate course will be for the parties to submit that the merits of the dispute to binding resolution through arbitration or litigation.21
[60] Two more recent decisions in this Court have considered the extent to which the Court will be prepared to interfere with an adjudicator's determination by way of
19 At [24], citing s 60(a) of the CCA.
20 At [25].
21 At [27].
judicial review. In Body Corporate 200012 v Keene, Brewer J referred to Rees v Firth, noting the Court of Appeal's view that a judicial review proceeding does not stop a party enforcing a determination, and it is unlikely a Court would grant interim relief to prevent the party from doing so.22 Brewer J found that the Body Corporate's goal was to succeed at an eventual arbitration, and thus eliminate or reduce the requirement to pay in the meantime. His Honour said that objective clearly cut across the scheme of the CCA, and "it would require a genuine excess of jurisdiction by the adjudicator (which would mean BC 12 should not be subject to the CCA scheme), a serious breach of natural justice, or some apparent and significant error of law to persuade me to intervene."23
[61] Davison J took a similar approach in Anderson & Volkova v Swindells.24 His Honour considered that courts will not generally interfere with an adjudication determination, given the objective of the CCA to provide a fast-track means of enabling contractors to secure payments due under construction contracts. Nevertheless judicial review remains available for those cases where an adjudication has been undertaken in a manner where there has been a significant breach of natural justice or significant error of law.25
[62] In this case, I see nothing in the Determination which might constitute a serious breach of natural justice. Mr Thain first submitted that the adjudicator exhibited bias because he took the view that the difficulties that arose on the contract arose due to the Shumanes not engaging a head contractor or project manager, in order to keep their costs to a minimum. For its part, Condor considers that the problems arose due to the lack of written documentation, which Steelhaus had an obligation to supply.
[63]In fact, what the adjudicator said was:
128(d)It could also be unfair to say that Mr and Mrs Shumane were obsessed with keeping the overall cost to an absolute minimum but much of their conduct is consistent with such an approach and that is not always the best approach to a construction project.
22 Body Corporate 200012 v Keene [2017] NZHC 2953 at [15].
23 At [17].
24 Anderson & Volkova v Swindells [2018] NZHC 1803.
25 At [78].
[64] I do not think there is anything in this that could be regarded as reasonably create an appearance of bias. The issue is whether a fair-minded observer, with knowledge of the relevant facts, would or might have considered that the adjudicator had pre-judged the matter, or was otherwise unfairly disposed towards Condor/the Shumanes. I do not think the adjudicator's observation about the absence of proper project management could reasonably have given rise to any apprehension of that sort. It was an observation that was reasonably open to the adjudicator, and he was equally critical of aspects of Steelhaus' case.
[65] Next on the bias/irrelevant considerations argument, Mr Thain submitted that the adjudicator erred in giving the parties two working days to provide evidence to displace his presumption that discounts he considered should have been provided by Steelhaus, were in fact provided. Mr Thain said that the evidence could only have been provided by Steelhaus, because the relevant invoices were not itemised. Condor had no means of providing evidence that those invoices did in fact take account of those discounts.
[66] Again, this appears to simply be a factual determination by the adjudicator based on the evidence produced. Mr Altenburg had given details of the items that had not been supplied, and said that in respect of the screws, top plate stiffener and any other items allegedly not supplied they could be seen from the video clips to have been supplied.26 The adjudicator preferred the evidence of the claimant, and found that its explanations were "totally credible".27 He then accepted, on the balance of probabilities, that the final invoices submitted by Steelhaus accurately reflected the value of the materials delivered and of the installation provided up to the 13th of November 2017. He said that he believed that the final invoice for materials allowed for a credit of $11,183.90 for materials not supplied, but if he was wrong in that it could be considered during the two day period for correction. He said that he would need evidence as to the correct portion if that assumption was challenged.
[67] It seems to me that the adjudicator had made a finding of fact in his adjudication, based on what he then considered to be the balance of probabilities. The
26 Paragraph [103] of the Determination.
27 Paragraph [117] of the Determination.
two day correction period was not in my view intended to allow for a substantive review of part of the case, but to deal with the correction of demonstrable errors in the determination.28 If one party or the other did not have the power or ability to demonstrate such an error that would not in my view impugn the validity of the determination, and it could not be evidence of bias on the part of the adjudicator.
[68] The last of the matters raised in support of the bias argument related to the alleged paucity of evidence to support the adjudicator's findings on the progress of the work and alleged defects in it. Mr Thain submitted that the only evidence for Steelhaus on these issues was from its business manager, who was rarely present on site. Also, the adjudicator declined the Shumanes' invitation to visit the site, and paid insufficient regard to evidence of a chartered professional engineer who had himself kept an eye on how the works were progressing, and had raised a number of concerns.
[69] Again, I do not consider that any of those matters are sufficient to raise a reasonable argument of bias. It appears that the chartered professional engineer in question was Mr Shumane himself, and he could not have been regarded as completely independent from Mrs Shumane and Condor. Secondly, Mr Altenburg said that Steelhaus had a registered licensed building practitioner, who managed and supervised its construction teams, who would have attended the site once or twice per day. Mr Altenburg asserted that personnel from Condor were not on site, and Mr Shumane himself was overseas for several weeks and could not have known who was on site.
[70] In all of those circumstances it seems to me that all that is alleged against Mr Firth is that he made particular findings of fact without sufficient evidence to support those findings. In my view far more would have been necessary to justify any finding of bias against Condor, particularly in the context of a fast-track proceeding such as a CCA determination proceeding, when hearings and decisions take place within fairly tight timeframes, and the adjudicator will necessarily make his or her
28 Section 47(3) of the CCA provides:
…
(3)Within 2 working days after the date on which a copy of the determination is given to the parties to the adjudication under section 46(3), an adjudicator may, on his or her own initiative, correct in the determination any errors in computation or any clerical or typographical errors or any errors of a similar nature.
findings based on an assessment of the evidence as a whole, including such inferences as may reasonably be drawn from the evidence presented by the parties. The position in this case falls far short of showing an arguable case that (i) Mr Firth did not have proper regard to all of the evidence, or considered irrelevant material in coming to his decision on the points on which Condor bases its challenge, or (ii) was otherwise biased against Condor or the Shumanes.
[71] Nor do I consider the other matters raised by Condor provide a sufficient basis for an order setting aside the statutory demand, whether on the "other grounds" provision in s 290(4)(c) or (if s 290(4)(a) were available to Condor) on the basis that there exists a genuine and substantial dispute. Condor is in my view attempting to challenge findings of fact made by the adjudicator, in particular as to what contracts were made and between which parties. In particular, the adjudicator found that there must have been a building contract in existence between Condor (it is not clear from the Determination whether the adjudicator considered Condor was acting alone or as agent for the Shumanes) and Millenium as the owner of the land, and I think it must have been open to him to infer that an arrangement existed as between Millenium and Condor/the Shumanes under which the home would be constructed on the home property. But whether that finding was correct or not, it was essentially a finding of fact. The same applies to the finding that Steelhaus was in the position of a building subcontractor —again, whether that finding was right or wrong, it was essentially a finding of fact.
[72] If the adjudicator made errors in his determinations on the facts (and it is not necessary for me to decide whether or not he did), I do not think any such errors of fact can somehow be "reconstituted" as errors of law.
[73] Similarly I do not see anything reasonably arguable in Condor's second ground for judicial review, under which the adjudicator is said to have erred in law in failing to appreciate that there were two separate contracts, one for the supply of materials and one for the installation work. The identification of the relevant contract or contracts was in my view a matter of fact for the adjudicator to determine, and could not reasonably be regarded as a suitable issue for a judicial review application. Nor is it clear that the provisions of s 20 of the CCA did apply — s 14 of the CCA provides
that parties are free to agree between themselves on a mechanism for determining the number of payments to be made under the contract, the interval between those payments, the amount of each of those payments, and the date when each payment would become due, and I think it arguable that there was such an agreement in this case. Mrs Shumane clearly set out in her email of 4 October 2017 a lump sum amount for the installation work and the stages at which progress payments would be made. She proposed to come back to Mr Altenburg before the end of the week with her view of what progress payments would be "fair" for each stage, and she presumably did so. Mr Altenburg replied on 31 October 2017, noting that installation work had not at that stage been charged, but would be invoiced based on Mrs Shumane's email of 4 October 2017. Precisely following Mrs Shumane's 4 October email, Mr Altenburg noted that the first payment would be "for all external and internal frames erected and plumb". It appears too that Steelhaus' standard terms and conditions would have governed the due dates for payment: the definition of "customer" in the terms and conditions made it clear that they were intended to cover services supplied by Steelhaus (not just materials), and payment was covered by cl 6 of the terms and conditions.
[74] Nor does the "no agreement on a payment mechanism for installation"/s 20 argument appear to have been put to the adjudicator.
[75] But all of that is in my view trumped in any event by the requirement of s 60 of the CCA that an adjudicator's determination remains binding and of full effect notwithstanding the existence of an existing or threatened application for judicial review: as the Court of Appeal said in Rees v Firth: "The issue of judicial review proceedings does not interfere with [the objective of the CCA to solve cash-flow problems in the construction industry], as a party with the benefit of a money determination may still enforce it."
[76] Mr Thain referred to the judgment of Associate Judge Christiansen in M Van der Wal Builders &Contractors Ltd v Walker and Dunphy, where the Associate Judge acknowledged that an adjudicator's determination does not preclude a defendant in an enforcement proceeding from challenging the adjudicator's determination on the
grounds that there was in fact no construction contract.29 In such a case the determination could have no legal standing. I do not consider the decision in Van der Wal assists. It is not in my view reasonably arguable for Condor in this case that there was no valid construction contract, which was the issue in Van der Wal. The prefabrication of customised components of any building or structure, whether carried out on the construction site or elsewhere, is expressly included within the definition of "construction work" at s 6(1)(d)(iv) of the CCA, and I see no other basis on which it might be reasonably argued that the adjudicator had no standing to find the facts and make the determinations that he did. Certainly there has been no challenge to the validity of his appointment.
[77] In the end, I do not consider this is one of those relatively rare cases where the Court would be likely to intervene on an application by Condor for judicial review, even if such an application had been made. The critical point is that s 60 of the CCA provides that the Determination is binding and continues to be of full effect. That is entirely consistent with a principal objective of the CCA, namely to keep the money flowing down the contractual chain after disputed matters have been addressed by an adjudicator's determination. Steelhaus is entitled to the fruits of the Determination, and it is for Condor to commence any litigation it may wish to commence to endeavour to obtain a different outcome from that reached following the Determination.
[78] A further matter of concern is delay on the part of Condor. Timely payment is of the essence under the CCA, but Condor delayed some months, and no application for judicial relief had been filed by the time of the hearing. In the ordinary course, if there had existed good grounds for judicial review, one would have expected Condor to file an application for judicial review immediately after the Determination, coupled with an application for interim relief to prevent Steelhaus from enforcing the Determination. None of that occurred, and I think the delay is a significant factor weighing against Condor in my consideration of the overall justice of the case (relevant to the "other grounds" limb of s 290(4) of the Act).
29 M Van der Wal Builders & Contractors Ltd v Walker and Dunphy HC Auckland, CIV-2011-404-000083 at [105].
[79] For all of those reasons, I conclude that Condor has not made out a case for an order setting aside the statutory demand.
[80] I add that in its application to set aside the statutory demand Condor pleaded that it is in fact solvent. In support of that claim, Mrs Shumane produced a copy of Condor's balance sheet as at 31 March 2016, showing net assets of approximately
$130,748. However, I note that the previous year's balance sheet showed net assets of only $52,876. Also, Ms Quinlan produced with her written submissions an extract from the New Zealand Gazette dated 17 May 2018, listing a number of companies the Registrar of Companies proposed to remove from the Companies Register on the basis that the Registrar had reasonable grounds to believe that they were not carrying on business and there was no proper reason for them to continue in existence. One of the listed companies was Condor.
[81] In all of those circumstances it is far from clear that Condor is solvent. First, its financial position as at March 2016 may say little about its current financial position. Secondly, the statutory demand process should not be able to be avoided in any event, by a company proving that it is solvent. That may be a relevant consideration on any subsequent liquidation claim, but it does not provide a stand-alone ground for setting aside a statutory demand. If the debt is indisputably owing, it should be paid.30
[82] One further matter canvassed at the hearing was the question of whether, if Condor is required to pay the amount of the demand but later (whether in a substantive Court proceeding or in a judicial review proceeding) shows that the money was not owing, Steelhaus would be able to repay Condor. I accept Ms Quinlan's submission on that issue. In the absence of any evidence showing that Steelhaus would be unable to repay, Steelhaus is entitled to the cash-flow entitlements inherent in the CCA regime.
30 AMC Construction Ltd v Frews Contracting Ltd (2008) 19 PRNZ 13; [2008] NZCA 389 at [7], referred to by Mallon J in Gill Construction Company Ltd v Butler HC Wellington, CIV-2009-406-203, 2 November 2009.
Result
[83]I make the following orders:
(1)The application to set aside the statutory demand is dismissed.
(2)The time for compliance with the statutory demand having been extended by consent until after this judgment has been delivered,31 and the statutory demand having been served on or about 11 July 2018, I make an order under s 291(1) of the Act that Condor is to pay to Steelhaus the amount demanded ($105,327.08) within five working days of the delivery of this judgment, failing which Steelhaus may make an application to put Condor into liquidation.
(3)If they cannot agree, counsel may file memoranda on the subject of costs. Any memorandum by Steelhaus is to be filed and served within 10 working days, and any memorandum from Condor is to be filed and served within 10 working days of service of Steelhaus' memorandum.
Associate Judge Smith
31 Minute of Associate Judge Andrew dated 16 August 2018.
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