George Grant Engineering Limited v Steelrite Engineering Limited
[2020] NZHC 1815
•20 July 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-419-238
[2020] NZHC 1815
BETWEEN GEORGE GRANT ENGINEERING LIMITED
ApplicantAND
STEELRITE ENGINEERING LIMITED
Respondent
Hearing: 20 July 2020 Appearances:
T J P Bowler for the Applicant
K T Glover with R Langdana for the Respondent
Judgment:
20 July 2020
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Neilsons Lawyers (Trent Bowler), Auckland, for the Plaintiff Arnet Law (Gavin Arnet), Pukekohe, for the Defendant
Copy for:
Kevin Glover/Rayhan Landana, Barristers, Auckland, for the Defendant
GEORGE GRANT ENGINEERING LIMITED v STEELRITE ENGINEERING LIMITED [2020] NZHC 1815 [20 July 2020]
[1] George Grant Engineering Ltd applies to set aside a statutory demand served on 23 August 2019. The demand is by Steelrite Engineering Ltd, a welding company. The amount of the demand is $27,861.72. That is said to be the balance owing for welding work carried out by Steelrite under a sub-contract to George Grant Engineering Ltd at the Westfield Newmarket site. The original bill was $33,706.50, but $5,844.78 had already been paid.
[2] George Grant Engineering Ltd carries on business in the fabrication, supply and installation of structural steel. Steelrite Engineering did welding work for George Grant Engineering Ltd on two jobs – one at Westfield Newmarket, and the other on a building for Bupa Health and Care at Te Rapa, Hamilton. Steelrite says that George Grant Engineering Ltd has not paid it in full for either job. For the Bupa job it says it is owed $18,071 but it has not issued a statutory demand for that debt. Instead, it issued a statutory demand only for the Westfield Newmarket job, that is, for
$27,231.72.
[3] George Grant Engineering accepts that Steelrite Engineering is entitled to be paid $27,231.72 for the Westfield job, but it says that it has a counterclaim against Steelrite Engineering for the Bupa job and that counterclaim exceeds what it has to pay Steelrite for the Westfield job. It also says it is not indebted to Steelrite for the
$18,071. It says, instead, that Steelrite must pay it for losses caused by Steelrite’s alleged defective work.
[4] George Grant Engineering Ltd’s application is under s 290(4)(b) of the Companies Act 1993, under which a statutory demand may be set aside if the company served with the demand 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 of $1,000. George Grant Engineering Ltd says that its counterclaim exceeds Steelrite’s claim for the Westfield invoice.
[5] In Covington Railways Ltd v Uni-Accommodation Ltd the Court of Appeal stated the approach under s 290(4)(b):1
Where a company which is the subject of a liquidation application is indisputably in debt to the applicant creditor, it may nonetheless be able to show that it has a claim against the applicant which reduces the net balance owing to the creditor or even offsets it altogether. Where there are liquidated sums due each way, that is simply an arithmetical exercise. It is more difficult if, on the applicant's side, there is an indisputable liquidated sum, but the other party's claim is for an unliquidated sum with liability and/or quantum in dispute. Then, in order to impeach the statutory demand and overcome the presumption in s 287(a) that the company is unable to pay its debts when it has failed to comply with the demand, it must be able to do more than merely assert that there is an available set-off. It must be able to point to evidence before the Court showing that it has a real basis for the claimed set-off and that accordingly the applicant's claim to be a creditor is, to the extent of the set-off, seriously in doubt. In the words of Buckley LJ in Bryanston Finance Ltd v de Vries (No 2) [1976] Ch 63 at p 78, it must show that there are ``clear and persuasive grounds'' for the set-off claim. Where this can be done, the party who has issued the statutory demand against the company will be shown to be using the statutory demand and liquidation procedures improperly because there is a ``genuine and substantial dispute'' about the net amount of the company's indebtedness (Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 at p 299). The dispute should then be resolved in the ordinary way – except as to any undisputed balance – rather than upon the hearing of a liquidation application.
[6] George Grant Engineering Ltd takes an objection to the form of the statutory demand. The statutory demand in evidence does not have on it the handwritten signature of any person. George Grant Engineering says that is fatal to the demand. The demand is otherwise in conventional form. It is headed up:
In the matter of the Companies Act 1993, section 289 and
In the matter of George Grant Engineering Ltd.
The demand is addressed to George Grant Engineering Ltd. The drafting of the demand is conventional and conforms with s 289 of the Companies Act. The demand is, however, not dated. Underneath the space for the date appear the words:
Steelrite Engineering Ltd
by its authorised agents and Lawyers, Arnet Law Limited.
1 Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA) at [11].
In the space below a handwritten signature can be written, but there is no handwritten signature.
[7] The formal requirements for a demand under s 289 include that it must be in writing. Section 289 does not, however, expressly say that the statutory demand must be signed. In support of his submission, Mr Bowler referred to AMP Bank Ltd v Henson.2 That is a decision of Rodney Hansen J on an application for leave to appeal out of time against a decision of Master Gambrill. It was a decision on a statutory demand served by a person who was self-represented. Hansen J said that Master Gambrill gave a number of reasons for setting aside the statutory demand. One of those reasons was that the statutory demand had not been signed. It appears from his decision that there were other grounds on which the statutory demand was set aside. Hansen J endorsed those other grounds. He did not discuss whether the absence of a signature counted against the statutory demand. Mr Bowler raised the point about absence of signature in a memorandum received on Friday afternoon, 17 July. Counsel have not had the opportunity to obtain Master Gambrill’s decision which I understand is not available from the court itself.3
[8] The Companies Act does not have a specific definition of “writing”. Instead the definition in s 29 of the Interpretation Act 1999 applies:
writing means representing or reproducing words, figures, or symbols in a visible and tangible form and medium (for example, in print).
The definition does not require that “writing” must be signed.
[9] Section 289 may be compared with its predecessor provision, s 218 of the Companies Act 1955. That required that a notice be “under the hand” of the creditor. That meant that the notice had to be signed by the creditor. In Bateman Television Ltd v Coleridge Finance Company Ltd,4 the Court of Appeal held that the creditor personally need not sign the notice but it could be signed by an agent of the creditor. In that case, a solicitor had signed the demand. Given the clear requirement under the 1955 Act that a statutory demand be signed, the absence of such an express
2 AMP Bank Ltd v Henson HC Auckland, M.1598-IM/01, 14 November 2001.
3 Afterwards, I did receive a copy. See paragraph [31] below.
4 Bateman Television Ltd v Coleridge Finance Company Ltd [1969] NZLR 794 (CA).
requirement in the 1993 Act suggests that Parliament did not intend that a statutory demand must be signed.
[10] In any event, it may be arguable that there is a signature. It is important to bear in mind that signatures may be more than handwritten marks on a document. In Welsh v Gatchell,5 a decision on the meaning of a signature under the Contracts Enforcement Act 1956, Miller J recognised that a signature need not be handwritten and a stamped name had been held sufficient. Applying the approach in that case, the typed name “Steelrite Engineering” below the body of the demand, may count as a signature. The name “Steelrite Engineering Ltd” on the demand, separate from the body of the demand, counts as a signature.
[11] Even if it were not a signature, I would in any event not rely on the absence of a signature to set aside the statutory demand. Under s 290(5) of the Companies Act 1993, a demand–
… must not be set aside for reason only of a defect or an irregularity, unless the court considers that substantial injustice would be caused if it were not set aside.
Any irregularity here does not go to the fundamental validity of the demand. George Grant Engineering Ltd was not misled by the demand. It did act promptly once served by applying under s 290 to have the statutory demand set aside. Clearly the company and its lawyers appreciated the effect of the demand and took the appropriate action. George Grant Engineering Ltd was not misled by the absence of any handwriting on the document.
[12] Mr Glover explained that the solicitors who served the statutory demand had given the process server two demands – one signed, and one not signed. The process server mistakenly served the unsigned version. No evidence was given on that point. That is understandable, given that Mr Bowler raised the point late. It is good practice for those serving statutory demands to sign the documents to show that there is serious intent behind the document. Notwithstanding that, Steelrite did comply with the statute.
5 Welsh v Gatchell [2009] 1 NZLR 241 (HC).
[13] Now for the counterclaim itself. The statutory demand was issued for work carried out on the Newmarket Westfield site. The counterclaim relates to work carried out at the Bupa site in Te Rapa. The two jobs were unrelated except that in both jobs, George Grant Engineering Ltd was the contractor and Steelrite Engineering Ltd was the subcontractor. The claims between them are from dealings between them in the same capacities. There is mutuality. So long as there is mutuality, there is no requirement under s290(4)(b) that the claim by one side should in any way be connected to the claim by the other side. That is, the counterclaim for the Bupa job can be applied against a claim for payment for the Newmarket job.
[14] Now for the work at the Bupa site. George Grant Engineering Ltd had the contract to fabricate and install structural steel. It engaged Steelrite to weld large plates to the lift-shaft framework on the Bupa site. Mr Grant, the contracts manager, says that George Grant Engineering Ltd then asked Steelrite to do additional welding work – welding large K-brace frames. The function of K-brace frames is to provide seismic strengthening. Mr Grant says that when Steelrite completed the work, it was inspected. The welding inspector failed all the welds carried out by Steelrite.
[15] The matter comes down to the kind of welds that were required. Mr Styles, the director of Steelrite, explains that different welds can be used to join braces. The first is called a “full penetration weld”. The second is called a “partial penetration weld”, and the third is called a “T-butt weld”. In this case, Steelrite welders did partial penetration welds whereas the welding inspector found that full penetration welds were required. The parties accept in this application that to comply with the Building Code, full penetration welds were required. The difference between the parties is about who was responsible for Steelrite doing partial penetration welds instead of full penetration welds.
[16] Steelrite was to do the work on a charge-out basis. It was not under any incentive to cut costs. The problem, in my judgment, is that there appear to have been failures of communication on both sides. Steelrite says that its two welders, who worked on site, were not given any specific instructions as to the welding work, other than that the welds were to be “MP” tested (mag particle). Steelrite says that that is a pointer to partial penetration welds rather than full penetration. That aside, Steelrite
says there was no direct instruction as to what kind of welds were required. Steelrite also says that the way that the steel beams were presented would suggest that partial penetration was required. That was because, if full penetration was required, that would require cutting into flanges on the beams. It would be unusual to expect the welder to make such substantial changes, when George Grant Engineering had fabricated the beams to be welded as K-braces.
[17] The contrary argument from George Grant Engineering Ltd is that the welders would have understood that they were required to make full penetration welds. Its case is that the matter was so obvious that it goes without saying. The welders did not have to be told. As to the way the work was presented, Mr Grant says in his reply affidavit:
“It is common industry practice for the welder to weld one side of the joint and then remove material from the opposing side of the joint to enable full penetration of the weld metal. There is nothing about the joint configuration of the K braces that would have prevented this step in the welding process
…”.
[18] The evidence shows on the one hand an absence of express instruction by George Grant Engineering Ltd and on the other hand the welders carrying out the work on an assumption, without having asked what welds were required. Maybe the welders thought that they should not Rolls-Royce the job, given that much more work was required for a full penetration weld instead of a part-penetration weld. But that is only one consideration.
[19] Steelrite made the point that George Grant Engineering Ltd had project managers, and George Grant Engineering Ltd took responsibility for project-managing and supervising the work by the welders. Therefore George Grant Engineering Ltd should take responsibility for supervising the welders’ work. They should carry the costs if they failed to point out that full penetration was required.
[20] I accept that there is some weight in that. Notwithstanding that, for me to find for Steelrite, that there is not a genuine counterclaim would mean making a fine- grained decision on a dispute about who is responsible for the welds. I have no personal knowledge of industry practice but must rely on evidence. There is no
independent expert evidence. Each side has put forward apparently plausible evidence. I cannot say that one side is unquestionably right and the other side must be rejected. In short, there is a genuine dispute as to liability and therefore a basis for the counterclaim.
[21] Later Steelrite Engineering Ltd may be able to show that the ultimate responsibility for the wrong welds being applied lies with George Grant Engineering Ltd, but I cannot make that finding on the present state of the evidence. The evidence is to a certain degree indirect and second-hand. It comes from managers and directors, not from the people on the shop-floor. The evidence has not been tested by cross- examination. Accordingly, under the Covington test George Grant Engineering Ltd has an arguable counterclaim for breach of contract against Steelrite Engineering Ltd for providing the wrong welds.
[22] The next matter is the amount of the counterclaim. In his updating affidavit of 28 February 2020, Mr Grant has provided a schedule of the costs of remedial work. The schedule is not for all the remedial work because once the problem was identified Steelrite Engineering Ltd came back on site and remedied the welds themselves. Whereas their work had initially been charged out at $60 per hour, they reduced their rate to $50 per hour. They billed $18,071 for that work. George Grant Engineering Ltd says that Steelrite Engineering Ltd was not entitled to charge it for fixing up its own mistakes. If they are mistakes, that may be an answer to the claim for $18,071. Mr Grant says that in addition to that work carried out by Steelrite Engineering, George Grant Engineering engaged other welders and other sub-contractors. It incurred costs of $44,596.76 plus GST, more than the amount in Steelrite’s statutory demand.
[23] Steelrite Engineering Ltd has gone through the costs claimed by George Grant Engineering Ltd and found areas of over-charging. For its invoices, George Grant Engineering Ltd has added on a 20 per cent mark-up. A mark-up is inappropriate. It might be acceptable if George Grant Engineering Ltd did work under a contract for some third party. But here, the enquiry is as to the damages it has suffered as a result of the breach of contract. The measure is to what extent George Grant Engineering
Ltd is out of pocket by reason of having to fix up the mistaken work by Steelrite Engineering Ltd. That does not allow for charging any margin on costs incurred.
[24] Another aspect is that George Grant Engineering Ltd has claimed GST on its damages. There is no relevant taxable supply of services for the damages claim by George Grant Engineering against Steelrite Engineering. Accordingly, there should be no claim for GST in the damages award.
[25] Steelrite Engineering has also taken the point George Grant Engineering has not exhibited every invoice for all its claims for remedial work. Some invoices have been submitted, but not all. That is probably too strict. George Grant Engineering has taken the effort to work out costs it has incurred. Under s 290(4)(b) it would be cutting it too fine to discount a claim because not every supporting invoice has been put in evidence.
[26] The evidence is not clear as to the entire scope of work undertaken. It is not clear that all the charges relate solely to remedial work. I query the claim for project management. If George Grant Engineering Ltd has a project manager on site, doing work that he would normally receive a salary for, it is hard to see how George Grant Engineering Ltd has been put out of pocket.
[27] There are some clear items of over-charging in the damages claim. There are aspects which have yet to be adequately proved, and others that need to be fully explored and tested. Notwithstanding that, even discounting some of the figures, it appears that the counterclaim (if established) would be roughly the same amount as the claim in the statutory demand. If there is any difference, the difference is not big enough to be worth ordering a payment.
[28]Accordingly, I find that the alleged counterclaim does come within s 290(4)(b).
[29] Steelrite Engineering Ltd should pay costs on the application to set aside the statutory demand. Mr Bowler referred me to letters sent before the statutory demand was issued where George Grant Engineering Ltd and its lawyers pointed out that there was a dispute as to the work. Steelrite thought it could get around the problem by
issuing the demand only for the Newmarket Westfield job, and leaving the Bupa job to one side. That was a mistake, because the counterclaim could be raised for the Bupa job even though the statutory demand was only for the Newmarket Westfield job. That seems to have been a mistake in judgment, but nothing more dire than that. I am not satisfied in the circumstances of this case that there is any call for increased costs.
[30]Accordingly, I make these orders:
(a)I set aside the statutory demand;
(b)Steelrite Engineering Ltd will pay the costs on the application for service of the statutory demand on a category 2 basis, plus disbursements as fixed by the Registrar, but I do not order increased costs.
Addendum
[31] Since giving my decision, I have received a copy of the Master Gambrill’s decision of 14 November 2001 in AMP Bank Ltd v Henson. She said:
[4] … In my view an unsigned document of this nature bearing in mind the effect of the document should not be issued and cannot be considered a valid demand.
She did not, however, give any further reasons for holding that a signature was required. Having now read her decision, I see no reason for recalling my judgment.
………………………………
Associate Judge R M Bell
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