Dimension Data New Zealand Limited v Commit Services Limited
[2017] NZHC 546
•24 March 2017
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2016-404-003298
[2017] NZHC 546
BETWEEN DIMENSION DATA NEW ZEALAND LIMITED
Plaintiff
AND
COMMIT SERVICES LIMITED
Defendant
Hearing: 21 March 2017 Appearances:
G K Holm-Hansen for the Applicant S McAnally for the Respondent
Judgment:
24 March 2017
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
24.03.17 at 3:30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
DIMENSION DATA NEW ZEALAND LIMITED v COMMIT SERVICES LIMITED [2017] NZHC 546 [24
March 2017]
Background
[1] The applicant (Dimension Data) applies to set aside the statutory demand served by the respondent (Commit) on 12 December 2016.
[2] The statutory demand claims $72,972.94 and details 44 individual invoices, and one credit adjustment.
[3] Dimension Data applies to set aside the statutory demand claiming it has a substantial dispute as to whether the amount claimed is due and owing; and claims it has a counterclaim, set-off or cross demand in the amount of $105,207.07 which relates to overpayments it made to Commit in relation to a project known as the Last Mile Project.
[4] Dimension Data is a company which specialises in providing technology solutions to businesses. Its principle business activities are the integration of on-line business solutions, the provision of value-added networking services, and security consultancy.
[5] Dimension Data entered into a master subcontract agreement with Commit dated 22 August 2013. By their agreement various Statements of Work (SOW) were entered into in relation to projects for the benefit of the University of Otago (University). These were principally for the installation of information technology, hardware and infrastructure, and incidental construction work.
[6] It is Dimension Data’s position that the SOW’s were entered into on a time and materials basis and because of this, instructions were issued to Commit advising them when to proceed with work or, in some cases, to stop work when the University had put a project on hold. For work to be authorised, Commit would submit a purchase order for approval and once approved by Dimension Data it could then carryout the work and then submit invoices for payment. Dimension Data says their authorisation was always required before any work could commence.
[7] The present issues between the parties arose on 9 August 2016 when Dimension Data forwarded to Commit an email which it received from the University advising that a number of projects were being put on hold. Then on 8 December 2016 Dimension Data cancelled all outstanding SOWs. Commit responded by service of its statutory demand four days later.
Setting aside principles
[8] Counsel are agreed upon the principles to be applied pursuant to 290 of the Companies Act 1993 (the Act) upon applications to set aside statutory demands.
[9] An applicant must show there is arguably a genuine and substantial dispute as to the existence of the debt where:
(a)A mere assertion that a dispute exists is not sufficient.
(b)Material proof of debt is required to support a claim that the debt is disputed.
(c)If such material is available then the dispute should normally be resolved by other means.
(d)Claims of counterclaim, cross demand or set-off must be shown to be reasonably arguable in the circumstances.
(e)Disputed questions of fact will not be resolved on affidavit evidence alone, particularly when issues of credibility arise.
Issues
[10] Two primary matters arise for consideration by the Court. The first of those concerns whether the applicant’s payment obligations are subject to the provision of the Construction Contracts Act 2002 (CCA). The second concerns Dimension Data’s claim of a set-off.
The Construction Contracts Act 2002
[11] The specific requirements for a valid payment claim are set out in s 20 of the Construction Contracts Act (CCA):
(2)A payment claim must –
(a)Be in writing; and
(b)Contain sufficient details to identify the construction contract to which the payment relates;
(c)Identify the construction work and the relevant period to which the payment relates.
(d)State a claimed amount and the due date for payment;
(e)Indicate the manner in which the payee calculated the claimed amount.
(f)State that it is made under the CCA.
[12] In the CJ Parker Construction case1 the Court of Appeal considered the level of detail to be provided for a payment claim for it to be valid pursuant to the CCA. The Court noted:
[26] A payment claim must be sufficiently detailed and comprehensible to enable the payee to understand the basis on which the claim is made. Only then can the payee decide whether to accept it or to put the payee on notice of a dispute by providing a payment schedule in response which explains the payee’s reasons for disagreeing with the claim. This requirement is implicit in the payee’s obligation to provide a claim that indicates “the manner in which the payee calculated the claimed amount. And in the payor’s obligation to respond by giving reasons for the difference between the amount claimed and the amount the payor is prepared to pay.
[13] In short, the issue of a payment claim has to provide sufficient information that will reasonably enable a response by the recipient to issue a payment schedule that may challenge the payment claim.
1 C J Parker Construction Ltd (In liquidation) v Ketan & Ors [2017] NZCA 3.
The case for setting aside
Bona Fide dispute
[14] Dimension Data submits there is a genuine and bona fide dispute as to eight of the invoices specified in the schedule to the statutory demand. It details three of these invoices dated 13 September 2016 totalling $1,137.35 [the first three invoices].
[15] Regarding the first three invoices, Dimension Data claims that it advised that there was no basis for these invoices because approval had not been given for the works in question to commence.
[16] Commit’s response is that it was a well-established practice that had been utilised over the parties’ contract during a period of three to four years that it would do preparation work for invoicing later. Data Dimension’s reply was that preparatory work was able to be charged when required and authorised but, that the parties’ arrangement did not contemplate a different approach nor vindicate invoicing for preparation work that was undertaken without authorisation. Therefore and if Commit wished to conduct the work and to incur the costs, it did so at its own risk and not pursuant to any contractual arrangement.
[17] Regarding the first three invoices Dimension Data said no authorisation was sought, nor given to commence the preparatory work for the projects in question. Indeed to the contrary it is claimed Dimension Data had expressly advised on 19 January 2016 that no costs should be incurred in relation to that invoice, of the first three invoices, for which Commit sought payment in the amount of $579.60.
[18] A fourth invoice for $195.50 was submitted on 13 September 2016. Dimension Data accepts there was a work order in place but says instructions were never given to commence because the project was placed on hold and that this had been communicated to Commit by letter dated 23 August 2016. Dimension Data says the invoice was queried and rejected by emails dated 20 September 2016 and 20 October
2016. Evidence provided by a spreadsheet attached to an email sent by Dimension Data on 1 June 2016 indicates work was to be put on hold. Furthermore Dimension Data says Commit’s payment claim does not detail when the work was done and therefore whether it had been done before work was put on hold. Also and while its aforesaid invoices did not use the words “payment schedule” by reference to their response, it is clear the response nonetheless contained all the requirements of the payment schedule.
[19] Dimension Data asserts Commit’s invoices do not comply with CCA requirements but even if they did, they did not provide sufficient detail about when the work was done and therefore did not comply as a sufficient payment claim.
[20] A fifth invoice demanded payment of $4,274.55. Dimension Data claims that demand for payment of this invoice was submitted outside the agreed time limit in connection with projects that were being closed and regarding which advice was given to Commit. It says Commit’s invoice arrived 23 days late. Dimension Data has provided evidence of its email dated 22 June 2016 advising Commit that the project was to close and noting that no further billing was expected.
[21] An email from Commit dated 27 June 2016 acknowledged receipt of that advice. Dimension Data’s email to 20 October 2016 confirmed that Commit’s invoice would not be accepted, it having been submitted beyond 60 calendar days from the project close-off. Dimension Data’s position is that the parties had agreed on a timeframe and therefore rejection of the invoice was justified.
[22] Commit challenges claims of an arrangement. It says the 60-calendar day close off condition was unilaterally imposed and there is no clear evidence of acceptance of this requirement.
[23] The sixth and seventh invoices totalling $8,117.63 are disputed because it is claimed they relate to unauthorised cost overruns for which approval had not been given. Dimension Data says Commit acknowledged these costs were incurred in relation to overruns and because a variation order was not submitted as required. Dimension Data asserts the costs were not authorised and there is no basis to claim such costs.
[24] Dimension Data says therefore these costs were outside of any contractual arrangement and therefore are not subject to a contract or to the provisions of the CCA.
[25] Commit’s final invoice, the eighth invoice, dated 15 September 2016 demanded payment of $34,569.45 under the reference Blackhaul. Dimension Data disputes this invoice on the basis that it is not clear if the estimates provided by Commit are accurate because no reliable basis for calculating this invoice has been provided.
[26] In summary of the invoices identified by Dimension Data’s challenge to its payment obligations, there are some for which it says work approval had not been given, or because payment was demanded outside an agreed time limit, or were related to unauthorised cost overruns, or are defective because they are not CCA payment claim compliant.
[27] It is Dimension Data’s position that these eight invoices of Commit’s 44 separate invoices totalling $48,294.48 are part of that total sum of $72,972.94 claimed by Commit’s statutory demand. Regarding the balance that is not disputed it is Dimension Data’s position that it has a right of set off in the amount of $105,207.07 which Dimension Data says were overpayments made to Commit in relation to the separate Last Mile Project.
[28] It adds it has addressed any CCA obligations by reasons given for not paying those invoices in dispute – contract project work it says is unconnected to that separate contract work for which Commit’s 44 invoices issued.
Claim of set-off
[29] Dimension Data’s claim for a set-off amount of $105,207.07 for “overpayment” was made in relation to the Last Mile Project.
[30] Dimension Data says it made monthly payments on this project but that those “got out of synchronisation with actual progress”.
[31] Dimension Data says the overpayment amount initially totalled $169,929.57. The basis of this overpayment was set out in an email to Commit dated 19 December
2016. That email requested a reconciliation of stock with the potential for Dimension Data’s team needing to be engaged on the issue. It was requested that resolution of the overpayment be made with urgency.
[32] Dimension Data says it was earlier agreed that Commit would stop invoicing for future works until the work caught up with the payments that had been made. It said this resulted in a reversal of the April invoice and the non-invoicing by Commit for May and June 2016 services. This resulted in a reduction of the overpayments amount to $105,207.07.
[33] Dimension Data says Commit accepted its commitment to make reductions but then suddenly this practice stopped. While it appears there was an acknowledgement for the overpayments made, Commit never confirmed or corresponded regarding its consideration of what was overpaid. Dimension Data says it has done its best to quantify this amount on the information it has but in this regard it has been hampered because it was paying up front for stock which was being held by Commit but which Commit now refuses to recognise is due for return.
[34] Dimension Data says by its actions Commit has confirmed that it had used the stock in question on other projects. Dimension Data says it needed to know how much was referred to other projects given what he considers was Commit’s unjust refusal to engage and by its attempt to hide behind the statutory demand issued in relation to other project work. It appears there is clear acknowledgement by Commit regarding its use of stock for other projects.
[35] Commit asserts that Dimension Data is required to pay the amounts claimed as the disputed invoices constituted payment claims under the CCA and because Dimension Data did not issue payment schedules in response to those.
[36] Dimension Data disputes the particular invoices were CCA payment claims because there is no reference in the parties’ agreement or in the SOWs or in any other communication suggesting the parties’ business relationship was subject to the CCA, or setting out a process akin to the CCA requirements for the issuing of payment claims and/or payment schedules.
[37] Further, while the invoices in question state “this is a payment claim under the Construction Contracts Act 2002” this notation does not, Mr Holm-Hansen submits, cure obvious defects in the invoices if they were to constitute a payment claim. Counsel submits the invoices do not conform to the requirements for a payment claim because they:
(a)Do not indicate the manner in which the payee calculated and claimed the amount s 20(2)(e).
(b)Outline the process for responding to that claim s 20(3)(a).
(c)Outline the consequences of not responding to the claim or not paying the claimed amount in full s 20(3)(b).
(d)It is submitted therefore there is a genuine and substantial dispute as to whether the amounts specified by the statutory demand are due and owing; and because Dimension Data has a claim in an amount which exceeds the statutory demand sum.
Payment claim requirements
[38] If Commit’s invoices were submitted as payment claims and if in response no payment schedules were served then the amounts claimed become due and owing and this Court may not by this proceeding give effect to claims of a set off.
[39]Section 20 of the CCA requires that payment claims are:
(a)In writing.
(b)Contain sufficient details to identify the construction contract to which the payment relates.
(c)Identify the construction work and relevant period to which the payment relates.
(d)State a claimed amount and the due date for payment.
(e)Indicate the manner in which the claimed amount has been calculated.
(f)State they were made under the CCA.
Review
Bona Fide dispute
[40] The Court has already detailed Dimension Data’s challenge to eight of the invoices referred to in the statutory demand. Regarding the first three, Commit says it was an established practice between the parties that due to a considerable “lag” in purchase orders being issued it would commence preparatory work on the understanding that a purchase order would be forthcoming.
[41] Dimension Data responds claiming approval was not given for the works in question to be commenced. Commit’s reply provided details of other invoices in which the practice has applied whereby Commit incurred costs whilst awaiting purchase orders to issue. Therefore it says that work was carried out in accordance with acceptable practices of which Dimension Data has had the benefit of for a period of time.
[42] Commit says no payment schedules issued in relation to those three invoices. Regarding the fourth invoice which Dimension Data believes is not payable, Commit’s response was that a purchase order was issued and preparatory work was carried out and, in fact that purchase order had issued prior to the project being put on hold.
[43] Regarding Dimension Data’s challenges of the next three invoices claiming they were issued outside the prescribed time limit; Commit responded that the parties had separately agreed that Dimension Data would provide notification of projects that were closing to ensure Commit invoiced everything it needed to. Commit says however that it received no such notification in relation to two of the invoices in question.
[44] Commit’s response regarding the third of those is that Dimension Data’s email preceded any agreement reached by the parties on 26 and 27 June. Also, Commit challenges claims that Dimension Data’s earlier 22 June 2016 email actually provided
notice of projects closing, but rather asked Commit to review and provide feedback prior to Dimension Data sending notices of projects for closure.
[45] Dimension Data claimed Commit’s invoices were submitted more than 60 calendar days after notification of project closure. Commit says that notification did not actually advise the date from which the time limits would start to run. Commit says it was waiting for purchase orders/variation orders from Dimension Data before submitting its invoices. Commit says it was never provided an actual warning or notice confirming date of closure.
[46] Regarding the final invoice [Blackhaul] Dimension Data claims it was not obliged to pay it because it was not clear if the estimate given by Commit was accurate. Commit’s response was that the invoice was rendered to Dimension Data on 30 August 2016 and provided on 19 September 2016 together with a detailed breakdown showing the manner in which the amount claimed was calculated. It says Dimension Data’s correct response should have been to submit payment schedule by 20th of the month following, namely 20 October 2016. It says there is nothing to stop Dimension Data from obtaining advice from another supplier to determine the accuracy of the amount claimed but meanwhile it should make payment to Commit.
Set off
[47] Dimension Data claims it has overpaid Commit in relation to the Last Mile Project. None of Commit’s 44 payment claims is connected to the Last Mile Project.
[48] It follows, submits Mr McAnally that any issue about whether or not Dimension Data has overpaid for stock on the Last Mile Project is a matter between Dimension Data and the University only. The stock in question was owned by Dimension Data and not Commit and therefore Commit says it has no obligation to reconcile stock on behalf of Dimension Data. Dimension Data’s response was that no challenge was provided for its calculation of the amount of $105,207.07 now claimed as a set off.
[49] It is argued for Commit that s 79 CCA prohibits any set-off regarding payments due as a result of a payment claim. Dimension Data’s response is that the eight
invoices reviewed do not contain a valid payment claim and would apply therefore only to the 36 invoices which are unchallenged amounting to $24,678.00.
[50] It is argued for Dimension Data that the prohibition contained in s 79 of the CCA only affects the operation of s 290(4)(b) and does not affect s 290(4)(c) of the Act. Section 290(4)(b) provides that the Court may grant an application to set aside a statutory demand if satisfied the company appears to have a counterclaim, set-off or cross demand of a greater amount than that demanded by the statutory demand.
[51] Section 79 of the CCA does not permit the Court to give effect to any counterclaim, set-off or cross demand other than one for which a judgment has been entered or if there is not in fact any dispute between the parties about the set-off claim. Dimension Data claims s 79 does not apply because there is no dispute about its set off claim.
[52] Dimension Data asserts s 290(4)(c) justifies other grounds for setting aside the statutory demand.
[53] Dimension Data says it is not in dispute that its set-off claim is justified and it does not concern issues raised upon Commit’s statutory demand, but concerns separate issues between the parties.
[54] Mr Holm-Hansen submits therefore it is open for the statutory demand to be set aside on other grounds notwithstanding that 30 of the invoices referred to by that demand, are unchallenged.
Other grounds
[55] Dimension Data asserts it is solvent. There does not appear to be any evidence indicating otherwise.
[56] There is it says evidence supporting claims that Commit has invoiced for goods and services in amounts in excess of the extent of those goods and services provided. Commit’s agreement to discontinue the Last Mile Project routine of monthly invoicing provides an acknowledgement (implied at least) of the fact that those goods and
services had not been used and offers some evidence of an acknowledgement of a set- off claim.
[57] In those circumstances it could be considered unjust to permit Commit to proceed with the Court liquidation process or for Commit to rely solely on CCA indications of insolvency.
[58] Dimension Data says the issue of the statutory demand was an abuse of process it having been served shortly prior to Christmas and it being in response to Dimension Data’s cancellation of all outstanding University projects.
Reasons
[59] It seems to the Court there are eight invoices totalling $48,294.48 concerning which there are claims of a genuine dispute. Each party has its own view regarding whether these are CCA compliant. In the Court’s view those differences are not resolvable by the evidence provided upon the setting aside application.
[60] Commit is seeking creditor protection provided by the CCA provisions. That Act is about satisfying payment demands unless those are challenged in the manner the CCA prescribes.
[61] It is the Court’s view some issues arise regarding the sufficiency of invoices being CCA compliant as a payment claim. That comment includes reference to the Blackhaul invoice which is without much detail. That invoice amounts to nearly half of the total statutory demand claims.
[62] If it appears that the issue of invoices and the raising of queries regarding those should suggest any laxity regarding observation of CCA expectations, then the explanation may lay in the fact that the parties have satisfactorily conducted significant commercial contact over a period of three to four years.
[63] In that description of issues, it appears the eight challenged payment claims may not have been CCA compliant and that criticism may also be made to the challenge of those. The evidence available to resolve the compliance issues is not sufficiently clear to enable the Court to determine those differences. Regarding
Dimension Data’s challenge of the Blackhaul invoice it is Commit’s position that in the three – four years previously no invoices had been queried for lack of detail. Further, that it was usual practice to attach spreadsheets with invoices as was done on that occasion.
[64] CCA compliance never appeared to be in question with the parties’ commercial arrangement. Rather they developed a practice that was sufficient for the parties’ services until those events just days before the issue of the statutory demand when Dimension Data was advised that all contract work was to stop. An assessment of CCA compliance is not a simple task in the circumstances.
[65] Regardless, the availability of a set off claim cannot be precluded because it concerns a matter that was not subject to consideration upon the statutory demand invoices and about which there appears to be little dispute. Dimension Data’s solvency is not in issue. The timing of Commit’s service of its statutory demand, shortly prior to Xmas, was reactive and undoubtedly intended to create pressure for Dimension Data. The parties’ issues are much larger than their dispute about CCA compliancy, and are not suitable for determination upon a statutory demand claim.
Result
[66] The Court accepts there are proper grounds for Commit’s statutory demand to be set aside and orders accordingly.
[67]Costs are reserved for determination upon application.
Associate Judge Christiansen
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