Gulf Harbour Marlin Limited v SRA Design Limited (in liq) HC Auckland CIV 2011-404-3181
[2011] NZHC 1384
•29 August 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2011-404-3181
UNDER the Companies Act 1993
BETWEEN GULF HARBOUR MARLIN LIMITED Applicant
ANDSRA DESIGN LIMITED (IN LIQUIDATION)
Respondent
Hearing: 29 August 2011
Appearances: S Carey for applicant
B N Hojabri for respondent
Judgment: 29 August 2011
ORAL JUDGMENT OF ASSOCIATE JUDGE BELL
Solicitors/counsel :
E Johnston & Co, Great North Road, Henderson
S Carey, Bankside Chambers, Auckland [email protected]
Keegan Alexander, Auckland, [email protected]
GULF HARBOUR MARLIN LIMITED V SRA DESIGN LIMITED (IN LIQUIDATION) HC AK CIV 2011-
404-3181 29 August 2011
[1] This is an application to set aside a statutory demand. The amount claimed in the demand is $104,244.56. The debt is said to be due for architectural services provided. The debt is the subject of a series of numbered invoices. The ground for the application is that there is a substantial ground for dispute under s 290(4)(a) of the Companies Act 1993. The second is that there is a basis for setting aside on other grounds under s 290(4)(c). On the latter point the applicant says it relies on substantial injustice under s 290(5) of the Companies Act.
[2] The creditor is SRA Design Ltd (in liquidation). Before it went into liquidation, SRA Design carried on an architectural practice. It was formerly known as Swan Railley & Associates Ltd. For convenience in this decision I will refer to it as Swan Railley.
[3] Gulf Harbour Marlin Limited is the corporate trustee of the Gulf Harbour Marlin Trust, a developer with a proposal for a substantial commercial development at Gulf Harbour on the Whangaparaoa Peninsula. Swan Railley provided architectural services to assist Gulf Harbour to obtain resource consent for its proposed development. It is apparent from the papers that Swan Railley was only one of a number of professional consultants who provided services to obtain resource consent. Gulf Harbour used a very experienced and competent resource management barrister, a firm of planning consultants, a well-known landscape architect, engineers, and similar consultants.
[4] Mr Carey has stated the principles to be applied in determining applications under s 290(4)(a) These are:
(a) The party applying to set aside must show that there is arguably a substantial dispute as to the existence of the debt;
(b)It is not enough merely to assert that a dispute, counterclaim or other ground exists – material, short of proof, is required to support the claim that the debt is in dispute; and
(c) If the material is available, the dispute should normally be resolved by other means.
[5] The task of the court is not to resolve the dispute, but to determine whether there is an arguable dispute.
[6] Ms Hojabri did not disagree with these principles, other than to emphasise that the onus is on the applicant to persuade the Court that there is an arguable basis for disputing the debt claimed.
[7] Mr Carey also referred to the test for arguable counterclaim, cross demand or set off, but as those matters are not in issue I have not felt it necessary to elaborate on that.
[8] On 20 March 2008, the Environment Court issued an interim decision following appeals by Marlin Property Consultants Ltd (ENV 2006-AKL-000305) and Gabrielle’s Trustee Company Ltd (ENV 2007-AKL-000268) against the decision of the Rodney District Council declining an application for resource consents. The consents sought were for proposals for commercial and apartment buildings on vacant land at the north-eastern end of the main canal in the Gulf Harbour zone on Whangaparaoa Peninsula.
[9] In its 20 March 2008 decision the Environment Court indicated that the court would be prepared to grant consents for buildings in a form modified from that sought by the applicant and on certain conditions.
[10] The interim decision has not been put in evidence. Instead I have relied on the court’s final decision of 17 June 2010, where it gave final approval to the proposals including extensive conditions of consent. The consent holder is shown as Gulf Harbour Marlin Trust. That is the trust of which the applicant is the trustee.
[11] From the court’s final decision, it is apparent that it had earlier considered the substantive merits of the proposed land use consents; that is, it had submissions in opposition both from submitters and from the District Council, and the court had
come to a view as to how much of the proposal could proceed. It did not accept the proposal in its entirety but required modifications. The clear basis on which the development was to proceed had been approved in principle by the Environment Court in its interim decision.
[12] That is important as part of the circumstances in which Swan Railley and Gulf Harbour made arrangements for payment for work that Swan Railley had done up until then.
[13] On 7 May 2008, Gulf Harbour and Swan Railley by their directors Paul Hudson and Mr Railley, signed a handwritten agreement for payment of invoices which Swan Railley had sent to Gulf Harbour for architectural work carried out in connection with the proceedings in the Environment Court. The agreement provided that Gulf Harbour was to pay the sums of $11,528.22 and $4,357.57 on Friday 9 May
2008. It was to pay Swan Railley a further sum of $28,391.05 on 20 June 2008. There was still a balance payable made up of two sums:
(a) $31,781.58; and
(b) $25,942.01, totalling $57,723.59.
[14] The sum of $25,942.01 appears to have been the result of some compromise by Swan Railley; it accepted a reduction in the amount originally invoiced. The handwritten agreement also records that certain additional work was to be carried out without further charge. That additional work was:
(a) Representation (sic) for Environment Court for approval; (b) Schedule of areas – floor by floor stages I and II;
(c) Assistance with presentation to a supermarket operator;
(d)Assistance with presentation for apartments – provision of outlying spec sheets.
[15] These charges in the agreement of 7 May 2008 were all inclusive of GST and disbursements, as are all the other charges in this case.
[16] After the agreement of 7 May 2008, Swan Railley invoiced Gulf Harbour for further work which it carried out. The first of those invoices was 30 June 2009 and the last was 4 May 2010. The resource consent followed shortly after the final invoice of 4 May 2010. Since 2008 Gulf Harbour has made only one payment of
$5,625 in September 2009. When all the invoices are added up and a deduction made for that payment, the balance payable is $104,244.56. That is the amount set out in the statutory demand.
[17] The issue of the consent by the Environment Court in June 2010 did not result in any payments by Gulf Harbour. I understand that shortly afterwards Swan Railley went into voluntary liquidation.
[18] Gulf Harbour disputes that the sum of $57,723.59 in the agreement of 7 May
2008 is payable yet. In other words, it says that the time for payment under that agreement has not yet arisen, but does not otherwise dispute its ability to pay that sum.
[19] As regards the balance of the charges, it says that at least some of that work was part of what was to be provided free of charge under the agreement of 7 May
2008, that the minimum amount that ought to be paid cannot be ascertained, and therefore the whole amount is in dispute. It also says that it has not received the plans which Swan Railley says it provided for the resource consent process.
[20] The applicant’s claim that it is entitled to dispute the amounts claimed in the statutory demand is somewhat undermined by an e-mail of 5 November 2010 sent by the applicant’s accountant to a debt collector instructed by the liquidators to recover the payments, saying:
We are doing everything possible to get the funds.
[21] As to the sum of $57,723.59, Gulf Harbour’s case is that although a resource
consent was issued, it is not a consent as contemplated in the agreement the parties
made on 7 May 2008. Gulf Harbour says that the consent remained subject to conditions that make it unworkable and of no value to it. It says that it needs to have consent to offer a greater number of residential accommodation spaces as opposed to space simply for temporary or transient accommodation, and that obtaining consent to permanent residential accommodation is still a live issue before the Environment Court. It says that Swan Railley was aware of this need for residential accommodation because the May 2008 agreement refers to the need for a presentation for apartments, and that consent issues in June 2010 are subject to conditions that have not been resolved; therefore this sum of $57,723.59 is not yet due.
[22] The matter for consideration is the meaning of the agreement of 7 May 2008.
[23] Putting that agreement in its setting, Swan Railley had been doing work directed towards obtaining a resource consent for Gulf Harbour. That included work up to the interim decision of the Environment Court. However, it is apparent that by the time of the Environment Court’s decision, the applicant would have known that the consent it would obtain in the final decision, would not allow for the kind of added space for permanent residential accommodation it now says it was seeking.
[24] The resource consent, the subject of the agreement of May 2008, was granted in the Environment Court’s decision of June 2010. No doubt the parties hoped that the consent would be forthcoming earlier and to that extent the respondent has suffered by being kept waiting for payment of the $57,000. But that is the bargain it made and it must be held to it. It did not mean that once the Environment Court had given its final decision, the applicant was entitled to continue to withhold payment on the basis there were still aspects of its development for which it still wanted to obtain resource management approval. That argument is not available to it. The agreement provided for payment on the grant of the resource consent contemplated by the Environment Court’s decision of March 2008.
[25] What has happened in the meantime is that separate proceedings by the applicant are on foot in the Environment Court by way of appeal under clause 14 of the First Schedule of the Resource Management Act, in respect of Variation 51 of the
District Plan of the former Rodney District Council. An appeal in respect of a variation to a plan is something quite distinct from an appeal to the Environment Court in respect of a resource consent. Appeals under s 120 of the Resource Management Act about resource consents are dealt with in an entirely different way from appeals under clause 14 of the First Schedule. The fact that the applicant is pursuing changes to the District Plan by way of an appeal under clause 14 of the First Schedule, is entirely irrelevant to the question whether it has obtained a resource consent.
[26] In summary, I find that in terms of the agreement of 7 May 2008, Swan Railley is entitled to payment of the sum of $57,723.59, and the statutory demand is good for at least that amount.
[27] As I have already noted, the agreement provided that some further work would be carried out by Swan Railley at no further charge. In fact, it carried out an extensive amount of work - another $47,000 worth. The issue here is whether it is entitled to charge for that, and if it is, whether it can recover for all of the amount in its invoices or whether there should be some apportionment between what was to be covered in the 7 May 2008 agreement, and matters that fall outside it.
[28] In December 2008, Swan Railley wrote to Gulf Harbour pointing out that it was carrying out more work which went outside the scope of what was to be provided free of charge under the agreement of 7 May 2008. From that point onwards, Gulf Harbour had clear notice that it would face charges for work outside what had been provided for in the agreement. Clearly, the agreement was limited as to work that would be provided for free of charge. If Gulf Harbour asked for further work outside that, then normal commercial terms would operate and Swan Railley would be entitled to recover for services provided on request.
[29] In its first invoice after 2008, the invoice of 30 June 2009, Swan Railley addressed the question of apportionment. In a detailed invoice it recorded that it had dedicated 216½ hours, excluding principal’s involvement of 45 hours, to the project since May 2008, and noted that a portion of it constituted the agreed supplementary
services to be provided free of charge, but also that work had been carried out outside those agreed services.
[30] There is no evidence that Gulf Harbour took any issue with that apportionment at the time. Further invoices record further work carried out, with no suggestion from Gulf Harbour that it took issue with those further charges or suggested that those matters were within the agreed inclusive services under the agreement of 7 May 2008. It is apparent that Swan Railley proceeded on the basis that its apportionment had been accepted by Gulf Harbour, and it carried on providing services in accordance at its normal charge out rates, without any challenge to the apportionment it had made.
[31] In August 2009, Swan Railley pressed for payment, Gulf Harbour made a small payment of $5,000 plus GST. That is evidence that it accepted that although resource consent had not been obtained, Swan Railley was entitled to charge for the extra work it was providing after May 2008. The course of conduct followed by the parties indicates an acceptance by Gulf Harbour of Swan Railley’s apportionment.
[32] Today, Gulf Harbour suggested that that apportionment is not necessarily accepted and is now open to revision. It could not point to any evidence where it had challenged the apportionment. It did not come to the hearing with any evidence suggesting an alternative apportionment. Its tactics were that an apportionment had to be carried out before a minimum sum payable could be identified and therefore the whole amount charged for supplementary services was open to question.
[33] I am unimpressed by that approach. It is quite clear that an apportionment had been made by Swan Railley and accepted by Gulf Harbour, and it is now too late for Gulf Harbour to try and re-open the apportionment.
[34] The final point raised by Gulf Harbour is that it had not received the plans which Swan Railley said it had provided for the resource management process. Obviously, Swan Railley did produce plans, which were useful in the sense in that they were provided to the resource management team working on obtaining final orders from the Environment Court. In particular, there is evidence that the plans
were also delivered to Russell Bartlett the barrister engaged to act on the resource consent appeal. They were also distributed to submitters, the consent authority and the court. The court’s conditions of consent list the plans prepared by Swan Railley, which fix standards to which the development is to be built.
[35] In these circumstances, for Gulf Harbour to say it has never received the plans is simply ludicrous. It provides no reason to withhold payment. As a result of the provision of the plans, consent has issued; Gulf Harbour has received the benefit of the work which it required Swan Railley to carry out. Now it should carry out its side of the bargain, which is to pay for the work it asked for.
[36] That disposes of all the grounds of objection raised by the applicant to paying the sums in the statutory demand. Accordingly, under s 290(4)(a) I find that there is no substantial dispute as to any of the amounts in the statutory demand.
[37] The applicant’s argument under s 290(4)(c) was that because a part of the demand could be challenged, then there was substantial injustice which required that the demand as a whole should be set aside. It relied on the decision of the Court of Appeal in Pioneer Insurance Co Ltd v White Heron Motor Lodge Ltd.[1] That case did involve the exercise of a discretion under s 290(5), where the amount of the statutory demand had been reduced by 75%. As it turns out, I find that the amounts claimed in
the statutory demand are all valid, but if I had, for argument’s sake, found there was a question about some part of the debt, I would have followed the decision of the Court of Appeal in United Homes (1988) Ltd v Workman,[2] by setting aside the demand to the extent that any amount of the demand was subject to a genuine dispute, leaving the balance intact. In Pioneer Insurance it was open to the party which issued the demand to issue a fresh demand for the amount the court had found payable. Costs aside, there is not much practical difference between the two courses.
[1] Pioneer Insurance Co Ltd v White Heron Motor Lodge Ltd [2008] 19 PRNZ 286.
[2] United Homes (1988) Ltd v Workman [2003] NZLR 447.
[38] As I have found that the entire statutory demand is valid, the next question is what course the court should take under s 291 of the Companies Act. The
respondent submitted that I should make an immediate order that the company be put
into liquidation. I decline to do so. I have limited information about the financial position of the applicant. There is some suggestion in the evidence that it may be suffering cash flow difficulties, but the evidence on that point is thin. In cases such as this, the courts rarely set aside a statutory demand on the grounds of solvency. Accordingly, the applicant was sensible not to advance any solvency arguments in this hearing. Correspondingly, in the absence of any convincing evidence of insolvency I decline to make any order for immediate liquidation. I am not convinced that this company is in its death throes where I should administer the last rites. It may still be able to trade solvently, and it should be given the opportunity to comply with an order for payment under s 291(1)(a).
[39] Accordingly, I make an order requiring Gulf Harbour Marlin Ltd to pay to
SRA Design Limited (in liquidation), the sum of $104,244.56 no later than
19 September 2011. In default of payment, SRA Design may apply for an order that
Gulf Harbour be put into liquidation.
Costs
[40] I fix costs in favour of the respondent on a 2B basis in the sum of $5,828.
R M Bell
Associate Judge
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