Kitchener & Co (1989) Limited v Concrete Solutions Limited

[2024] NZHC 653

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2023-409-531

[2024] NZHC 653

BETWEEN

KITCHENER & CO (1989) LIMITED, ANTHONY STEWART HENDERSON and DAVID STEWART HENDERSON

Appellants

AND

CONCRETE SOLUTIONS LIMITED

Respondent

Hearing:	22 February 2024
Appearances:	D W Grove for Appellants F B Collins for Respondent
Judgment:	22 March 2024

JUDGMENT OF OSBORNE J

This judgment was delivered by me on 22 March 2024 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

KITCHENER & CO (1989) LTD v CONCRETE SOLUTIONS LIMITED [2024] NZHC 653 [22 March 2024]

Introduction

[1]    The first-named appellant (Kitchener) was, from 2019, developing an apartment complex in Christchurch (building). The respondent (Concrete Solutions), a concrete specialist contractor, provided repair and strengthening works (contract work) pursuant to a written contract (contract).

[2]The contract was subject to the Construction Contracts Act 2002 (Act).

[3]    After Kitchener failed to respond to two payment claims served on it by the payment or provision of a payment schedule, it entered an agreement with Concrete Solutions (payment agreement). In doing so, it agreed to make payment on or before specified dates of those and any amounts that subsequently became due under the contract.

[4]    Anthony and David Henderson (Hendersons) were the directors of Kitchener. They gave personal guarantees of Kitchener’s obligations under the payment agreement in consideration of Concrete Solutions’ granting Kitchener further time to pay the two sums owing under the contract. The payment agreement included a “no set-off” clause.

[5]    Kitchener failed to make the agreed payments under the payment agreement. The Hendersons did not make payment pursuant to their personal guarantees.

[6]    Concrete Solutions sued Kitchener and the Hendersons in the District Court seeking as principal $26,061.21, together with contractual interest and costs.

[7]    The defendants filed a defence and counterclaim asserting Concrete Solutions had breached its contractual obligations.

[8] It transpired that a scheduled trial was unable to proceed. At that point, Concrete Solutions obtained leave to file a summary judgment application. The circumstances of those arrangements are dealt with below from [67].

[9]    The summary judgment application was then heard by Judge Toohey who entered summary judgment for Concrete Solutions in the principal sum of $26,061.21, together with contractual interests and costs (judgment).1

Appeal

[10]Kitchener and the Hendersons (appellants) appeal the judgment. They assert:

(a)the circumstances by which summary judgment was able to be obtained were at least partly due to Concrete Solutions’ conduct through a failure to serve witness statements for the substantive trial;

(b)Concrete Solutions was estopped from seeking summary judgment as, by its conduct, it had agreed that a merits-based decision would be sought at the scheduled trial;

(c)Concrete Solutions’ pleaded cause of action did not rely on the default provisions of the Act — consequently Concrete Solutions was not entitled to rely on the default provisions under the Act;

(d)Concrete Solutions was not entitled to rely on a “no set-off” clause in the payment agreement in order to rely on the “pay now, argue later” position under the Act;

(e)Concrete Solutions had disentitled itself from reliance on the “no set- off” clause because it had breached the payment agreement; and

(f)the District Court ought to have exercised its discretion either to:

(i)not enter summary judgment; or,

(ii)were summary judgment to be entered, not to stay enforcement pending conclusion of the substantive issues.

1      Concrete Solutions Ltd v Kitchener & Co (1989) Ltd [2023] NZDC 17696 [judgment].

Developments after the appeal was filed

[11]   Counsel advised me that, following delivery of the judgment, Judge Toohey received submissions from Concrete Solutions in relation to interest and costs. The Judge issued a judgment in that regard.2 A total (additional) sum of $70,543.60 was fixed.

[12]   In the meantime, the appellants had filed an application in the District Court seeking a stay of enforcement of the summary judgment. In a supporting affidavit, David Henderson deposed that Kitchener no longer trades, that it has funds available to pay the principal sum awarded ($26,061.21) but that the appellants do not have the means to pay the interest and costs ($70,543.60) which represent the vast majority of Concrete Solutions’ claim.

[13]Concrete Solutions opposed the application for stay.

[14]   Counsel informed me that the stay application has been heard by Judge Toohey with a decision yet to be delivered.

Relevant facts

[15]   The Judge noted the relevant facts were not in dispute.3 I largely adopt his Honour’s summary.

[16]   Concrete Solutions’ contract work was carried out under two “measure and value” quotations dated 10 May 2019 and 20 May 2019. One was for polyurethane resin injections into cracks of more than 0.4 mm in width to mitigate water seepage. The other was for seismic strengthening by way of fibre reinforced sheets applied with an epoxy system.

[17]   By October 2019, Kitchener was in default in relation to payment of two invoices totalling $49,863.83 (GST inclusive). Concrete Solutions served payment claims under the Act. The claims expired without payment or the provision of a

2      Concrete Solutions Ltd v Kitchener & Co (1989) Ltd [2023] NZDC 17696 (duplicated from the substantive judgment, above n 1).

3 Judgment, above n 1, at [5].

payment schedule.4 The parties subsequently entered into the payment agreement on 5 March 2020. (A copy of the payment agreement appears as Schedule A to this Judgment). At that time, Concrete Solutions still had some work to complete under the contract. The payment agreement provided for payment no later than 31 March 2020 of the amount of the two outstanding invoices together with contractual interest at 1.5 per cent per month from 21 November 2019 until date of payment. It also provided for payment on due date of any further sums claimed by Concrete Solutions under the contract. Concrete Solutions agreed to complete the work in accordance with the contract and, upon receipt of all sums payable under it, to issue Kitchener with a producer statement (completion clause). Kitchener agreed “payment of the amounts set out in cl 1 above must be made to [Concrete Solutions] in cleared funds, without set off or deduction”.

[18]   Concrete Solutions undertook further contract work and on 24 March 2020, sent its last invoice to Kitchener for the sum of $26,197.38 (GST inclusive). The due date for payment was 20 April 2020. A payment claim was also issued for this invoice which expired without payment or the provision of a payment schedule. No payments were made by Kitchener pursuant to the payment agreement or the 24 March 2020 invoice save for a single payment of $50,000 subsequently made on 9 March 2021 — Concrete Solutions applied that sum towards the core amounts owing under the expired payment claims, leaving a balance of $26,061.21.

[19]   On 10 March 2021, Concrete Solutions served demand for the payment of the balance on Kitchener and the Hendersons (under the latter’s guarantees).

Procedural history

[20]Concrete Solutions filed its proceeding in the District Court on 24 March 2021.

[21]   The statement of claim alleged Kitchener’s failure to pay the sums due under the payment agreement was a breach of both the payment agreement and the contract.

4      In the judgment at [6] fn 2, the Judge noted the defendants’ statement of defence denied these facts but the opposition affidavit did not deny them and the application was argued on the basis they were not in dispute.

That said, the cause of action was pleaded solely as breach of the payment agreement by failing to pay the sums due under that agreement.

[22]   The defendants filed a statement of defence and counterclaim. They asserted there were implied terms of the payment agreement that:

(a)the works (under the contract) would be completed on a timely basis and without unjustified or undue delay;

(b)the works contracted to be undertaken would be completed; and

(c)the works contracted to be undertaken would be completed competently and up to a professional and competent degree.

[23]   The defendants also asserted in their statement of defence that Concrete Solutions owed Kitchener a duty of care in the same terms.

[24]   The defendants made a bare denial to the allegation in the statement of claim that Kitchener became indebted to Concrete Solutions in November 2019 pursuant to the two expired payment claims. They admitted, however, that the 24 March 2020 invoice had not been paid and no payment schedule had been provided — they asserted in response that there was neither a payment due nor any payment schedule required because the contract works had not been completed or the work done had defects.

[25]   The defendants’ counterclaim repeated the matters raised in defence and specified further works and remedial works allegedly required to complete the works and to remedy defects. Damages in a sum to be particularised before trial were sought.

[26]   An unsuccessful judicial settlement conference took place in March 2023, whereupon the Court directed that a three-day fixture be allocated. The Court directed a timetable for the exchange of briefs (60 working days before trial for the plaintiff and 30 working days for the defendants).

[27]   The Deputy Registrar on 19 July 2023 enquired of counsel whether they were available for a trial commencing on 21 August 2023 — that was 23 working days from the date of the Deputy Registrar’s enquiry.

[28]In the judgment, the Judge recorded:

[14] In July 2023, the proceeding was scheduled for trial on 22, 23 and 24 August. This did not provide sufficient time for the parties to comply with earlier trial directions for the filing of evidence. Kitchener was not agreeable to a shortened timetable. CSL did not want to use the available time for a judicial settlement conference.

[29]   Concrete Solutions proposed the trial  proceed  in  the  week  commencing  21 August 2023 but with a truncated timetable for the exchange of briefs. The defendants did not agree to a shortened timetable.5 Judge Toohey convened a telephone conference on 9 August 2023 to discuss the issue. He accepted it would be unfair to prescribe new time limits that close to a scheduled trial.6 There was then a discussion between Judge and counsel as to whether use could be made of the allocated time to hear a summary judgment application. Mr Collins, for Concrete Solutions, indicated the plaintiff would accept (for the purposes of a summary judgment application only) that the defendants had an arguable cross-claim for defects in the work for which payment was sought which potentially exceeded the amount of the plaintiffs’ claim.7 On the basis of that concession, the defendants did not object to Concrete Solutions being granted leave to apply for summary judgment.

[30]   At the conference, the Judge granted Concrete Solutions leave to so apply.8 The parties then followed the timetable for the application and opposition.9 The summary judgment application was heard on 23 August 2023 as scheduled and the judgment was delivered on 12 September 2023.

5 Judgment, above n 1, at [14].

6 Minute dated 9 August 2023 at [4].

7 The concession as to “defects” was intended to cover all the breaches of duties and obligations alleged by the defendants, including failure to complete the contracted work in a timely fashion or at all — the summary judgment application was subsequently argued on both sides on that basis. See Judgment, above n 1, at [15].

8 Minute dated 9 August 2023 at [6].

9 See Judgment, above n 1, at [15].

The judgment

[31]   The Judge set out the relevant facts and procedural history as I have summarised them above.

[32]   The Judge then briefly summarised Concrete Solutions’ submissions which first focused on the “no set-off” clause (2(a)) in the payment agreement by which Kitchener agreed that “payment of the amounts set out in cl 1 above must be made to [Concrete Solutions] in cleared funds, without set off or deduction”. The Judge noted Concrete Solutions’ reliance on the Court of Appeal decision in Browns Real Estate Ltd v Grand Lakes Properties Ltd (Browns Real Estate).10 Concrete Solutions also relied on s 79 of the Act, which prevents a Court from giving effect to “any counterclaim, set-off or cross-demand” raised by any parties to proceeding for enforcement of the debt created by ss 20–24 of the Act (colloquially described as the “pay now, argue later” regime).

[33]The Judge then identified the defendants’ grounds of opposition:

(a)Kitchener’s cross-claim (supported by an expert’s report attached to the defendants’ pleading), combined with Concrete Solutions’ concession for the purposes of their summary judgment application, constituted an “absolute bar to summary judgment”;

(b)Concrete Solutions was not entitled to rely on the “no set-off” clause because (in terms of the concession made) Concrete Solutions had breached the contract;

(c)the “no cross-claim provision in s 79 of the Act is inapplicable as it applies to “liquidated amounts about which there is no dispute”;

(d)Concrete Solutions is estopped from invoking the “pay now, argue later” regime as the defendants, if that had been raised, “would have

10     Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425, (2010) 20 PRNZ 141, (2010) 13 NZCPR 349 [Browns Real Estate].

immediately taken steps to progress a merits-based adjudication” under the Act; and

(e)were the Court to find liability established, the Court should nevertheless exercise its residual discretion to refuse summary judgment or to stay execution of such judgment.

[34]   The Judge then summarised uncontentious principles relating to summary judgment applications.11 Relying on Pemberton v Chappell, his Honour said the Court, if satisfied there is no defence, retains a discretion to refuse summary judgment. It does so in the context of the general purpose of the District Court Rules which provide for the just, speedy and inexpensive determination of proceedings.12 The Judge then considered the arguments raised by the defendants.

The “entire contract” argument

[35]   The Judge noted the defendants had essentially argued nothing was payable to Concrete Solutions under the payment agreement until the whole of the contract works had been completed (including the appropriate standard).13 This amounted to an assertion that the contract and the payment agreement were entire contracts creating no entitlement to payment until all work was completed to the appropriate standard.14 The Judge rejected that contention because:

(a)there were in fact two contracts (one for concrete repairs and one for strengthening) having a measure and value basis and subject to final measure, with payment claims and invoices to be served monthly and payable in full without retention during the month of work;

(b)the parties had then conducted themselves in a way that invoices were clearly identified as progress claims, with progress payments (initially) made; and

11     Judgment, above n 1, at [25]–[26].

12     Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 185.

13 Judgment, above n 1, at [28].

14 At [29].

(c)Kitchener’s failure to provide a payment schedule before due date (as required under the Act) was followed by its entry into the payment agreement with the “no set-off” clause in relation to  payments due  26 days after the payment agreement was signed.

Completion clause

[36]   The Judge considered and rejected the defendants’ assertion Concrete Solutions’ undertaking to complete the contract works was a precondition to Kitchener’s obligation to make the payments referred to in cl 1 of the payment agreement. First, the payment agreement contained no such term. Secondly, it was inconsistent with time being of the essence in relation to Kitchener’s obligation to make payments including default interest, whereas the contract did not make time of the essence for Concrete Solutions’ works completion.

Set-off or cross-claim

[37]   The Judge recognised, pursuant to Grant v NZMC Ltd, Kitchener’s cross-claim was of a nature that it would be unjust to allow Concrete Solutions to have judgment without bringing the cross-claim to account unless the right of set-off had been contractually excluded.15

[38]   The Judge then considered whether the “pay now,  argue later” regime under s 79 of the Act applied. He found it did because s 79 of the Act applies to “claims for recovery of debts under s 23”. As all three of the debts owed by Kitchener had been created by operation of s 23 once payment claims were served without response, s 79 applied. Kitchener lost the prospect of an arguable cross-claim in terms of s 79 of the Act by not issuing payment schedules to dispute the payment claims, whether or not Concrete Solutions still had contract work to complete.

[39]   The Judge found Kitchener’s dispute, raising a claim for damages for non- completion of contract works and for defects in them, amounted to both a counterclaim and an equitable set-off. As such, the cross-claim was debarred by s 79 of the Act.

15     Grant v NZMC Ltd [1989] 1 NZLR 8.

[40]   The Judge then turned to the “no set-off” clause in the payment agreement. For parallel reasons, he found the “no set-off” clause also prevented Kitchener from relying on its dispute as a means of avoiding liability for payments under the payment agreement.

Breach of contract

[41]   In response to the defendants’ assertion that Concrete Solutions could not rely on the “no set-off” clause because it had breached the contract, the Judge found Concrete Solutions could rely on both the “no set-off” clause and the “pay now, argue later” regime. The two provisions are specifically designed to protect a contractor’s entitlement to payment even if the other party has a good counterclaim for breach of contract or otherwise.

Estoppel

[42]   The Judge rejected the defendants’ assertion that an estoppel applied because, had Concrete Solutions relied on the “pay now, argue later” provision earlier, the defendants would have progressed a merits-based adjudication under the Act. The Judge referred to the history of the debts (arising in November 2019 and April 2020) and the fact that Kitchener had generally been vulnerable to the “pay now, argue later” regime from those dates. Following Concrete Solutions’ issuing of the proceeding in March 2021, Kitchener could have pursued an adjudication in respect of its dispute regardless of the existence of the District Court proceeding. In any event, estoppel could not arise when Concrete Solutions had provided no assurance that it would not pursue its claim on the “pay now, argue later” basis. No issue of unconscionability arose.

The residual discretion

[43]   The Judge noted the defendants had invoked the Court’s residual discretion to refuse summary judgment having regard to the way in which the substantive hearing had not proceeded and had given way to a summary judgment application. The Judge rejected the analysis of Mr Grove, appearing for the defendants. Mr Grove suggested Concrete Solutions was to blame for the vacating of the substantive hearing and that

Concrete Solutions had then taken advantage of that. The Judge rejected that on the facts. The Judge identified the grant of leave to Concrete Solutions to apply for summary judgment was consonant with the objective of the just, speedy and inexpensive determination of any proceeding under r 1.3, District Court Rules.

[44]   The Judge also concluded it was not unjust to grant summary judgment and it would be unjust to withhold it. The payment agreement, which sat over the statutory provisions of the Act, meant the defendants had committed themselves to a “pay now, argue later” regime. In relation to the final invoice, subsequently issued but covered by the payment agreement, Kitchener also had the right to file a payment schedule but did not do so. Requiring payment by the defendants (some three years later) was not unjust — the defendants’ counterclaim remained alive and could be pursued.

Stay application

[45]   The Judge declined the stay application for the same reasons he had refused to exercise the residual discretion.

Result

[46]Summary judgment was accordingly entered for $26,061.21 together with the

$70,543.60 subsequently fixed for contractual interest and costs.

Appellant’s submissions

[47]   The submissions presented by Mr Grove for the appellants did not align precisely with the grounds of the notice of appeal. I will summarise the submissions as presented.

“Concrete solutions did not rely on the Act’s default provisions”

[48]   Concrete Solutions, by its statement of claim pleaded a single cause of action against Kitchener, for breach of the payment agreement. As the basis of its claim, it relied on Kitchener’s failure to make payment of the two earlier invoices under cl 1(a) and of the subsequent invoice under Concrete Solutions. It also pleaded the failure of

Kitchener to issue a payment schedule with the consequence that Kitchener became liable to pay the full claimed amount pursuant to ss 22 and 23 of the Act.

[49]   Against this background, Mr Grove submitted Concrete Solutions had “wrongfully relied” on the default provisions under the Act. He described the Judge’s consideration of those default provisions as “unexpected”. He submitted that because there was a single cause of action under the payment agreement, and no pleaded cause of action relying on the provisions of the Act, it was only the “no set-off” clause under the payment agreement that fell for consideration — the “pay now, argue later” provisions under the Act were irrelevant.

Inapplicability of the “no set-off” clause

[50]   Mr Grove submitted the Judge incorrectly determined the “no set-off” clause in the payment agreement applied.

[51]   Mr Grove submitted, once the concession was made that Kitchener had an arguable cross-claim that exceeded Concrete Solutions’ claim, the “counterclaim” became a pure defence rather than a set-off. Mr Grove referred to decisions of the English Court of Appeal in Henriksens Rederi A/S v THZ Rolimpex (Henriksens Rederi)16 and Mellowes Archital Ltd v Bell Projects Ltd.17 Mr Grove relied on these cases as recognising a distinction, in relation to claims arising out of the same transaction, between a “pure” defence and a set-off.

[52]   He submitted the relevant facts of this case are that Concrete Solutions (arguably) did not provide work to the contracted standard because the work was defective or not completed at all — this is not a case where the cross-claim arises for a failure such as late delivery or causing damage to Kitchener’s property in the process.

[53]   In these circumstances, Mr Grove submits, Concrete Solutions was not entitled to the full contractual price as the appellants have a “pure” defence rather than a set- off.

16     Henriksens Rederi A/S v THZ Rolimpex [1973] 3 All ER 589 [Henriksens Rederi] at 594–596.

17     Mellowes Archital Ltd v Bell Projects Ltd [1997] All ER (D) 15.

Total failure of consideration

[54]   Mr Grove submitted the “no set-off” clause in the payment agreement did not apply in this case because there had been a total failure of consideration. That, he says, is because there is work that Concrete Solutions (arguably) has not carried out at all.

[55]   Mr Grove relied on the decision of this Court in HSK Trading Ltd v Carter Building Supplies Ltd (HSK).18 In that case, HSK was purchasing building supplies from Carters. A statutory demand issued by Carters for payment was partly set aside notwithstanding a contractual “pay now, argue later” provision. Carters accepted the provision could not operate where there was a “total failure of consideration”. Associate Judge Bell noted there “could arguably be a total failure of consideration if there is no delivery at all, if what was delivered is not what was ordered or if what was delivered is so defective that it is no use at all to the customer”.19

[56]   Mr Grove submitted the present case is comparable to HSK Trading as both cases involved the dispute over an invoice due to defective delivery or non-delivery. Mr Grove referred to cases which indicate the doctrine of the total failure of consideration may apply even in cases where there has been some delivery — in particular, when there can be easy apportionment of benefit received to specific benefits the party was entitled to receive.20 He referred to Biggerstaffe v Rowatt’s Wharf Ltd.21 There the defendant delivered only some 3,000 barrels out of 7,000 barrels purchased. The English Court of Appeal held there was a total failure of consideration to the extent of the remaining barrels.

[57]   Mr Grove submitted Kitchener’s claim for the costs of specific crack remediation can similarly be apportioned from the “total payment claim” with the result that the doctrine of total failure of consideration applies.

18     HSK Trading Ltd v Carter Building Supplies Ltd [2021] NZHC 1897 [HSK].

19 At [19].

20     Goss v Chilcott 3 NZLR 385 (PC) at 391.

21     Biggerstaffe v Rowatt’s Wharf Ltd [1895]–[99] All ER Rep Ext 1933 (CA). Also Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68.

Inability to rely on “no set-off” clause when in breach

[58]   Mr Grove submitted the plaintiff cannot rely on the “no set-off” clause when it was (arguably) in breach of the payment agreement.

[59]Mr Grove submitted by reference to Ingram v Patcroft Properties Ltd (quoting

Morris v Baron & Co) the accepted position is that:22

A party to a contract which imposes certain obligations and confers certain rights upon him cannot claim to exercise these rights while repudiating his obligations in material particulars.

Discretion to refuse summary judgment

[60]   Mr Grove submitted the Judge, in the event liability was established, should have exercised its discretion to refuse summary judgment because of the unusual circumstances in which the substantive trial was vacated and a summary judgment application proceeded. Mr Grove stated that, had the defendants “known there was even a possibility of this application being filed, [they] would have insisted that the substantive trial take place”.

[61]   Mr Grove referred to the observations of Ellen France J (delivering the judgment of the Court) in Herring v Herring where her Honour concluded:23

Because of the nature of the underlying issues and the desirability of resolving all of the issues between the parties, we consider summary judgment should be declined. This is a case where, as in Sayles, the grant of summary judgment will entail “some injustice” and, “whether intentionally or not” an oppressive use of the procedure of the Court. Accordingly, we dismiss the appeal.

[62]Mr Grove submitted there were stronger reasons in this case than in Herring

to decline the application for summary judgment.

Refusal of stay

[63]   Mr Grove again identified that, until shortly before the trial date, the parties were proceeding on the basis that all substantive trial issues would be determined at

22     Ingram v Patcroft Properties Ltd [2011] NZSC 49, [2011] 2 NZLR 433, per Blanchard J at [32], citing Morris v Baron & Co [1918] AC 1 (HL) at 9.

23     Herring v Herring [2011] 2 NZLR 433 at [29].

one trial. In that case the defendants would not have faced the prospect of needing to settle a summary judgment debt without the financial means to pursue their counterclaim. Mr Grove noted that such considerations led this Court to stay an order for summary judgment and associated costs in Hellaby Resource Services Ltd v Body Corporate 197281.24 Mr Grove noted that, although an appeal against that stay was successful in SRG Global Remediation Services (NZ) Ltd v Body Corporate 197281, the appeal was allowed on evidential grounds and not for misapplication of principle.25

[64]   For evidence as to the financial problems of the appellants, Mr Grove relied on an affidavit of David Henderson. He deposed:

(a)Kitchener no longer trades, but has funds available from a third party to pay the principal debt of $26,061.21;

(b)David Henderson is 69 years old, principally living on a state pension with no other income;

(c)his son, Anthony Henderson, who has authorised him to swear the affidavit, has advised David Henderson that he is not able to pay the balance of the summary judgment sum.

[65]   David Henderson stated that, as he understands it, if the judgment is not stayed Concrete Solutions will be able to proceed to liquidate Kitchener and bankrupt both Hendersons.

Respondent’s submissions

[66]   Mr Collins comprehensively responded to each limb of Mr Grove’s submissions. I will not detail Mr Collins’ submissions — the key points Mr Collins made in his submissions, which all find favour with me, are reflected in the following discussion.

24     Hellaby Resource Services Ltd v Body Corporate 197281 [2021] NZHC 554 at [97]–[113].

25     SRG Global Remediation Services (NZ) Ltd v Body Corporate 197281 [2022] NZCA 518 at [84]– [108].

Discussion

Procedural background

[67]   Given Mr Grove made submissions as to the factual background in support of the grounds of appeal, I will first refer to that background.

[68]   The scheduled trial could not proceed principally because the Registry scheduled a trial date which had no regard for the pre-trial timetable for the exchange of submissions. Without the defendants’ agreement (which was not forthcoming) to a significantly truncated timetable, the trial could not appropriately proceed.

[69]   In the parties’ interests, the Judge then raised the possibility that the available time might be utilised to deal with a summary judgment application. Such an approach to an early determination of issues between the parties had attraction if (as occurred) Concrete Solutions conceded for the purposes of the summary judgment application that Kitchener arguably had a set-off or cross-claim that exceeded Concrete Solutions’ claim.

[70]   At that point, the defendants did not oppose leave being granted to Concrete Solutions’ application for summary judgment. The defendants thereupon cooperated with the summary judgment procedure by promptly filing their notice of opposition and evidence in opposition so that the summary judgment hearing could proceed in what had been the scheduled trial period.

[71]   There has been no appeal filed against the grant of leave. The leave is accordingly to be treated as having been properly granted.

[72]   The complaint that the defendants “would have insisted that the substantive trial take place” if there was a possibility of a summary judgment application being filed is irrelevant. The trial could not realistically proceed in August 2023. Leave was granted to Concrete Solutions (unopposed) to make its application.

[73]   Accordingly, the expectation that both the plaintiff and the defendants would have had leading up to the scheduled trial — that all substantive issues would be

determined at a single trial — no longer applied. The Judge was required to determine only the substantive issues directly in issue on the summary judgment application.

Reliance on the Construction Contracts Act

[74]   Concrete Solutions elected to pursue a single cause of action. That is, suing in contract for breach of the payment agreement.

[75]   The appellants’ proposition is that Concrete Solutions, through their submissions at the District Court hearing relating to the default provisions under the Act, “wrongfully relied upon the Act’s default provisions”.

[76]   Because the relevant contracts were construction contracts under the Act (with the statutory consequences that followed), the Judge analysed Kitchener’s debt liability in terms of the Act, including by reference to the “pay now, argue later” regime. The Judge followed that with his determination of the defendants’ liability directly under the “no set-off” clause in the payment agreement.

[77]   As I conclude the Judge was correct in his finding in relation to the operation of the “no set-off” clause in the payment agreement, it is strictly unnecessary that I consider whether the Judge’s analysis of the legal position under the Act was either in relation to a live issue or was correct.

[78]I limit myself to these observations.

[79]   The fact the contracts between Concrete Solutions and Kitchener were construction contracts, and that payment claims had been made without payment schedules being issued in response, was clearly relevant factual background. It was appropriately pleaded notwithstanding that Concrete Solutions’ cause of action ultimately lay in the breach of the provisions of the payment agreement. Amongst other things, there was the potential (as eventuated) for a challenge by the defendants to the meaning and application of the “no set-off” clause in the payment agreement. Concrete Solutions, in pleading its case, was entitled to assert the construction contract background was relevant to inform the intended meaning and application of the “no

set-off” clause in the payment agreement. In construing the “no set-off” clause, the Judge correctly (at [43] of the judgment) referred to both its “context and terms”.

A defence, not a set-off?

[80]   Concrete Solutions and Kitchener had entered into measure and value contracts. Concrete Solutions invoiced Kitchener only for work actually carried out. As and when Concrete Solutions completed additional contract works (as occurred in March 2020 shortly after the payment agreement was entered into), they then became entitled to make an additional charge. The defendants did not plead they had been invoiced for works not actually completed. David Henderson, in his affidavit, identified two areas of complaint, namely that there had been unacceptable repairs of cracks and there were areas where cracks that had been agreed to be repaired had not been repaired.

[81] Mr Grove relied on two English Court of Appeal decisions (referred to at [51] above) in support of a position that Kitchener’s cross-claim is truly a “pure” defence rather than a set-off or counterclaim that could be affected by the “no set-off” clause. The cases cited do not stand for the proposition advanced by Mr Grove. They do not address at all whether a “no set-off” clause such as that in the payment agreement would operate in the contractual situations in the English cases. Henriksens Rederi considered whether particular cross-claims also amounted to a defence in law. Thus Lord Denning explained:26

… it is also, I am satisfied, matter of defence in law and not merely set-off or counterclaim.

(emphasis added)

[82]   The important legal consequence in Henriksens Rederi was that the defendant was entitled to raise the factual issue as a defence, notwithstanding the passage of time, whereas any attempt to pursue the issue as a cross-claim would have been subject to a time-bar.27

26     Henriksens Rederi, above n 16 at 595c.

27     At 596.

[83]   As Mr Collins submitted for Concrete Solutions, the relevant New Zealand authority dealing with a cross-claim of the present kind is the Court of Appeal’s decision in Browns Real Estate.28 There, a lessee sought to raise a cross-claim based on the lessor’s alleged misrepresentations about the premises during the negotiations leading to the lease. The argument failed because the lessee had agreed to pay the rent “free of any deduction, withholding, set-off or reduction on any account”.29

[84]   Recent authority of the England and Wales Court of Appeal to the same effect can be found in O2 (UK) Ltd v Dimension Data Network Services Ltd.30  There,  Ward LJ recognised the effectiveness of a clause in a supply agreement whereby the customer agreed to pay charges in full without any deduction or set-off within 30 days of invoice. His Lordship observed the clause on its ordinary meaning “amounts to pay now and grumble later”.31

[85]   In the summary judgment context, this Court’s decision in Zheng Li Trustees Ltd v Henderson is an example of a case in which a “no set-off” clause was given effect to in entering judgment for the plaintiffs.32

[86]   Significantly, the context in which the “no set-off” clause in Browns Real Estate was upheld by this Court and the Court of Appeal was an application by the lessee to set aside a statutory demand under the Companies Act 1993. In other words, the winding up procedures were, because of the “no set-off” clause, allowed to be pursued, notwithstanding that the consequence was the defendant company could be wound up before it had the opportunity to pursue its cross-claim.

[87]   It matters not whether Kitchener’s cross-claim could also be argued to amount to a defence. It remains a cross-claim against which the “no set-off” clause operates.

28     Browns Real Estate, above n 10.

29 At [5].

30     O2 (UK) Ltd v Dimension Data Network Services Ltd [2007] EWCA Civ 1551.

31 At [14].

32     Zheng Li Trustees Ltd v Henderson [2015] NZHC 1723 at [53]–[57] and [110].

Total failure of consideration

[88] As noted at [54]–[57] above, Mr Grove had submitted, with reference to the observations of Associate Judge Bell in HSK Trading, that the “no set-off” clause here did not operate because there was a “total failure of consideration”.

[89]   It is not correct to suggest, as Mr Grove did, that the present case is comparable to HSK Trading by reason of both cases involving “defective delivery or non- delivery”. The types of failure referred to by the Judge in HSK Trading were all examples at the extreme, such as where there is no delivery at all or what was delivered is so defective as to be no use at all.

[90]   Here, even without consideration of the fact Concrete Solutions was delivering separate invoices for completed work, the invoices delivered were in relation to very substantial work undertaken. Moreover, the appellants have not alleged the services provided by Concrete Solutions were of no use at all.

[91]   I also note what has traditionally been called “failure of consideration”, now referred to by the authors of Chitty on Contracts as “failure of basis” is “truly a ground of restitution”.33 As a remedy it applies to a situation where a contracting party has paid money and the payee’s failure to meet its side of the bargain has been total.34

[92]   In this case, where the sums in dispute had not been paid by Kitchener to Concrete Solutions, the restitutionary remedy which is the focus of arguments as to failure of consideration or failure of basis does not arise.

[93]   The appellants’ invoking of “failure of consideration” is a misleading way of approaching what the appellants fundamentally seek to assert, namely that there should not have been summary judgment for the invoiced sums because there had been (arguable) failures in Concrete Solutions’ services short of total failure.

33     Joseph Chitty Chitty on Contracts : General Principles (35th ed, Sweet & Maxwell, 2023) at 33.063.

34     At 33.063, citing HEB Enterprises Ltd v Richards [2023] UKPC 7 at [58].

[94]   The present case is not in principle distinguishable from a case such as Browns Real Estate.

Inability to rely on “no set-off” clause when in breach

[95]   The appellants posit a principle that a “no set-off” clause cannot be relied on when the claiming party was first in breach of the contract. The single authority relied on by the appellants was Ingram.35 In Ingram after a history of disputes between the landlord and the tenant and failure by the tenant to pay rent on due date, the landlord had re-entered the premises and distrained for unpaid rent. In High Court proceedings, the tenant alleged the re-entry and distraint had been lawful.

[96]   In allowing an appeal, the Supreme Court held that ongoing repudiation of the contract by the landlord had intimated to the tenant that payment on the imminent rent payment date would be futile. The landlord was precluded from benefiting from its own breach by then cancelling for non-payment of that rent. The landlord’s purported cancellation was inconsistent with its stance that the lease no longer existed as from the date of re-entry.

[97]In that context Blanchard J in Ingram quoted the words of Lord Finlay LC in

Morris v Baron & Co (above at [59]).

[98]   There are two aspects of the facts of and principles applied in Ingram that materially differ from the facts of this case. First, Ingram when properly read is about repudiatory conduct of a party at fault. The decision is not authority for the proposition that any breach at all deprives a party who is ready and willing to perform the contract in substance of the right to enforce its rights under the contract. Such is evident from the Court’s subsequent quotation in Ingram of the following passage from Cheshire & Fifoot’s Law of Contract:36

A party need only be ready and willing to perform the contract in substance. A party who is in breach may nevertheless have the right to terminate, so long as the breach is not repudiatory or of an essential term or such as to deprive the other party of the substantial benefit of the contract.

35     Ingram v Patcroft Properties Ltd, above n 21.

36     Ingram, above n 21, at [36], citing N C Seddon & M P Ellinghaus Cheshire & Fifoot’s Law of Contract (8th ed, LexisNexis, Chatswood, NSW, 2002) at 943.

[99]   It is clear in the present case that Concrete Solutions remained ready and willing to perform the contract in substance.

[100]   Secondly, Ingram involved a case where the party in breach had contributed materially to the non-fulfilment of the relevant condition. (In the present case the relevant condition was Kitchener’s obligation to pay under the payment agreement).

[101]   This principle identified in Ingram was further explained by the Supreme Court in Melco Property Holdings (NZ) 2012 Ltd v Hall,37 where it was observed:38

[53] … A party whose breach of the contract has contributed materially to non-fulfilment of the condition may not rely on such non-fulfilment to avoid a contract. When considering the situation where both parties have contributed to some extent in the non-fulfilment of a condition, in other words the contribution to the non-fulfilment is shared, it will be necessary to construe “material” as meaning “substantial and operating”.

[102]   Here, Concrete Solutions cannot be said to have contributed to Kitchener’s non-payment of the invoices rendered (on a measure and value basis) for completed work. Concrete Solutions has taken no advantage of any (arguable) breach on its part. It is simply claiming under the payment agreement for sums agreed to be paid by Kitchener and, in relation to the subsequent invoice, for the subsequent work covered by that invoice and agreed to be paid under the payment agreement. To the extent that Concrete Solutions may (arguably) have committed breaches of the construction contracts, short of repudiatory breach, any cross-claims flowing from such breaches are precisely of the nature intended to be covered by a “no set-off” clause or, indeed, the “pay now, argue later” regime under the Act.

Discretion to refuse summary judgment

[103]   The Judge was clearly correct, having made his findings of liability, not to exercise the discretion to refuse summary judgment.

[104]   The Court of Appeal made it clear in the earliest days of the summary judgment regime that the discretion involved is of the most residual kind.39 A well-established

37     Melco Property Holdings (NZ) 2012 Ltd v Hall [2022] 1 NZLR 59.

38 At [53].

39     Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 5.

situation in which resort to the residual discretion may be appropriate is where the summary judgment procedure is being used (whether intentionally or unintentionally) as an instrument of oppression. That situation, as observed by Mr Grove, was addressed by the Court of Appeal in Herring v Herring (above at [61]), in line with the much earlier decision of this Court in Sayles v Sayles.40

[105]   The foundation upon which Concrete Solutions commenced its proceeding is not fertile ground for Kitchener’s submission that Concrete Solutions should have been denied summary judgment on the basis of the discretion. Concrete Solutions and Kitchener were parties to a construction contract to which the “pay now, argue later” regime applied. When Kitchener failed to meet its obligations in relation to two payment claims, the debts were acknowledged by Kitchener. Through the payment agreement Kitchener then committed to meeting those debts within a short time period and to paying further sums claimed by Concrete Solutions arising out of the contract and doing so without set-off or deduction. Almost immediately in March 2020 Kitchener received the agreed benefit of having Concrete Solutions carry out more contract works.

[106]   There is no basis for any exercise of discretion in favour of Kitchener in those circumstances.

[107]   The appellants’ identified premise for invoking residual discretion lies solely from the fact the trial (of all substantive issues) could not proceed which led to a summary judgment hearing, with the determination of Kitchener’s cross-claims deferred. Mr Grove added in relation to those considerations that “the plaintiff is seeking to take account of its failure to assist in trial proceeding, and in particular, by filing its evidence in the trial bundle”. There is no basis in the record for that submission or any criticism of Concrete Solutions in relation to the vacating of the trial. There is no evidential basis for criticism of Concrete Solutions in that regard.

[108]   More importantly, there is nothing in the circumstances in which the trial was vacated and a summary judgment hearing proceeded that involved Concrete Solutions

40     Sayles v Sayles (1986) 1 PRNZ 95 at 99.

taking advantage of the situation. The approach adopted by the Court was an obvious one in the circumstances and in the interests of both parties.

[109]   The Judge was correct in not refusing to enter summary judgment on the basis of the residual discretion.

Stay

[110]   An application for stay of enforcement is made under r 17.29 High Court Rules 2016. The principles are summarised in Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd.41 The onus is on an applicant for a stay of enforcement to persuade the Court to exercise its discretion.

[111]   I am not satisfied the Judge erred in refusing to exercise his discretion to stay enforcement. To the contrary, on the basis the discretion must be exercised by balancing the interests of both parties, it would have been an error to grant a stay.

[112]   While Mr Grove submitted that David Henderson’s affidavit “confirms that the appellants are not able to satisfy the judgment and if enforced would lead to liquidation of the company and bankruptcy of the individuals”, the affidavit does not in fact establish those matters with any reliable evidence. Financial statements or statements of position for the three appellants were not provided. David Henderson provided no information as to the asset and liability position of Kitchener. He made no reference to his own assets and liabilities. The only information as to Anthony Henderson’s financial position is the (inadmissible) hearsay that “Tony advised me that he was not able to pay that sum either immediately”.

[113]   There was accordingly no proper foundation for a submission that the defendants would not between them have the means to pay the judgment sum and pursue Kitchener’s crossclaims.

41 Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd  HC Napier CIV-2010-441-134, 8 June  2011. See also Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR17.29.02].

[114]   In any event, this was not the common situation of proceedings being issued simply based on an unpaid invoice. Here, to obtain time for payment of undisputed debts, Kitchener entered into the payment agreement in relation to those acknowledged debts and expressly precluded its right to claim set-off or deduction. To obtain that time for payment and to get further work done, the Hendersons guaranteed payment of all sums payable by Kitchener. Time for payment was expressly of the essence.

[115]   When Concrete Solutions came to establish its entitlement to summary judgment in August 2023 in relation to debts which were required to be paid under the payment agreement more than three years earlier, there was not a skerrick of injustice in holding the appellants to what was a settlement agreement.

Conclusion

[116]   None of the grounds of appeal developed on behalf of the appellants has been established.

[117]The appeal will be dismissed.

Costs

[118]Counsel addressed me at the conclusion of the hearing in relation to costs.

[119]   Under the payment agreement, the appellants agreed to pay Concrete Solutions’ actual and reasonable costs of enforcement, including any costs on a solicitor/client basis.

[120]   Mr Grove accepted, in the event the appeal was dismissed, Concrete Solutions would be entitled to its costs and disbursements in terms of the payment agreement.

Orders

[121]The appeal is dismissed.

[122]   The appellants (jointly and severally) are to pay the respondents’ indemnity costs on a solicitor/client basis together with their reasonable disbursements.

[123]   In the event the parties do not agree on the quantum of such costs and disbursements, they will be determined by the Court on the papers, with the respondent to file its memorandum (five-page limit), with a schedule of calculations and supporting information as to its invoicing and the reasonableness of the invoice. Such memorandum is to be filed within 10 working days after this judgment. The appellants are to file and serve their memorandum in response (same page limit) within five working days thereafter.

Osborne J

Solicitors:

Aspiring Law, Solicitors, Wanaka

Counsel: D W Grove, Barrister, Auckland Braun Bond and Lomas, Solicitors, Hamilton Counsel: F B Collins, Barrister, Wellington

SCHEDULE A

(b}Payment i8 to be mado followltig èexlsment of the fir«t apaxment sale, but must ha i iade no latei’tfian 31 Nafch 2020;

(c)time Il te be of the essancu for payment; and

(d)in the event of Blik äsfavlt by KCL› 1 shall be llable for tha actual

«I1¢I r8a8orÏabl8 CD9I 0f 9nf0fvel‹Iefit 0f att6l lpted 8 \f0frsIzIei1t

including »n cosls en s solicitor/client ässi8.

3     CSL agrees:

(aJ to omplete the works at2B0 B9aley AYanue, ¢I ›/tstthurch in

acCofdanCB Wi(t› the paftlsM’ ¢ontf‹l6l; ahd

(b)that up0h reælpt otall sums payable by KCL b CSL underthe pattes ¢onttact and k i8 ê8*46* 8nt, C8L will Issue KCI- with a producer étaiement(PSC).

W», ANTHONY SVART HENDERSON a»4 DAVID STEWART

HENDERSON,)oIn6 and eevaiaily gU6F8f\t89 §8$ITIgftt vf all erms payable by KCLto CSL under the Dallas contract and this agfseman\, Including sny lI)l8f65f. 8nd the aotual 8nd f6850f\8bl8 006(Of 6fIf0fC9M8fIt 0r attsmpt6d

ehfa c6ff\plot, l‹\siding 8‹\ c0Sts oIi a,8q(cltQr/Cllef›t basl9.

nature ulAnthony Stewart         9lgnetv e of Dnvld Stewart

o‹i‹.05/03/20

[Signatures redacted]