Hoult Contractors Limited v Professional Concrete Services Limited
[2024] NZHC 2280
•14 August 2024
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV-2023-454-76
[2024] NZHC 2280
BETWEEN HOULT CONTRACTORS LIMITED
Applicant
AND
PROFESSIONAL CONCRETE SERVICES LIMITED
Respondent
Hearing: 9 August 2024 Appearances:
P Drummond for Applicant G Carter for Respondent
Judgment:
14 August 2024
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1] Hoult Contractors Ltd (Hoult) is in the business of civil contracting and Professional Concrete Services Ltd (PCS) is in the business of providing concreting products and services. Hoult was the head contractor of a residential subdivision in Palmerston North, which included concreting works. PCS was one of the concreting works subcontractors.
[2] Hoult seeks to set aside a statutory demand issued on behalf of PCS dated 4 September 2023. The statutory demand requires Hoult to pay the sum of $13,319.00 claimed in respect of three invoices, together with collection costs. Hoult applies to set it aside under s 290 of the Companies Act 1993 on the grounds of:
(a)Irregular/invalid service;
HOULT CONTRACTORS LIMITED v PROFESSIONAL CONCRETE SERVICES LIMITED [2024] NZHC 2280 [14 August 2024]
(b)A substantial dispute as to whether or not there is any debt due;1
(c)Hoult has a counterclaim/set off for an amount in excess of the
$13,319.00 claimed in the statutory demand;2 and
(d)The demand includes amounts for “collection costs” which are not recoverable as they are not a debt due and owing.
PCS opposes the set aside application. Initially, the application was opposed on the basis that the invoices by PCS were payment claims under the Construction Contracts Act 2002, no valid payment schedules were issued, and therefore Hoult could not raise the counterclaim/set-off as a basis for setting aside the statutory demand.3 However, PCS has now abandoned that ground of opposition as the invoices were not valid payment claims under the Construction Contracts Act. PCS’s position is that there is no genuine dispute and any dispute which existed between the parties about the debt was resolved in April 2023 following a meeting between principals of the parties. PCS says the counterclaim alleged is not reasonably arguable as there is not sufficient evidence substantiating it.
What happened?
[3] Hoult says that on 7 December 2021, it accepted part of PCS’s Quote 1553 for the sum of $125,988.50 (excluding GST) (the first acceptance).
[4] Subsequently, there were variations to the quantities Hoult required PCS to supply and Hoult notified PCS of an amended contract price of $89,907.00 (excluding GST) (the revised acceptance).
[5] Following receipt of the revised acceptance, PCS says that it engaged in talks through its director John Gommans with Fred Hoult, a director of Hoult, to the effect that PCS’s rates would increase based on the reduced quantities under Hoult’s revised
1 Companies Act 1993, s 290(4)(a).
2 Section 290(4)(b).
3 Construction Contracts Act 2002, s 79.
acceptance –– resulting in the varied rates which PCS contends it was entitled to charge. Mr Hoult disputes that there was any variation to the applicable rates.
[6] On 22 March 2022, PCS made a request for clarification about the quantities to be supplied. Hoult replied that the quantities should be the same and would be added as variations. Subsequently, Hoult sent PCS an updated programme. In response, PCS declined the contract due to work having been taken away from them. Hoult replied it was unsure what PCS was talking about as it still had the work as per the acceptance on 7 December 2021.
[7] PCS then carried out work and contends it was entitled to charge at the varied rates agreed between John Gommans and Mr Hoult.
[8] On 10 November 2022, PCS says it provided Hault with Quote 1733 accompanied by a copy of its Terms and Conditions of Trade, following which Hoult instructed PCS to proceed with works.
[9] The three invoices rendered by PCS to Hoult, which are the subject of the statutory demand, are Invoice 4242 dated 22 December 2022 (the first invoice), Invoice 4266 dated 31 January 2023 (the second invoice), and Invoice 4272 dated 28 February 2023 (the third invoice).
[10] After the invoices were submitted, Hoult raised issues with the rates charged and with regard to quantities supplied, overclaiming and overpayments in a series of notices to PCS.
[11] On 29 March 2023, in Notice to Subcontractor (NTS) 4, Hoult raised the issue of PCS’s lack of performance which had cost Hoult “in excess of $25K” as Hoult had to engage another contractor to do sealing at a late stage and there had been delays caused by the concrete subcontractors including PCS.
[12] On 4 April 2023, Mark Gommans of PCS says he met with the directors of Hoult, including Mr Hoult, and concluded any dispute over the third invoice (4272) – he says it was agreed that PCS would deduct $955 plus GST from the invoice, and
Hoult would pay all outstanding amounts on all invoices. Mr Hoult acknowledges that discussions took place but denies that agreement was reached.
[13] On 14 April 2023, Tanya Sue (Hoult’s quantity surveyor) issued NTS 5, stating that the total Hoult owed PCS was $5,623.82 (excluding GST).
[14] On 19 April 2023, PCS emailed Mr Hoult regarding the 4 April 2023 agreement. Mr Hoult responded quoting the amount in NTS 5.
[15] On 21 April 2023, Hoult issued NTS 6 stating that the parties entered a fixed priced contract on 7 December 2021 with fixed rates as per PCS’s Quote 1553. Hoult set out details of PCS’s alleged lack of performance and the costs incurred by Hoult and stated that an invoice for money due would be forwarded.
[16] PCS contend that in early May 2023, Mr Hoult offered to settle the outstanding invoices. Mr Hoult acknowledges there was a desire on the part of both parties to resolve the matter but agreement was not reached.
[17] On 11 May 2023, PCS (through its debt collector) wrote to Hoult stating that PCS’s position was firm that it required payment of $9,800 – being a reduction in the amount due across the three outstanding invoices and representing a slightly bigger reduction than the $955 plus GST which had been agreed on 4 April 2023.
[18] On 1 June 2023, PCS issued the first statutory demand. Hoult then invoiced PCS for $21,727.28 on 8 June 2023 for its counterclaim, along with a letter from Hoult’s then counsel, Dentons, asserting a substantial dispute as to the debt.
[19] The first statutory demand was initially withdrawn by PCS’s former counsel (PCS say this was to allow counsel to familiarise themselves with the file). The second statutory demand was then issued by PCS’s collection agency on 6 September 2023 (the September demand), along with a response to Dentons’ letter, asking for evidence substantiating the alleged dispute and counterclaim. Hoult then filed the application to set the demand aside. As Hoult raised an issue with validity of service, PCS says it re-issued the same demand on 27 October 2023, to Hoult’s registered office rather than
its principal place of business (the October demand). The third demand was subsequently withdrawn. PCS says this was on the basis that Hoult would not contest valid service of the September demand.
Legal principles — setting aside statutory demand
[20]Section 290 of the Companies Act 1993 states as follows:
290 Court may set aside statutory demand
(1)The court may, on the application of the company, set aside a statutory demand.
(2)The application must be—
(a)made within 10 working days of the date of service of the demand; and
(b)served on the creditor within 10 working days of the date of service of the demand.
(3)No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the court may extend the time for compliance with the 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)the company 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; or
(c)the demand ought to be set aside on other grounds.
(5)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
(7)An order under this section may be made subject to conditions.
(Emphasis added)
[21]In Confident Trustee Ltd v Garden and Trees Ltd, the Court of Appeal held:4
[16]The general principles under s 290(4) are well settled:
(a)The onus is on the applicant seeking to set aside the statutory demand to show there is arguably a genuine and substantial dispute as to the existence of the debt. The Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion that a dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved first in ordinary civil proceedings before any statutory demand is issued.
(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
(e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.
[22] In 144 Trustees Ltd v Mike Pero Real Estate Ltd, Osborne J set out a general approach to the exercise of the jurisdiction under s 290(4). With regard to s 290(4)(b) he identified the following principles:5
As to s 290(4)(a):
·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.
·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 means of proceedings in the Court’s Companies Act jurisdiction.
4 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
5 144 Trustees Ltd v Mike Pero Real Estate Ltd [2018] NZHC 3197, (2018) 20 NZCPR 220 at [8] (footnotes omitted).
As to s 290(4)(b):
·An applicant must establish that it appears to have a counterclaim, cross-demand or set-off which is reasonably arguable in all the circumstances.
·The “appearance” test involves a review of low threshold.
·The hearing relating on a s 290(4)(b) argument is to be short and to the point.
·It is to be distinguished from a summary judgment application where complex legal issues are not a bar to a remedy.
As to both ss 290(4)(a) and (b)
·It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
Is there a substantial dispute about whether or not the debt is owing or due?
[23] Hoult contends that there is a dispute as to: the terms of the contract between Hoult and PCS; the applicable rates; whether there was any oral variation to amend the rates; the quantities supplied; whether there were any valid or claimable extras in respect to kerb and channel; and alleged overpayments. According to Hoult’s quantity surveyor, there was an amount due and owing by Hoult to PCS of $5,623.82 (subject to Hoult’s counterclaim) based on the rates agreed in the tender and the quantities actually undertaken rather than PCS’s alleged increased rates. Hoult submits there is a substantial dispute raised about the quantum of PCS’s claim.
[24] PCS submits that the issue with the rates was the result of confusion caused by Hoult’s lack of clarity around the varied rates discussed after Hoult provided its revised acceptance (reducing the quantities of services/product to be provided). PCS submits that the dispute was resolved at the 4 April 2023 meeting. PCS submits that the limited differences in amount contended to be owing between the parties demonstrates there is no genuine, substantial dispute.
Assessment
[25] I emphasise that the Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
[26] In my view, the evidence establishes a substantial dispute between the parties with regard to part of the debt claimed in the statutory demand. I do not consider that the relatively small amounts involved means that the dispute is not genuine and substantial. The dispute is real and not fanciful.
[27] The dispute arises from the clear conflict of evidence as to whether increased rates were agreed between the parties and as to whether there was subsequent settlement. Ultimately, the evidence is that Hoult appears to accept that PCS is due
$5,623.82 for the work it undertook. PCS at one stage contended that it was owed
$9,800 for the work but is claiming $11,160.97. The amount in dispute is $5,537.15.
[28] There is also a substantial dispute between the parties arising from the conflict of evidence as to the terms of the contract and whether PCS is entitled to charge the collection costs claimed as part of the debt (in the sum of $2,158.03). PCS say that after its terms and conditions were provided on 10 November 2022, Hoult instructed it to proceed with the work, and therefore its terms and conditions apply. However, work had been undertaken prior to November 2022. Further, Mr Hoult states that Hoult responded to PCS providing its terms and conditions on 10 November 2022 by providing another copy of the contract and advising that PCS’s terms and conditions did not override the terms of contract set out in Hoult’s letter of acceptance dated 7 December 2021.
[29] Mr Drummond, for Hoult, also submits that the collection costs cannot be a debt due and owing by the company at this stage and PCS has not put forward any evidence of collection costs having been incurred.
[30] As a result, approximately $7,700 of the $13,319 claimed as the debt due in the statutory demand is subject to substantial dispute. This is approximately 58% of the claimed debt. An issue then arises as to whether the statutory demand should be set aside on the basis that the statutory demand has overstated the debt by a significant proportion and this creates a risk of substantial injustice.6
6 Companies Act, s 290(5) and (6). See, for example, Moorhouse Panel & Spray Ltd v The Energy Saving Company Ltd [2019] NZHC 1804, where the statutory demand was overstated by over 40%.
[31] In the present case, I do not need to determine whether the overstatement amounts to a substantial injustice because as discussed below, in addition to the substantial dispute, I consider that Hoult appears to have a reasonably arguable counterclaim in excess of the amount claimed.
Does Hoult have a counterclaim/set off in excess of the amount claimed in the statutory demand?
[32] Hoult submits that PCS contracted to complete 470m2 of vehicle crossings but only laid 256m2, leaving a shortfall for which Hoult had to engage another contractor. This resulted in an additional cost of $9,588.00. Hoult also says that as PCS failed to carry out the curbing work in a timely manner, Hoult had to change sealing contractors who charged a higher square metre rate, resulting in additional cost to Hoult of
$12,139.78. Hoult claims that it has suffered a loss of $18,893.72 (excluding GST) and have invoiced PCS for this claim.
[33] PCS submits that despite repeatedly requesting evidence from Hoult substantiating its counterclaim, Hoult never provided such. It says that all there is before the Court is an assertion without proof that it incurred the costs claimed, or that PCS was a cause of those losses. PCS emphasises that Hoult did not refer its counterclaim to the small claims tribunal and although it first asserted its claim in writing on 29 March 2023, it failed to issue an invoice until after the 1 June 2023 statutory demand was issued. PCS invites the Court to infer that Hoult advances the counterclaim in bad faith, as an excuse not to pay PCS’s remaining invoices. It is not reasonably arguable in the circumstances.
Assessment
[34] I emphasise that the “appearance” test in relation to an alleged counterclaim or set off involves a review of low threshold. Hoult does not need to provide material proving its counterclaim. It needs to put forward material sufficient to establish that there is a reasonably arguable counterclaim.
[35] The first point raised by Mr Carter, for PCS, is that there is no evidence of Hoult raising performance issues with PCS during 2022, and Hoult did not issue an
invoice in respect of the counterclaim until after the first statutory demand was served on 1 June 2023. Mr Carter suggests that this indicates the counterclaim has been advanced in bad faith. However, there is contemporaneous documentary evidence put forward by Hoult as to issues arising with PCS in April 2022 and PCS being advised that this would put Hoult in “not an ideal position” and that Hoult “will find alternative contractors if necessary”. Mr Hoult deposes that this led to Hoult having to engage alternative contractors at increased rates to finish the job and also resulted in delays. There is also contemporaneous documentary evidence (from a third party, GHD Consulting) as to delays by the concrete subcontractors in around July/August 2022. This evidence suggests that all the subcontractors, including PCS, were responsible for delays.
[36] The issues with regard to PCS’s lack of performance seem to have come to a head as part of the process of resolving PCS’s final account. That is not unusual on construction projects. PCS has not raised any issues about specific contractual notice requirements which means Hoult’s counterclaim is barred. The performance issues were raised with PCS at the latest in NTS 4 dated 29 March 2023, and were set out in more detail in NTS 6 dated 21 April 2023 (although PCS contends it did not receive NTS 6). The invoice issued on 8 June 2023 sets out the detailed calculation and breakdown of the claim. The counterclaim did not come out of left field after the first statutory demand was issued. It had already been raised with PCS some months earlier and Hoult had advised that an invoice would be issued.
[37] Mr Carter also submits, on the basis of evidence from Mark Gommans, that PCS completed work that was scheduled for another contractor and therefore Hoult should have known that PCS would be delayed. However, there is a conflict of evidence here as the contemporaneous documentary evidence and the affidavit evidence of Mr Hoult and Ms Sue suggests that delays were caused by PCS.
[38] Mr Carter submits that the counterclaim in respect of vehicle crossings is flawed because Hoult was not required to undertake 400m2 of vehicle crossings; this quantity was reduced after the first acceptance. However, it is apparent from the evidence that the quantities for the vehicle crossings work were not reduced (as
opposed to the quantities for other works). It is apparent that the price for vehicle crossings increased in the revised acceptance because the quantity increased to 470m2.
[39] Mr Carter also submits that there is a lack of detail to substantiate the counterclaim including invoices from the replacement contractors, and he notes that the claim for having to engage a different sealing contractor seems to be a claim for loss of profit. However, Hoult is not required to prove its counterclaim at this stage. In my view, Hoult has put forward sufficient material to establish a reasonably arguable counterclaim including a detailed breakdown and calculation of the amounts claimed which was provided to PCS in the 8 June 2023 invoice.
[40] In summary, on the evidence before me, I consider that Hoult has met the threshold of establishing that it appears to have a counterclaim which is reasonably arguable. The counterclaim is for an amount in excess of the claimed debt. I do not consider that the issues raised by PCS can properly support an inference that Hoult has advanced the counterclaim in bad faith.
Was the statutory demand validly served?
[41] Hoult also contends that the statutory demand was not validly served and is a nullity.7 Hoult accepts that the statutory demand was delivered by courier to its principal place of business, being its depot at 25 Bennett Street, Palmerston North. Mr Hoult deposes that it was not delivered personally to him but was drawn to his attention sometime after delivery.
[42] The issue comes down to whether service was effected by delivery to an employee of Hoult at Hoult’s principal place of business.8
[43] There is no affidavit of service put in evidence by PCS, so it is not clear whether the courier delivered the statutory demand to an employee or whether it was simply left somewhere at the depot.
7 See Maple Land International Ltd v Ping [2022] NZHC 248.
8 Companies Act 1993, ss 387, 388 and 392.
[44] As I have found above that there is a substantial dispute as to part of the debt, and Hoult appears to have a counterclaim which exceeds the value of the debt claimed, or at least the undisputed debt, I do not need to determine whether the statutory demand was validly served for the purpose of determining the application to set aside.
Result
[45] The statutory demand dated 4 September 2023 is set aside under s 290(4)(a) and (b) of the Companies Act 1993.
[46] My preliminary view is that costs should follow the event and Hoult is entitled to 2B costs and disbursements as fixed by the Registrar. The parties should endeavour to agree on costs. If agreement cannot be reached then memoranda may be filed (not exceeding three pages, excluding costs schedules) and costs will be determined on the papers.
Associate Judge Skelton
Solicitors:
Wadham Partners, Palmerston North for Applicant BVA Law, Palmerston North for Respondent
0
3
0