L R M Builders Limited v Jamon Construction & Civil Limited
[2016] NZHC 1058
•17 May 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2015-409-000811 [2016] NZHC 1058
UNDER Section 290 of the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
L.R.M. BUILDERS LIMITED Applicant
AND
JAMON CONSTRUCTION & CIVIL LIMITED
Respondent
Hearing: 17 May 2016 Appearances:
J E Bayley for Applicant
D J C Russ for RespondentJudgment:
17 May 2016
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on setting aside application
Introduction
[1] The applicant (LRM) is a builder. In 2015 it had the contract to build a house in Glandovey Road, Christchurch. It entered into a subcontract with the respondent (Jamon). Jamon was to excavate the house footprint and provide fill.
[2] In the course of 2015 Jamon was paid for contract work, including some additional allowances for agreed variations. As a result of some changes of design by the engineer there were discussions between LRM and Jamon as to an allowance by Jamon (that is a credit) for material no longer to be supplied. Jamon, after making an allowance in an invoice in August 2015, and following discussions, made an additional allowance in relation to the reduced material in an amended invoice
(for $47,064.90) on 1 October 2015 (the invoice).
L.R.M. BUILDERS LIMITED v JAMON CONSTRUCTION & CIVIL LIMITED [2016] NZHC 1058 [17 May
2016]
[3] By the invoice, Jamon claimed for hire of some equipment (a shaker ramp) at its full normal rate of $150.00 per week.
[4] When the invoiced sum was not paid by LRM, Jamon served a statutory demand for the $47,064.90 on 2 December 2015.
The setting aside application
[5] LRM applies for an order setting aside the statutory demand.
[6] Its stated grounds are:
(a) There is a substantial dispute as to whether the amount claimed for the demand, namely $47,064.90 is due or owing;
(b) The applicant has caused to be drawn a bank cheque in the sum of
$35,339.90, being the amount the applicant does not dispute, and has offered to pay that sum to the respondent.
(c) The respondent is aware of the existence of the dispute and/or maintenance of the statutory demand is consequently oppressive and an abuse of process.
The opposition
[7] Jamon opposes the application. It relies on the following grounds:
(a) LRM has acknowledged that the amount of $35,339.90 is not disputed.
In other words, there is an acknowledgement that it is due and owing.
(b)The applicant’s offer of payment of the undisputed $35,339.90 was conditional in that LRM required Jamon to accept that sum in full and final settlement.
(c) In relation to the balance of the sum claimed under the statutory demand ($11,725), there is not a substantial dispute.1
The jurisdiction to set aside a statutory demand – the principles
[8] The Court’s jurisdiction to set aside a statutory demand is contained in s 290
Companies Act 1993, and I refer specifically to the basis upon which the Court may grant an application as contained in s 290(4) which reads:
290 Court may set aside statutory demand
…
(4) The court may grant an application to set aside a statutory demand if it is satisfied that—
(a) there is a substantial dispute whether or not the debt is owing or is due; or
(b) 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.
[9] For the purposes of this hearing I adopt as a general approach to the exercise of this jurisdiction the following principles:
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.2
·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.
1At today’s hearing, Mr Russ conceded that of the $11,725, a sum of $1,207.50 does represent an arguable dispute. This was by reason of correspondence which was exchanged between the parties at the time in relation to a lower hire rate for the shaker ramp).
2 Re A Company [1991] BCLC 737 (Ch) at 740 per Harman J, adopted in AAI Ltd v 92
Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559 at [22].
· If such material is available the dispute should normally be resolved other
than by means of proceedings in the Court’s Companies Act jurisdiction.
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.3
· The hearing relating to 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.4
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.5
As to both s 290(4)(c)
[10] A significant example of the “other grounds” jurisdiction under s 290(4)(c) arises when parties have by contract or other binding arrangement submitted their disputes or other situations to arbitration, with the consequence that art 8 of sch 1 to the Arbitration Act 1996 would require a stay of proceedings before a Court in relation to the subject-matter.6
[11] There exists a residual discretion under the “other grounds” jurisdiction of
290(4)(c) which enables the Court to do justice between the parties. As Tipping J
3 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) PRNZ 413 at [25]; AAI Ltd v 92
Lichfield Street Ltd (in rec and in liq), above n 2, at [21] – [22].
4 Industrial Group Ltd v Bakker, above n 3, at [25].
5 For this formulation of the applicable principles, I acknowledge the editors of Company and
Securities Law (looseleaf ed, Brookers) at [CA290.02(1)].
6 In Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1
NZLR 383 at [52], the Supreme Court held, in relation to a summary judgment application, that a stay application based on the existence of an arbitration agreement should be determined first. See also Selford Estates (No 2) Ltd v Altomart Ltd [2014] EWCA CIV
1575, [2015] Ch 589, staying a winding up petition based on an unpaid debt which arose out of a contract containing an arbitration agreement.
indicated in Commissioner of Inland Revenue v Chester Trustee Services Ltd, the exercise of the discretion comes down to the Court’s judgment as to whether the creditor’s prima face entitlement to liquidate the company is outweighed by some factor making it plainly unjust for liquidation to occur.7
Cutting through the issues before the Court
[12] In light of the documents filed in this proceeding, and having regard to the matters covered in counsels’ submissions, it is clear that the determination of the parties to continue with this proceeding and to not reach a commercial resolution has been substantially influenced by concerns around either the achievement of a final position, or court costs (or both).
[13] While I accept that the detailed factual background provides both parties with room for dispute over some matters (whether strictly relevant or not), there is an acknowledged fact on each side which clearly points to the appropriate outcome of the application as a whole.
The $35,339.90 debt acknowledged
[14] Acknowledged by LRM (expressly in its notice of application) is the fact that there is no dispute as to LRM owing Jamon $35,339.90.8 The $35,339.90 debt was first recognised by LRM on 8 December 2015. It had obtained advice from a quantity surveyor (on 4 December 2015) in light of the statutory demand. But on 8
December 2015, LRM instead of paying the undisputed sum to Jamon, sent a copy of a bank cheque for $35,339.90. LRM stated the money would be paid across if accepted in full and final settlement and the statutory demand withdrawn. Mr Bayley informs me that the $35,339.90 represented by the bank cheque has subsequently been paid into a solicitor’s trust account to await the Court’s determination, the Registrar being unable to accept a payment into Court in a
proceeding of this nature. It is appropriate to treat the sum as a payment into Court.
7 Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA).
8 A right of set-off asserted in submissions is not claimed in the notice of application itself.
[15] LRM’s recognition of the $35,339.90 as an undisputed debt was carried through into its notice of application.9 The single degree of retreat from that position was contained in Mr Bayley’s submissions, for LRM, through a suggestion that LRM is entitled to set-off against the $35,339.90 the costs and disbursements which it should receive on this application. Such a claim to set-off is without merit. Given that there is an undisputed sum, LRM ought to have paid the $35,339.90 to Jamon
and proceeded with the application, if that was its decision, only in relation to the disputed sum. Having pursued this application essentially by reason of the dispute over the $11,725, LRM has no entitlement to bring the application costs into account in respect of the undisputed $35,339.90. If costs were to be set off against any sum, the set-off would be against the disputed sum only.
[16] Thus the significant acknowledgment of LRM is that $35,339.90 of the total claim in the statutory demand is not in dispute.
The $11,725.00 dispute acknowledged
[17] The significant acknowledgement on the part of Jamon was as to the existence of a dispute in relation to the $11,725.00 difference. Such acknowledgement was contained in the letter written by Mr Russ, for Jamon, in response to LRM’s bank cheque/full settlement offer.
[18] In a letter dated 16 December 2015 Mr Russ referred to LRM’s issuing of this
application. He stated:
The application by LRM cannot succeed. The dispute relied on by LRM
relates only to a proportion of the debt.
[19] Mr Russ went on to observe that the tendering of payment of the undisputed portion of the debt was unacceptable when LRM required Jamon to accept in full and final settlement that sum.
[20] Mr Russ continued:
4 The appropriate way in which to deal with the matter of LRM’s
dispute is as follows:
9 Above at [6].
4.1 LRM should immediately make payment to Jamon in the sum of
$35,339.90.
4.2The difference between Jamon’s Statutory Demand and the payment of $35,339.90 ($11,725.00 including GST) is determined as the sum in dispute.
[21] Mr Russ suggested the next step would then be for the parties to agree on an appropriate mechanism for resolution of that dispute as to the $11,725. Mr Russ required a prompt response failing which Jamon would file its opposition.
[22] In a subsequent exchange of correspondence between Mr Bayley’s and Mr Russ’s firms, Mr Russ on 18 December 2015 took issue with the proposition that his letter of 16 December 2015 was a concession that LRM had a valid dispute. He asserted that Jamon’s position had been that a dispute had been raised, not that a valid dispute had been raised. But rather than going onto state categorically that Jamon regarded the dispute as invalid, Mr Russ introduced an argument in defence of the statutory demand with the following equivocal words:
Irrespective of whether or not Jamon accepts the validity of LRM’s dispute (which for the purpose of this correspondence) should be assumed it does not) …
[23] By the end of the letter Mr Russ stated Jamon’s position as being:
The proposal set out in our letter of 16 December 2015 [ie involving a dispute resolution process over the $11,725.00] remains the correct way to deal with the matter.
Discussion
[24] By LRM’s acknowledgement, in the wording of this application, $35,339.90 of the $47,604.90 claimed by Jamon is “not disputed”.
[25] Secondly, on Jamon’s acknowledgement, after the exchange of a series of carefully considered letters, the correct way to deal with the dispute as to the $11,725 remained through a dispute resolution process.
[26] It had always been the case that if a credit were to be applied to Jamon’s
invoice on account of the change of the engineer’s design, there was still a need for
the calculation of the credit. The $47,064.90 sum claimed under the statutory demand was Jamon’s amended calculation as at 1 October 2015, incorporating an increased credit of $10,752.50. While there are some unsatisfactory aspects to the evidence from both parties as to the contact that occurred thereafter, Jamon’s office manager, Tyrina Stewart, deposes that around 30 November 2015 Lindsay Moir (LRM’s director) told her that LRM was not satisfied with the credit. She continued:
Mr Moir did not give any details of why he was not happy other than to say the reason we had not heard from him earlier is because he was having two Quantity Surveyors look at the credit.
[27] Given those facts, the irresistible inference is that Jamon made a decision, when proceeding to issue a statutory demand in the following days, to have faith in its own calculation of the variation and to take a risk that any analysis undertaken by a quantity surveyor for LRM would not bring to light a reasonable critique of Jamon’s calculations.
[28] LRM’s solicitors produced (on 8 December 2015) the quantity surveyor’s reworked credit figures. The existence and quantification of the dispute as to the balance was then identified. It then behove Jamon to accept and communicate the fact that it would pursue the statutory demand for only the undisputed sum. Equally it behove LRM to pay unconditionally the undisputed sum.
Abusive conduct of the parties
[29] The parties got themselves into arguments in relation to the state of the account between them which ultimately involved abusive positions.
[30] Jamon ought to have abandoned reliance on that part of the sum demanded which exceeded the undisputed $35,339.90 together with (it transpires from Mr Russ’s concession today) the shaker ramp sum of $1,201.50. Jamon abused the statutory demand procedure by opting to seek to defend the statutory demand in its entirety.
[31] LRM, for its part, abused its position. It was in a position to pay the
$35,339.90 unconditionally to its subcontractor (Jamon), but chose to make the payment conditional upon Jamon abandoning its claim to the balance.
[32] The conduct of each in keeping this proceeding on foot is most likely to have been driven out of a desire to achieve a final outcome once and for all and/or to preserve scope for a favourable argument as to costs. Both Mr Bayley and Mr Russ have in their submissions today recognised the relative significance of the ultimate decision on costs given the modesty of the $11,725 which is what is truly at stake.
Outcome – s 290(4)(c) Companies Act 1993
[33] I am satisfied that, whether or not other grounds of application (under s 290
Companies Act 1993) are satisfied, this is a case in which the demand ought to be set
aside “on other grounds” in terms of s 290(4)(c). The parties both know how the
$35,339.90 ought to be dealt with, namely by payment. LRM has failed to give any satisfactory explanation for its failure to pay over the undisputed sum (which would be approximately $30,000 if LRM’s set-off for costs was entertained). The Court should properly direct payment of the stakeholding moneys to Jamon according to its entitlement, without set-off. The parties have a dispute as to the modest remaining sum of $11,725 for which a simple dispute resolution process is appropriate, as initially suggested by Jamon. The procedure which the parties seek to have this Court follow – of determining in a threshold way the arguability of the two disputes involved with the $11,725 – is not an appropriate resort to the Court’s Companies Act jurisdiction. The Court’s order should be such as to leave the parties, if they cannot directly resolve a dispute as to $11,725, to find a forum appropriate for resolution of that dispute.
Alternative finding – outcome – s 290(4)(a) – (b) Companies Act
[34] On the evidence, I also conclude, independently of the solicitors’ correspondence, that the affidavit evidence filed establishes a substantial dispute whether the $11,725 portion of the debt claimed by Jamon is owing. The demand to that extent ought to be set aside pursuant to the Court’s jurisdiction under s 290(4)(a) and/or (b) Companies Act 1993.
[35] I have already referred to the $1,207.50 figure (hire of the shaker ramp) which Mr Russ conceded in the course of his oral submissions is disputable. That leaves for consideration the $10,517.50 which the figures of the quantity surveyor retained by LRM suggests was the shortfall of credit allowed.
[36] LRM’s credit claim was based on a brief assertion in Mr Moir’s affidavit (filed under the pressure of the deadline for an application of the present kind), whereby Mr Moir stated simply, “Jamon agreed to provide a credit as a result of this [saving of fill, equipment and labour]”.
[37] Although the thrust of Mr Russ’s submissions was that such evidence was bare assertion and insufficient to adequately support this ground, the deponent for Jamon (Glen Stapley) accepted that there had been such an agreement. He seeks to qualify it but recognises the agreement in this way:
Jamon’s agreement to give a credit was given without any obligation and as a good faith gesture. When the credit was queried by LRM, Jamon was prepared to review that credit and did so based on the fill material that would have otherwise been provided.
[38] This evidence establishes sufficiently for the purposes of LRM’s substantial argument that the agreement asserted by LRM exists. There may be room for argument as to its enforceability and its terms but those are for an adjudicator and not the Companies Court.
Orders
[39] I order:
(a) The stakeholding sum of $35,339.90, together with any interest which has accrued thereon (but net of any withholding tax) shall forthwith be paid to the respondent.
(b) The statutory demand served by the respondent upon the applicant on
2 December 2015 is set aside.
(c) Cost are reserved.
Associate Judge Osborne
Solicitors:
Rhodes & Co, Christchurch. Fletcher Vautier Moore, Nelson.
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