Grant v Q S Building Limited

[2022] NZHC 3342

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-001298

[2022] NZHC 3342

UNDER

the Companies Act 1993 and High Court Rules 2016

IN THE MATTER

of an application for directions under s 284 of the Companies Act 1993

BETWEEN

DAMIEN MITCHELL GRANT and ADAM STEVENSON BOTTERILL

Applicants

AND

Q S BUILDING LIMITED

Respondent

Hearing:

7 December 2022

Appearances:

K A Cocks and L Z Rong for Applicants

L M Van and N E Jirkowsky for Respondent

Judgment:

12 December 2022

JUDGMENT OF VENNING J

Companies Act 1993, s 284

This judgment was delivered by me on 12 December 2022 at 3.00 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Anthony Harper, Auckland Counsel:  K A Cocks, Auckland

Copy to:            A Botterill, Auckland

GRANT v Q S BUILDING LIMITED [2022] NZHC 3342 [12 December 2022]

Introduction

[1]    Stanley Construction (Auckland) Limited (Stanley) was placed into liquidation by its shareholders on 5 September 2019.  Damien Grant was appointed liquidator.  Q S Building Limited (QSB) initially submitted a creditor’s claim for $818,255.46. Mr Grant and Adam Botterill, (who was subsequently appointed a joint liquidator with Mr Grant), did not accept QSB’s claim. Ultimately, on 10 September 2021, the liquidators admitted the claim for $150,853.36.

[2]    On 11 October 2021, QSB filed an application with the Court under s 284(1) of the Companies Act 1993 (the Act) seeking leave to challenge the liquidators’ determination of its claim. The parties subsequently agreed that an own-motion application for directions by the liquidators would be the most cost effective way forward with respect to QSB’s claim. The liquidators rescinded their determination and QSB discontinued its application.

[3]    On 21 July 2022, the liquidators made the current application for directions under s 284(1) of the Act. They seek directions as to the value of QSB’s claim in the liquidation of Stanley. The application is supported by an affidavit of Mr Grant. QSB has filed affidavits in response by Mr Patrick Hanlon, a chartered quantity surveyor, and Quentin Stevenson, a sole director and 50 per cent shareholder of QSB.

[4]    While bringing the application before the Court and providing information to assist the Court, the liquidators have agreed to abide the decision of the Court.

Background

[5]    Stanley engaged QSB (trading as Slab Specialists) in January 2018 as a sub- contractor to provide concrete foundation works for the construction of a development at The Grounds, Hobsonville. The quoted figure was $802,961.00.

[6]    In April 2018 QSB submitted payment claim 4 for the sum of $131,994.06 (plus GST). In May 2018 QSB issued payment claim 5 in the sum of $215,161.38. The claims remained unpaid. A dispute then arose in respect of a payment schedule that Stanley issued in June 2018 in response to QSB’s payment claim 5. The dispute

ultimately led to QSB ceasing work on site and Stanley giving notice terminating the contract works.

[7]    Despite exchanges between the lawyers acting for Stanley and QSB the dispute remained unresolved as at the date of Stanley’s liquidation.

[8]    Following Stanley’s liquidation QSB filed a creditor’s claim on 25 September 2019 in the sum of $818,255.46. The claims from all creditors totalled around

$5,129,405.29. It remains uncertain whether there will be any distribution to creditors.

[9]    Given the size of QSB’s claim, Mr Grant took steps to determine whether it should be accepted in the sum claimed. The liquidators engaged Stanley’s staff quantity surveyor, John Grant and later, another quantity surveyor, Leon Brown of Commercial Contracting Services (CCS) to review QSB’s claim.

[10]   In the meantime, QSB instructed Patrick Hanlon of BQH Limited (BQH) to review its claim. Mr Hanlon considered QSB was owed $647,635.05 (exclusive of GST). Mr Brown also obtained a letter from Michael Smith, a quantity surveyor formerly employed by QSB.

[11]   Despite meetings, the respective quantity surveyors were not able to resolve their differences.

[12]Ultimately, the liquidators determined to admit the claim in the sum of

$150,853.36.

[13]   QSB then issued its application for leave to challenge that assessment. While the likelihood of recovery in the liquidation may be low, the figure at which its claim is fixed is important to QSB as it intends to rely on trade credit insurance.

Terms of the contract

[14]   The parties have different views as to whether the terms of the contract were the standard terms in NZS 3910:2013 (and related sub-contractor terms) as Stanley argued, or whether, as QSB argued, the terms were QSB’s standard terms. There is

also an issue as to whether a works programme was actually agreed which QSB committed itself to.

[15]   Ultimately, for the reasons that follow, the assessment of QSB’s claim does not depend on resolution of the issue of which contractual terms applied to the contract.

[16]   First, as Ms Cocks submitted, a number of the issues between the parties do not appear to be directly affected by the terms of the contract. Of more relevance is the works programme. It directly impacts the contra charge 19 claimed by Stanley for delay and the additional labour items. However, on that last point, the additional labour charge was compromised by agreement between Mr Hanlon and Mr Brown.

[17]   Further, while QSB argues for its terms, I note that in several places in his reconciliation schedule Mr Hanlon, QSB’s expert, relies on the standard provisions from NZS 3910:2013.

[18]   As Ms Van submitted, the only direct evidence the Court has before it is the factual narrative provided by Mr Stevenson, and the expert evidence of Mr Hanlon. While Mr Grant, the liquidator, has sworn an affidavit, his direct evidence is restricted to the process of the liquidation. While he attaches certain relevant documents, he is not an expert quantity surveyor and nor was he present at the relevant time of the construction process. Mr Stevenson was.

[19]   Relevantly, whatever the contractual terms, I accept Mr Stevenson’s evidence that QSB did not accept the draft works programme that Stanley submitted to it. The correspondence on that issue is relatively clear. On 20 December 2017, Stanley attached a copy of the proposed works programme. QSB responded by letter of 28 December 2017 outlining a number of issues and omissions with the proposed programme. QSB requested the issues be addressed before the programme was completed so that QSB could establish the contract duration. In response Stanley suggested a discussion about that on 8 or 9 January 2018. It appears that meeting never eventuated. In the result, QSB never committed itself to a works programme.

[20]   On Mr Stevenson’s evidence Stanley simply directed QSB what to do and when and regularly changed the sequence of work. That supports Mr Hanlon’s analysis and the way he dealt with Stanley’s claim in relation to delay.

[21]   Ms Cocks helpfully identified the following deductions, contra charges and other matters as the principal matters in dispute between the parties as per the reports of CCS (Mr Brown) and BQH (Mr Hanlon):

(a)Contra charge 14 – materials off site storage;

(b)Contra charge 19 – day rate for delays;

(c)VO 01 – additional footings;

(d)VO 06 – 014 – additional labour.

Contra charge 14 – off site storage

[22]   Stanley sought to reduce the amount claimed by QSB by $49,459.23 for costs it said it had incurred for storage of off-site materials due to delays.

[23]   Mr Hanlon’s response is that Stanley were in control of the programme for all trades and instructed QSB on an ad hoc basis (as Mr Stevenson confirmed in his evidence) without a realistic programme, so that any storage charges should be to Stanley’s account, not QSB. That evidence is effectively unchallenged. I also accept Mr Hanlon’s point that it would be unreasonable to suggest a deduction of this magnitude could be made on the basis of an undocumented discussion and, particularly in this case, in the absence of any direct evidence from someone on behalf of Stanley. I decide this point in QSB’s favour.

Contra charge 19 – day rate for delays

[24]Initially Stanley had sought a contra charge of $149,500. That was reduced by

$66,125 to a net reduced claim of $83,375. Stanley’s claim in relation to this was, on Mr Brown’s analysis, largely supported by the failure of QSB to meet milestones in the contracted work programme.

[25]   However, for the reasons given above I do not accept that the work programme was part of the contract which QSB agreed to. There is no evidence of any commitment to such a work programme or that Stanley incurred expense purely because of QSB’s actions. Indeed again, Mr Stevenson’s evidence is that Stanley’s practice was to direct QSB on a weekly basis as to the works on-site to be done. Milestones were required to be met on an ad hoc basis which made it difficult for QSB to manage and sequence its contract works. Added to that Mr Stevenson identified the following issues which contributed to any delay:

(a)when QSB commenced work the site was not excavated correctly;

(b)scaffolding was not provided;

(c)Stanley’s boundary fence was in the way which prevented QSB from building deck footings;

(d)plumbing works carried out by Stanley’s subcontractors caused delay to the subsequent works and concrete works;

(e)the geotechnical engineer failed the footings on building four, due to unstable and unsuitable ground conditions and a variation was issued;

(f)Stanley checked and approved the location of drossbach ducts (which had been installed by carpenters employed by Stanley), which were subsequently found to be in the wrong position which caused significant delay.

[26]   Further, Mr Stevenson’s evidence was that from time to time, Stanley cancelled inspections and pours without giving QSB notice.

[27]   In the circumstances I agree that the deduction Stanley relies on cannot be supported.

VO 01 – additional footings

[28]   This relates to the additional footing depth in building four. Initially the claim was for an additional $44,595. The liquidator was prepared to allow $28,162 leaving a shortfall of $16,433.09. On Mr Hanlon’s calculation the variation was charged at cost plus. Had contract rates been used the cost would have been around 10 per cent higher. Mr Brown considered QSB had failed to provide sufficient amount of evidence to support the volumes calculated. However both parties agreed there was approximately 80 m³ concrete poured. Further, I note Mr Hanlon considers that Mr Brown’s valuation does not account for the 80 m³ excavation. I accept his point that in order to place the concrete the space had to be created in the first instance. I find for QSB on this point.

VO 06 – 014 – additional labour

[29]   Initially Stanley charged QSB for additional labour at $55.00 per hour. QSB considered it should have been $25.00 per hour but ultimately the rate was agreed at

$35.00 per hour plus a five per cent margin for a certain number of agreed hours.

Summary

[30]   In short, having regard to the evidence of Mr Stevenson and Mr Hanlon in particular, the Court accepts that QSB’s claim for $413,136.19 plus GST of

$61,970.43, (in total $475,106.62) is made out.

[31]In addition, QSB is entitled to interest on that sum.

[32]   The interest rate Mr Hanlon had chosen to apply was 1.5 times the overdraft rate for small to medium enterprises. It works out at 1.17 per cent on a monthly basis. However, QSB’s terms provided for interest at 2.5 per cent per month calculated daily. I accept Mr Hanlon’s analysis based on the NZS 3910:2013 figures. However, interest ceases to run as at the date of liquidation.1

1      Companies Act 1993, s 311.

[33]   On that basis, on my calculation, using Mr Hanlon’s figures, but with interest ceasing to run as at 5 September 2019, I calculate the interest component at

$142,927.26.

Result/orders

[34]   The liquidators are to accept QSB’s claim in the sum of $618,033.88, including GST and interest to the date of liquidation.

Costs

[35]   The respondent is to have costs on a 2B basis plus disbursements as fixed by the Registrar.

Venning J