Elite Advance Tiling Limited v Bellaroc Limited
[2017] NZHC 878
•4 May 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-001238 [2017] NZHC 878
BETWEEN ELITE ADVANCE TILING LIMITED
Plaintiff
AND
BELLAROC LIMITED Defendant
Hearing: 4 April 2017 Appearances:
R A Hearn for Plaintiff
G K Riach for DefendantJudgment:
4 May 2017
INTERIM JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] Elite Advance Tiling Limited (Elite) applies to set aside a demand issued against it under s 289 of the Companies Act 1993 by Bellaroc Limited (Bellaroc) dated 15 December 2016. The application is made under s 290 of the Companies Act. To the extent relevant, s 290(4) provides that the Court may grant an application to set aside a statutory demand if it is satisfied that there is a substantial dispute over whether or not the debt is owing or is due, or if it appears that the company has a counterclaim set-off or cross-demand against the creditor.
[2] In the demand Bellaroc claims that it is owed $22,267.13 by Elite for goods supplied to Elite in the form of materials used in the course of tiling, though not tiles.
[3] In Industrial Group Ltd v Bakker the Court of Appeal said:1
… the statutory scheme is for applications to set aside statutory demands [is] a summary proceeding. … The section calls for a prompt judgment as to whether there is a genuine and substantial dispute. … The test may be
1 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413 at [24]-[25].
compared with the principles developed in cognate fields such as applications to remove caveats, leave to appeal an arbitrator’s award …
… The tight time constraints distinguish the s 290 discretion from that to be exercised on, say, a summary judgment application, where the presence of complex legal issues is not necessarily a bar to a remedy. As with leave to appeal an arbitrator’s award, the hearing should, in the normal course, be short and to the point, and the judgment likewise.
[4] In AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq), the Court of Appeal said:2
[22] It is important to keep in mind the words of the statute. What the applicant must show is that the dispute it raises has substance; the applicant must explain to the court what the dispute is; and the dispute so shown must be real and not a fanciful or insubstantial dispute. … [However] The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.
[5] The events which gave rise to the sums claimed in the notice issued by Bellaroc are part of a factual matrix involving not only Elite and Bellaroc, but also a company called Build Team Limited (Build Team). Both Bellaroc and Build Team Limited are controlled by Mr S W North. Elite is controlled by Mr A C O Araujo. Elite carries out tiling. Bellaroc supplies tiling materials. Build Team carries out building and tiling. Elite bought tiling materials from Bellaroc to be used on tiling jobs it carried out for Build Team. Mr Araujo previously worked for Build Team. Further, there was a three-way arrangement by which Build Team would source tiling jobs, and Elite would carry out the tiling and receive, as payment, 80 per cent of the amounts received from Build Team’s customers for labour and materials. Materials other than tiles, such as grout, adhesives etc, would be sourced from Bellaroc.
[6] Unfortunately, Mr Araujo and Mr North who once were close friends fell out during the course of working under this arrangement. There are significant disputes between them, and unpaid invoices issued by Bellaroc and Elite. The latter led to Elite issuing a notice under s 289 against Build Team, and the former to Bellaroc issuing a notice under s 289 against Elite. The former notice was not met by Build Team so Elite has filed a proceeding seeking appointment of liquidators to Build
Team. That is proceeding CIV-2016-409-1140 (proceeding 1140). Build Team has
2 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1538.
filed a statement of defence. That application and the current application by Elite to set aside the notice under s 289 issued by Bellaroc were heard at the same time with all evidence being considered on each, to the extent relevant. At the hearing Mr Araujo, Mr Anderson and a Mr P W Watts, a former employee of Build Team who now works with Elite, were cross-examined. Mr Araujo gave evidence with the assistance of an interpreter in Portugese.
[7] The claim by Bellaroc relates to supply of materials for a tiling job carried out by Elite for Build Team in MacDougall Avenue, in a total sum of $18,642.12, and $3,625.01 for materials for other jobs, a total of $22,267.13.
[8] The issue before the Court on this application is whether the notice in respect of the sum of $22,267.13 should be set aside. Elite does not dispute that it owes this sum, but says, first, that there is a substantial dispute about whether the sum of
$18,642.12 is due, as according to Elite there was an agreement between Elite, Bellaroc and Build Team that Elite need not pay Bellaroc in respect of the MacDougall Avenue job until Build Team had been paid by the principal contractor on the site, Mark Prosser Builders. That company has not paid Build Team in full. There are disputes between Build Team and Mark Prosser Builders which have led to this situation. Build Team says a number of the complaints about workmanship levelled by Mark Prosser Builders relate to the work of Elite. Elite denies faulty workmanship.
[9] It is sufficiently established, for the purposes of this application, that the agreement referred to was made after Mr North had told Mr Araujo that he was “off to court” in relation to the sum Build Team maintained was owing by Mark Prosser Builders. Build Team, though, did not in fact sue Mark Prosser Builders as indicated, deciding instead not to seek recovery. Elite says it did not know of this decision until an affidavit by Mr North in this proceeding was served in February
2017. Mr North says, now, that he assumed that in making the agreement with Elite that I have set out, Build Team would in fact be paid by Mark Prosser Builders.
[10] Two questions arise in relation to these arrangements. First, they were made after it was known that there was a dispute by Mark Prosser Builders in relation to
how much it had to pay Build Team, and Build Team had told Elite that it intended to take proceedings against Mark Prosser Builders, so it appears to have been intended that the agreement by Bellaroc to not require payment by Elite would continue until that proceeding was successfully concluded. It is not clear, however, what the position would be if Build Team decided not to pursue Mark Prosser Builders, as in fact occurred.
[11] Secondly, it is not clear how much of the responsibility for Mark Prosser Builders not paying Build Team lies at the feet of Elite for the work it did on this job. Elite accepts that if it has undertaken faulty work on this job it will put it right at its own expense, and it agrees that once it is paid by Build Team for the MacDougall Avenue job it will pay Bellaroc.
[12] Because the issue of how much Elite is owed by Build Team on this job is a matter of dispute, it is not part of the debt in respect of which Elite pursues the liquidation of Build Team in proceeding 1140. The decision to proceed that way was certainly correct. Similarly, for the reasons given, I find that there is an arguable dispute over whether the sum owing to Bellaroc is yet due. Mr Riach says that the arrangement made was not a variation of contract, and that no estoppel arises as there is no evidence of reliance, or detriment. I do not accept, on the present application, that a finding of variation of contract could not be established. Further, there is some evidence of detrimental reliance by Elite not pressing for payment of its entitlement until Build Team was paid. These are issues for determination at trial of a civil proceeding.
[13] Elite says, secondly, that Bellaroc owes it $14,202.50 for work which Elite undertook at Bellaroc’s own showroom. Bellaroc denies liability. The work was organised by Mr North who thinks that the work was to be done free of any charge. Elite says this is not so. So far as this item is concerned there is plainly an arguable dispute. For this reason Elite has an arguable counterclaim and set-off against Bellaroc in the sum of $14,202.50.
[14] As noted in paragraph [7] the statutory notice issued by Bellaroc also relates to materials provided for other tiling jobs in the sum of $3,625.01. In respect of this
sum Elite says it will pay once it is paid sums which it says are owed by Build Team and are the subject of proceeding 1140. I am unable to find any basis upon which it can be asserted that there is an arguable defence to paying this sum now, but as noted Elite has an arguable counterclaim exceeding this balance.
[15] The consequence of these findings is that the Court could set aside the statutory demand. There is, however, a further issue to consider.
[16] As recorded earlier in this judgment the financial affairs of Elite, Bellaroc and Build Team are interrelated. In his affidavit sworn on 29 March 2017, Mr Araujo says this, by reference to an affidavit sworn by Mr North in opposition to Elite’s application to set aside Bellaroc’s statutory demand:
Also at paragraph 10 Mr North says that if Build Team makes payment to Elite of the remaining sum claimed for MacDougall Ave, then Elite should immediately make payment to Bellaroc of the amount claimed in the statutory demand. I am happy with that as it reflects what we agreed. In my discussions with [Mr North] he said there was still $35,000 owing from Mark Prosser, so Elite’s entitlement would be $28,000 based on that figure.
[17] In the judgment issued contemporaneously with this judgment on proceeding
1140, the Court has made an order placing Build Team into liquidation, but deferring that order for a period of time, to enable Build Team to make payment of the sum the Court has found to be presently due and owing.
[18] The sum claimed by Elite to be owing on the MacDougall Avenue contract is not included within the sum for which the Court has found that Build Team is liable to Elite, on proceeding 1140, and which the Court has given it an opportunity to pay prior to the liquidation order made on that proceeding taking effect. Therefore, Mr Araujo’s commitment to pay Bellaroc, quoted above, is not strictly applicable. For all that, though, the affairs of the three companies are so interwoven, and in certain parts of the arrangements made by the three companies there are such significant areas of doubt, that the Court must exercise caution in making orders which isolate the financial position established in relation to some jobs from those over which doubt remains. This is particularly so when the Court is dealing with applications brought under the Companies Act in relation to notices under s 289 and proceedings to place companies into liquidation.
[19] The consequence is that although there are grounds to set aside the notice issued by Bellaroc this may be a case where the Court should exercise a discretion not to do so. This discretion is described by the Court of Appeal in Alfex Doors & Windows Ltd v Alutech Windows & Doors Ltd thus:3
where grounds for setting aside under s 290(4) are clearly made out, it will be a rare case in which, in exercise of the residual discretion, the application is refused. The circumstances of each case will call for consideration.
[20] Argument was not presented on this point. As this judgment is being issued contemporaneously with the judgment on proceeding 1140, it will be issued on an interim basis. In the event that Build Team pays to Elite the sum which it has an opportunity to pay, with the result that Build Team is not placed into liquidation, it is my present view that the discretion the Court has under s 290 should be exercised against setting aside Bellaroc’s notice, with the result that Elite would be obliged to pay to Bellaroc the full amount of the demand, or face a liquidation application. In the event Build Team is placed into liquidation my present view is that Bellaroc’s notice must be set aside, there being, in that circumstance, no basis on which to exercise the Court’s discretion against doing so.
Outcome
(a) The application is adjourned to the List on 1 June 2017 for further consideration in light of the outcome of the application to place Build Team into liquidation.
(b) Costs are reserved.
J G Matthews
Associate Judge
3 Alfex Doors & Windows Ltd v Alutech Windows & Doors Ltd (2001) 16 PRNZ 963 (CA) at [14].
See also Primary Health Remuera Ltd v Avoca Residential Construction Ltd (2004) 9 NZCLC
263,647 (CA).
Solicitors:
Corcoran French, Christchurch
Harmans Lawyers, Christchurch
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