Geotech Limited v Mount Grey Downs Limited

[2019] NZHC 1395

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2019-409-000107

[2019] NZHC 1395

BETWEEN

GEOTECH LIMITED

Applicant

AND

MOUNT GREY DOWNS LIMITED

Respondent

Hearing:	11 June 2019
Appearances:	O Peers and A Cao for Applicant D J Ballantyne for Respondent
Judgment:	18 June 2018

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

(on application to set aside statutory demand)

[1]                 The applicant, Geotech Ltd (Geotech), has mining and mineral interests. The respondent, Mount Grey Downs Ltd (Mt Grey), provides a range of contracting services, including site works, cartage and vehicle maintenance. Geotech was using Mt Grey’s services relevantly from mid-2017.

[2]                 On 21 February 2019 Mt Grey served on Geotech a demand under s 289 of the Companies Act requiring payment of $241,167.80 said to be owing as at that date “for services provided as set out in the letter and invoices accompanying this statutory demand.”

[3]                 Service of this demand followed service of an earlier demand by Mt Grey on Geotech on 23 July 2018. That demand was the subject of an application to set aside under s 290, which was decided by a judgment of this Court dated 26 November 2018.

GEOTECH LIMITED v MOUNT GREY DOWNS LIMITED [2019] NZHC 1395 [18 June 2018]

The demand was not set aside. Payment of the sum found to be in dispute was duly made. The Court found Geotech had an arguable cross-claim for $146,666.21.

[4]                 Mt Grey sought further payments from Geotech in the period of two months prior to service of the demands now in issue. On 17 December 2018 Mt Grey sought payment of $413,002.54 which included a claim for payment of invoices which had been found to be the subject of a counterclaim in the judgment of this Court referred to. The balance of the sum claimed in the first demand had been paid by that time.

[5]                 After correspondence between solicitors for Mt Grey and Geotech a further demand was served on 25 January 2019, this time for $374,265.78. The difference in the sum claimed was as a result in a reduction of the sum sought for interest, but the sum which  had  been  found  in  the  judgment  of  the  Court  to  be  the  subject  of a counterclaim was still included in this demand.

[6]                 After further correspondence between solicitors this demand was withdrawn but a few days later the current demand was issued. This time the sum which had already been found to be the subject of a counterclaim ($146,666.21) had been removed from the sum sought.

[7]                 Service of this demand under cover of a letter from Mt Grey’s solicitors was accompanied by time records and work sheets from Mt Grey said to relate to mechanical invoices for which charges had not been made at the time the first demand was issued on 23 July 2018. Most of the work to which the claim related had been invoiced on 31 July 2018 but related to work done on Geotech vehicles in the earlier months of 2018. Although Geotech had received the invoices comprised in this demand in September and November 2018, this was the first time it had received supporting information of the type now supplied. None of the invoices made reference to an order number issued by Geotech.

[8]                 The demand also sought payment of invoices for site works carried out by  Mt Grey for Geotech in a total sum of $62,094.26. Geotech does not seek to set aside this position of the demand. Costs awarded against Mt Grey on its earlier application

were also included in the demand but have since been paid. Geotech applies to set aside the balance of the notice and Mt Grey opposes this application.

[9]                 The grounds on which Geotech relies for an order setting aside the balance of the demand are that there is a genuine and substantial dispute as to whether the sum referred to in the statutory demand is owing or due, and that the demand is an abuse of the statutory demand process. It is also said that it would be unjust and inequitable in the circumstances to permit Mt Grey to proceed to liquidate Geotech, and that it is in the interests of justice to set aside the statutory demand.

The jurisdiction to set aside a statutory demand – the principles

[10]              The Court’s jurisdiction to set aside a statutory demand is contained in s 290 Companies Act 1993, I refer specifically to the ground contained in s 290(4) which reads:

290     Court may set aside 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)…

(c)the demand ought to be set aside on other grounds.

[11]              I adopt as a general approach to the exercise of this jurisdiction the following principles:

·     The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. Put another way, the applicant must show that there is a real and not a fanciful or insubstantial dispute.1

1      Re A Company [1991] BCLC 737 (Ch) at 740, adopted in AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338 at [22].

·     The mere assertion that the dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.

·     If such material is available, the dispute should normally be resolved other than by way of proceedings in the Court’s Companies Act jurisdiction.

[12]              The role of the court on an application under s 290 is only to determine whether there is a substantial dispute, and not to decide the merits of any dispute which may be said to exist. The onus is on the applicant, but the threshold which an applicant must meet is not high. It is described in the following terms by the Court of Appeal:2

… the statutory scheme … for application to set aside statutory demands [is] a summary proceeding … The section calls for a prompt judgment as to whether or not there is a substantial dispute. The test may be compared with the principles in cognate fields such as applications to remove caveats [and] leave to appeal an arbitrator’s award … The tight time constraints distinguish a s 290 discretion from that, say, 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.

[13]Similarly, in reaffirming this decision, the Court of Appeal said in

AAI Ltd v 92 Lichfield Street Ltd (in rec and liq):3

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    a real and not a fanciful and not insubstantial dispute … [However] the Court must also keep in mind the requirements that what is intended to be a summary hearing should not be converted into a full-blown trial.

Is there a genuine and substantial dispute over whether the claimed debt is due and owing?

Geotech’s position and Mt Grey’s response

[14]  Argument presented for Geotech on this issue may be grouped into three principal topics, though some overlap:

2      Industrial Group Ltd v Bakker [2011] NZCA 142 at [24] and [25].

3      AAI Ltd v 92 Lichfield Street Ltd (in rec and liq), above n 1, at [221].

(a)The details of work said to have been performed was only received with the statutory demand in February, so Geotech has not been able to check whether the work was done in the time available.

(b)The invoices for which payment are now claimed do not bear order numbers as required by Geotech so it cannot be satisfied that the work to which each invoice relates was authorised.

(c)For various reasons it is too late now, in any event, for Geotech to undertake this check.

(d)Section 42 Contract and Commercial Law Act 2017.

(e)Is interest payable on the basis claimed?

(f)Use of the s.289 procedure.

Details of work

[15]              Invoices for the sums now claimed were sent to Geotech by Mt Grey in September and again in November. These invoices are in evidence. They did contain some information about the work carried out, and a list of materials used. At these times, Geotech did not respond to these invoices in any way. Later it requested supporting information in the form of worksheets and as I have said, this was supplied along with the statutory demand in February. To see whether the supporting information materially supplements the information contained on the invoices, I have compared the handwritten descriptions of work done on each worksheet with the text of the invoice to which it relates.

[16]              In each case, the text describing instructions given and work performed is either identical or very close to identical on both documents. On each invoice the total hours spent are stated, taken from a breakdown of hours by date, and the mechanic’s name, on the worksheet. On each invoice the vehicle is identified, as it is on each worksheet. In short, apart from a breakdown of who worked on the vehicle in

question, and the days on which the work was done, little if anything is added to the information on each tax invoice by consideration of the worksheet to which it relates.

[17]              It is against this background I record that Ms R F Abbey, the administration manager for Geotech, states that:

Geotech considers that the invoices ought not to be payable until it has, at the very least, had a reasonable opportunity to review and assess the mechanical worksheet information provided, and compare that against its own internal records relating to the machinery and equipment in issue (including email records from staff at Geotech’s Christchurch division). Geotech has had one of its external mechanical providers reviewing some of the timesheets against the work described and the costs ascribed. This is a difficult and time- consuming process. Geotech also needs to review the dates against its own machinery usage records to confirm that there are no discrepancies with the time records as against the dates of use by Geotech.

Given the substantial delays with the rendering of such invoices, Geotech considers that a reasonable period to determine whether the invoices are properly payable to be in the order of three months. Many of the invoices were not sent to Geotech until some months after the work in question and details of hours worked and when was not provided until Mr Ballantyne’s letter dated 21 February 2019 (more than 12 months after some of the repair work at issue).

[18]              I am unable to accept some of the propositions in this evidence. First, even if Geotech is correct in its assertion that the invoices ought not to be payable until it has had a reasonable opportunity to review and assess the mechanical worksheet information, each invoice bears considerable detail about exactly what was done, which afforded Geotech an opportunity to consider the work done and the hours said to have been involved as early as September last year. At that time, too, it could have considered its own records for usage of each vehicle (all vehicles are identified on the invoices) and it seems reasonable to conclude these records would have shown where the vehicle was. Whether that is so or not, discussions could have been held with the drivers of the vehicles over the period in question. All this could have taken place as early as September 2018. Although in the case of some work, that was a few months after it was carried out, some of the work was done closer to that time. In any event investigations could certainly have got underway within Geotech. It is Geotech’s responsibility that that did not occur.

[19]              Secondly Ms Abbey refers to needing an opportunity to review and assess mechanical worksheet information, suggesting a period in the order of three months. Even if that period is accepted, (and I have difficulty, on the face of it, accepting it to be so, given the small number of invoices to be reviewed) the worksheets were received with the demand in February, and could therefore have been thoroughly assessed by May. Notwithstanding this, Geotech led evidence from just one witness on this point, Mr M A Carleton, a mechanic of Westport. He has 43 years’ experience and a long relationship with Geotech carrying out its repairs and maintenance. He says that six invoices appear on their face to record high hours for the work described. Having later reviewed timesheets and job and work notes (which I take to be worksheets before the Court to which I have referred) he expresses the view that:

Overall the level of mechanical work described and the charges rendered is high for the timeframes involved.

[20]He goes on to say:

However that without knowing the scope of instructions or the underlying symptoms it is largely impossible to determine with certainty whether or not the work performed was adequate or reasonable.

[21]              Mr Carleton takes issue on a more detailed basis with just one invoice, invoice 1530, which relates to work on a Western Star truck. He records that the truck has been sold, and the purchaser has found that it was sold with a cracked cylinder head which has subsequently had to be replaced. From the invoice it is evident the engine was leaking coolant into the engine sump at the time Mt Grey worked on it in March and April 2018. One cause of that may be a cracked head.

[22]              Mr Carleton does not say when the purchaser of this vehicle identified the problem. Given that he swore his affidavit in May 2019 it could be as long as a year after Mt Grey’s work was carried out. On the evidence before the Court it is not possible to draw an inference that the work claimed on this invoice was unsatisfactory. The position could have been checked in September 2018 because the description of work carried out on this invoice clearly refers to dealing with issues relating to water in the sump. There is no evidence either of how many kilometres the vehicle had travelled between the two events.

[23]              Mr Carleton goes on to raise questions about the work described on the worksheets (which is also on the invoice) and is generally critical about whether some tasks were necessary, and the number of hours undertaken to do certain tasks. Again, there was ample opportunity for this invoice to be queried in September without the worksheets because it discloses that 112.5 hours were charged and sets out the work done. It seems to me to be normal practice that when an invoice is received, and doubt is felt about whether it is appropriate, an enquiry can and should be made immediately  and  the  position  clarified.  Further,  the  work  was  completed  by   26 April 2018 at which point the truck was presumably returned to Geotech. If it still had water in the sump I expect that this would have been apparent immediately, if indeed the truck ran at all.

[24]              Assuming, without finding, that Ms Abbey is right that she needed three months to check the invoices against the job sheets, that period expired in May 2019.

[25]Ms Abbey filed a further affidavit sworn on 29 May. She said:

I have spent some time reviewing the invoices and timesheets against whatever records Geotech might hold in relation to the equipment and machinery.

Unfortunately despite my efforts this process has proved a largely impossible exercise due to the time that has elapsed in absence of purchase order numbers. Without purchase order numbers I cannot identify any internal records relating to mechanical issues or instructions given with respect to the machines/equipment identified in the invoices.

[26]              Ms Abbey goes on to say that she has not found any record of the machines to which the invoices relate being delivered for repair or service on the relevant dates. She adds that she has not found any information, either, to show that the machines were being used or hired out on days that repairs are said to have been carried out. She says she has only been able to check this with a partial sample because a complete audit would involve an extremely significant level of time and resource which her other current work pressures do not permit.

[27]              This evidence is surprising given that she said that three months would be required for this task, and that there are only 11 invoices with related worksheets, to be checked. Even accepting it at face value, Ms Abbey has had since September 2018

to check everything except the dates on which work was carried out, which emerged from the worksheets. If Geotech had responded to the arrival of the invoices in September or even in November it could have obtained the work sheets then. Responsibility for them not being considered until February lies with Geotech not  Mt Grey, and everything except for Geotech’s records on where the vehicles in question were on the dates they were said to be worked on, could have been checked during that five-month period. If in fact it does not keep records of where its vehicles are, that is its responsibility.

[28]              Whilst therefore I accept that it is arguable that liability to pay an invoice does not arise until after the debtor knows what that invoice relates to and, therefore, how to respond to it, I find that Geotech did have sufficient information for that exercise to be undertaken in September 2018, again in November 2018 and even accepting that three months was required for this task, more than ample time passed before the statutory demand was issued in February 2019.4

Order numbers

[29]              Geotech says that none of the invoices bears an order number, with a result that Geotech cannot be satisfied that the work charged for was authorised by it.

[30]              Evidence before the Court emphasises that Geotech required its staff to obtain company order numbers before contracting services on behalf of Geotech with providers such as Mt Grey. Ms Abbey says that Geotech has a clearly defined process for instructing mechanical and maintenance works for its vehicles and equipment which provides for a purchase order to be raised in relation to the machine, loaded in Geotech’s system and provided to the contractor. She says that without purchase order forms it is impossible to keep track of what work has been done on Geotech’s machinery and equipment, which for a business of Geotech’s size, is unworkable.

[31]              Ms Abbey describes this as standard industry practice. I have no hesitation in accepting this evidence. However, it seems plain on the evidence before the Court

4      Elementary Solutions Limited v Commissioner of Inland Revenue [2017] NZHC 32 [2017] NZCCLR 3 at [40].

that the system simply was not being used by Geotech’s employees. To find otherwise would be to impute fraud to Mt Grey by issuing numerous invoices alleging work to have been done which simply was not carried out. There is no basis upon which that implication can be made and Ms Abbey does not go so far as to make such an allegation. The thrust of her evidence is that that the lack of an order number makes it difficult for Geotech to check the position, and I accept that, but it is Geotech which did not issue orders. As an apparently substantial operator of vehicles and machinery, common sense strongly suggests that there are other ways to check the position. These will include the daily records of drivers. As Mr Ballantyne asked rhetorically:

How did the machinery and plant get to Mt Grey’s yard? How did Mt Grey know what work to do?

Why were no issues raised when the machinery and plant was collected by Geotech?

Why were no issues raised when the vehicles were unavailable to be used in Geotech’s business during the periods they are said to have been at Mt Grey.

These questions are not raised by any evidence.

[32]              This must be seen in the context of the evidence presented for Geotech. At no point does Geotech say that the work in question was not carried out. Surely, also, Geotech must have expected to receive an invoice when vehicles were returned to them.

[33]              Weighing up all the evidence on this point I find that whilst good practice, and indeed Geotech’s own internal memoranda, support the use of purchase numbers, this clearly was not happening, and work was carried out without a purchase order number being supplied. The evidence does not establish an arguable defence to the claim on the basis that no contract was entered for work to be carried out unless a purchase order number was supplied to Mt Grey in advance. There is no evidence that Mt Grey knew that Geotech would always provide an order number. Certainly, order numbers appear on invoices presented in evidence on the earlier application to set aside; this suggests that the order number system was in place and being used at an earlier date, but it seems that it fell into disuse in the early part of 2018.

Is it too late to check the invoices?

[34]              Given the discussion above, little more needs to be said. Checking could have been undertaken on almost all matters as long ago as last September. Discussions with staff using the vehicles would have filled in any gaps in relation to the need for the work. If it needed them, Geotech could have sought the worksheets in September instead of ignoring the invoices when they were sent, as it also did in November. In short, if it is too late now for Geotech to check the invoices, by far the greater part of the responsibility for that lies at its own feet.

[35]              I accept that sending out invoices weeks, and in some cases months after completion of work is an unsatisfactory practice, and not a helpful one for early resolution of any disagreement there might be about liability. I understand that the relationship between Geotech  and  Mt  Grey  broke  down  in  July  and  this,  on  the evidence, is the reason that Mt Grey then went through its records and ensured that it had charged for everything up to date.   I note that there is evidence to suggest   that when the prior proceedings were in contemplation and on foot, there was an indication that all charges had been made, though I also note that there was also       a reservation that some further charges might follow. Geotech is surprised by the extent of the further charges and given that those charges did not result from use of its own order system that is perhaps understandable.

[36]              Internal systems however which kept a record of the condition of its vehicles, the actions of its drivers, the whereabouts of its vehicles on a daily basis, and other matters of internal control would have avoided any issue with whether significant invoices for repairs might still be expected. Some of the invoices indicate that vehicles were off the road for weeks at a time.

Can the work be invoiced for after the end of the commercial relationship between Geotech and Mt Grey or must the claim be made under s 42 of the Contract and Commercial Law Act 2017?

[37]              Mr Peers argues that when the business  relationship  broke  down  in  July Mt Grey lost the right to invoice for any work prior to that time. I do not accept that submission. There is no evidence that there was a single contract governing the terms of the relationship between Mt Grey and Geotech, which was cancelled, and therefore

s 42 does not apply. Rather, each instruction to do repairs was a separate contract which was complete upon the vehicle in question being uplifted or returned. Liability under all such contracts subsisted notwithstanding a breakdown, and indeed termination, of the overall business relationship between Geotech and Mt Grey.

Interest

[38]              On all the invoices which form the basis of the statutory demands, Mt Grey states that “all overdue accounts will attract 10 per cent interest charge”.

[39]              In the judgment of this Court on the first application to set aside, Mt Grey sought payment of an invoice for interest calculated on a basis which was unclear, but as far as I gather from counsel’s argument is accepted to have been at 10 per cent per annum on a daily basis. The Court found that but for a discussion between Mt Grey and Geotech, Mt Grey would have been entitled to charge Geotech 10 per cent interest on invoice sums which were overdue.5 However the discussion I have referred to related to Mt Grey indicating that it would need to raise funds from its bank and then “on-charge” interest to Geotech. The Court found it arguable that any claim for interest after that discussion had to be by reference to the interest charged to Mt Grey by its bank, not on the basis of the 10 per cent rate referred to on its invoices. On that basis the Court was not satisfied on the evidence before it that the sum invoiced for interest was the correct amount.

[40]              Geotech says the same position should apply in this case but I disagree. There is now further evidence before the Court. Mr Johnstone, a director of Mt Grey (who was a party to the discussion just referred to) says in his affidavit in opposition to this application that the Court’s decision was based on mistaken understanding of the evidence he presented earlier. He now says that he accepts that in his affidavit on that application, he could have presented the position reached with more clarity. What he had meant to convey about his discussion was that Mt Grey had had to take out a loan to cover Geotech’s outstanding debt and would need to cover these costs by charging Geotech interest, which he had chosen not to do up to that time, and rather than simply render a statement with interest on it, he had sought to discuss it with Geotech

5      Geotech Ltd v Mount Grey Downs Ltd [2018] NZHC 3178.

beforehand and achieve acknowledgement and agreement that interest would be charged.

[41]              This evidence together with the clear statements on each of the invoices to which the demand relates leads me to conclude that interest may be charged at       10 per cent on overdue amounts. Whilst the decision reached by the Court on the earlier application is binding in relation to it and was based on the evidence the Court then had, the further evidence now given, which is not contradicted, persuades me to take a different view.

The s 289 procedure

[42]              Finally, Mr Peers described Mt Grey’s use of the procedure provided by s 289 of the Companies Act as irregular, and cavalier. He noted that the invoices for which the current demand has been issued covered work in the period for which invoices underpinning the first demand had been issued, and that between the first demand and the present demand, a second demand had been issued for a completely different sum which included a sum in respect of which the Court had already found that there was an arguable basis for a cross-claim.

[43]              There is some force in this submission. A notice under s 289 may only be issued when there is, inarguably, a sum which is owing and due for payment. The second demand should not have been issued. Ideally, given that supporting worksheets had, by February, been requested for some weeks the provision of these should not have been accompanied by a demand; rather there should have been a period for this material to be considered. The basis for this is the authority referred to above at footnote 4. In acting as it did, however, I have found that in the circumstances of this case, and in particular the provision of the invoices as early as September and November, Geotech’s failure to respond to them then, and that the worksheets only added the actual dates on which work was carried out, Geotech had had enough time and enough information to make its own enquiries about its liability for the invoices before the worksheets arrived. Whilst that information is obviously material, so it can be checked against machinery use records, it is by no means the only information

relevant to Geotech being able to check its liability, nor did this information provide the only pathway for that to occur.

[44]For these reasons I do not find that there has been any abuse of process.

Outcome

[45]              Geotech has not established an arguable defence to the claim, nor that the demand should be set aside on other grounds.

[46]              The application to set aside the statutory demand dated 21 February 2019 is dismissed.

[47]              Pursuant to s. 291(1)(a), I direct Geotech to pay by 28 June 2019 the amount claimed in the demand served  on  21 February  2019,  plus  interest  calculated  at 10 per cent on each invoiced amount comprised in the debt, on a daily basis from the date to which interest is calculated in the demand, to the date of payment. In default, Mt Grey may apply to put Geotech into liquidation.

[48]              Geotech will pay to Mt Grey costs on a 2B basis together with disbursements fixed by the Registrar. Mr Ballantyne sought increased costs on the basis that Geotech’s concession that it was liable for invoices relating to siteworks was only made at the hearing but in all the circumstances I do not see that as having contributed materially to the costs of opposing the application.

Associate Judge Matthews

Solicitors:

Buddle Findlay, Christchurch Barrister:

David Ballantyne Barrister, Christchurch