March Construction Ltd v Queenstown Carparking Ltd HC Auckland CIV 2009-404-6021
[2010] NZHC 1537
•26 August 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2009-404-006021
IN THE MATTER OF Section 290 of the Companies Act 1993
BETWEEN MARCH CONSTRUCTION LIMITED Applicant
ANDQUEENSTOWN CARPARKING LIMITED
Respondent
Hearing: 29 January 2010
Counsel: A N Riches for applicant
D J Chisholm for respondent
Judgment: 26 August 2010 at 4:30pm
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 26 August 2010 at 4:30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Saunders & Co, PO Box 18, Christchurch 8140 for applicantBrown Partners, PO Box 1496, Auckland 1140 for respondent
MARCH CONSTRUCTION LIMITED V QUEENSTOWN CARPARKING LIMITED HC AK CIV 2009-404-
006021 26 August 2010
[1] The applicant, March Construction Limited (March), has applied for an order setting aside a statutory demand made on it by the respondent, Queenstown Carparking Limited (QCL), for the sum of $76,450.94.
[2] The dispute arises out of a contract between QCL and March for excavation and retaining work undertaken by March for a carpark being developed by QCL. The contract provided for the supply and the installation of steel sheet piles to retain the excavated land, both permanently and whilst the carpark was being constructed. It also provided that March was to remove temporary piles, and account to QCL for the value of the undamaged steel that was recovered, at an agreed rate (approximately 30% of the rate paid by QCL for its initial supply and installation).
[3] The excavation and retaining work was completed, and some of the temporary piles were removed by April 2007. Temporary piles installed on adjoining land were not removed until about May 2009.
[4] QCL contends that the sum it has demanded is the value of the sheet piles that were removed in 2009, calculated at the agreed rate.
[5] March contends that the piles became fixtures on the adjoining land. It says that the contract had come to an end by the time its contract with QCL came to an end in 2007, and that it removed the piles, and that it obtained ownership of them in
2009 under an arrangement with the mortgagee of the adjoining land, Strategic Finance Limited (Strategic). It says that the demand should be set aside as there are substantial disputes over whether the money is payable (essentially whether the piles had become fixtures on the land, and whether it acquired title to them under the agreement with Strategic). In the alternative, it says that it has a counterclaim against March which offsets any sum not in dispute.
Background
[6] QCL is the owner of a property in Man Street, Queenstown. On 14 January
2005 it engaged March to undertake excavation and retaining work on the site, for
the construction of a carpark. The contract was in the form of a letter dated that day, sent by the project manager for the development, Peak Projects International Limited to March. The terms of the contract, as set out in that letter included:
1. Scope of Works
The scope of works includes:
....
....
....
• Design, supply and installation of temporary and permanent sheet pile walls including ground anchors and whalers, necessary to retain the excavation for construction of the proposed car park building;
• Extraction and removal of temporary sheet pile wall along the
Eastern boundary
It is however acknowledged that a variation to the works to facilitate an extension of the car park to the west is probable. Any variation to the sheet piling and excavation quantities due to this extension shall be priced at the same rate as the current scope of works
2. Contract Price
....
A full breakdown of the contract price is attached to this letter. The rates in this breakdown will apply to any variation for extension of the works to the east.
3. Programme and Liquidated Damages
The works shall comprise two separable portions:
•Portion1; all works excluding extraction and removal of the temporary piles to the east boundary;
•Portion 2; extraction and removal of the temporary piles to the east boundary.
The programme for completion of Portion 1 shall be in accordance with the attached programme, being 25 weeks from award of the contract.
Liquidated damages shall apply to Portion 1 only
....
5. Contract documents
The contract documents will include:
....
5.3 General Conditions of Contract, NZ$3810:2003
....
Item Quantity Unit Rate Value Notes ....
FSP 3A Sheet Pilings (6-14 metres) 188.750 tonne 3,590.077 677,627.04 See Note 2 ....
East Wall Pile and Waling Recovery 50.120 tonne -1,054.210 -52,837.00 See Note 4 Note 2 Supply and installation rate includes pinning pile toe’s to schist where necessary
Note 4 Money to be reimbursed by March Construction if steel is recovered complete and undamaged.
....
[7] It is common ground that the parties subsequently agreed to extend the contract to the supply and installation of temporary sheet piles on adjoining land to the west of the carpark site. That land was owned by a third party, Queenstown Investment Holdings Limited (QIHL). QCL says that it obtained QIHL’s agreement to installing these temporary sheet piles on its land, on the basis that they would be removed once work was complete. Although there is no written record of this agreement in the evidence before the court, March did not seriously challenge the fact that such an agreement was reached (it is difficult to see how QCL could have put the piles on QIHL’s land without it).
[8] On or about 31 March 2007, as part of its claim under the contract for the period ending 31 March 2007, March submitted a payment application to the project manager for what was referred to as the west wall variation. This application showed a total of 77.41 tonnes of sheet piles having been installed, of which 8.21 tonnes had been removed at that point. The project engineer issued a payment schedule for this claim on 23 April 2007.
[9] That claim marked the end of March’s work under the contract, with the exception of any remaining obligation to remove temporary piles. It appears nothing further happened in that respect until September 2008 (presumably whilst the carpark building itself was being constructed). At that point an employee of the project manager, Mr Barr, had email correspondence with March’s general manager (and engineer) Mr Carvel about removal of the piles. Mr Carvel advised in that correspondence that by his reckoning there were 69.21 tonnes of sheet pile still in the ground that, after removal, would have a value of $72,961.87 (calculated by reference to the rates set in the contract).
[10] This exchange of correspondence appears to have led to a meeting on site on
15 October 2008 between Mr Barr and March’s director Mr “Buzz” March. The following day Mr Barr sent Mr Carvel Engineer’s Instruction 185 issued by Peak Projects’ director Mr Soundy (who was the contract engineer) to March. It was said to be confirming an instruction to remove the 69.21 tonnes of sheet piles, with an agreed sum of $72,961.87 to be payable after removal (subject to adjustment to reflect actual amounts removed).
[11] On 19 January 2009 Mr Barr contacted Mr Carvel on various matters including removal of the piles. Mr Carvel responded that he would need to check with Mr March about timing.
[12] In the meantime, the adjoining owner, QIHL, was having financial difficulties. Strategic, by then holder of the first mortgage over QIHL’s land, had commenced steps to enforce its security. On 23 April 2009 Mr Carvel met an engineer representing Strategic, Mr Blackstone of the firm Nevis Rise Consulting, on site. Following that meeting, Strategic authorised March to have access to QIHL’s land, and to remove all but one section of the sheet piling on the land, on the basis that March would remove the piles at its own cost and take ownership of the piles once removed. Shortly afterwards March extracted the piles and removed them from the site.
[13] QCL was aware that March was removing the piles. Mr Soundy visited the site during the extraction work. There is a difference of view as to whether QCL knew of March’s arrangement with Strategic. Mr Carvel contends that Mr Soundy was aware that March was undertaking the work for Strategic. Mr Soundy says that he did not know of the arrangement with Strategic, but instead understood from a brief conversation with Mr Buzz March that March was acting (albeit belatedly) on the previous instruction to remove them.
[14] Following removal of the piles, QCL through its parent company ‘Trans Tasman Properties Limited’ invoiced March for $76,450.94, as the value of the steel removed. This sum was the value of steel that March had acknowledged was left in the ground ($72,956) less $5,000 for the piles that were not removed (as estimated by the contract engineer), plus GST.
[15] On receipt of the invoice, Mr Carvel informed Trans Tasman Properties Limited that it would not be paying the invoice. After checking with Strategic, and establishing that Strategic had arranged with March for removal of the piles to clean up the site, but had not been aware of the arrangement between QCL and QIHL, nor the contractual arrangement between QCL and March and was not claiming ownership, QCL issued its statutory demand.
The applicable principles
[16] March brings its application under s 290 of the Companies Act 1993. The relevant provisions read:
290 Court may set aside statutory demand
(1)The Court may, on the application of the company, set aside a 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.
....
(7) An order under this section may be made subject to conditions.
[17] The courts have adopted the following general principles in determining such applications:
a) The applicant much show that there is a genuine and substantial dispute as to the existence of the debt;
b)It is not sufficient to merely assert the existence of a dispute – some material falling short of proof is required to support the claim;
c) If that material is produced, the dispute should normally be resolved by means other than liquidation proceedings;
d)Where an applicant relies on a cross claim or set-off, it is necessary to show that that cross claim or set-off is reasonably arguable;
e) In most cases it will not be possible or appropriate to resolve disputes of material facts on these applications, particularly where issues of credibility arise. Having said that, the court is not required to accept uncritically any or every allegation of a dispute of fact – it can and will assess whether facts being advanced as constituting a dispute pass a threshold of credibility, often by reference to contemporary documents or other statements of a witness;
f) The task for the court is not to resolve the dispute, but to determine whether there is substantial dispute as to whether or not the debt is due, or there is a reasonably arguably basis for a counterclaim or set- off which exceeds the demand, or that there is some other factor which makes it plainly unjust for liquidation proceedings to ensue.
Is there a substantial dispute?
[18] QCL claims that at all material times it was the owner of the sheet piles. It says that the sum demanded is a clear contractual debt namely the value of the sheet piles removed by March from the adjoining QIHL site. It relies on the provisions of the contract made in January 2005 under which March was both to remove temporary sheet piles and account to QCL for the value of undamaged steel, at the rate of $1,054.21 per tonne. It says that there cannot be any dispute as to the amount of steel removed, because it is based on March’s own assessment. In response to March’s contention that some of the steel is damaged, QCL notes that there is. March has denied it had access to check the state of the steel. Moreover, it takes the position that March cannot both claim that some of the steel was damaged and yet decline to return it to QCL.
[19] March, on the other hand, says that QCL did not own the sheet piles at the time it removed them. It says that ownership of the piles had passed to QIHL as the piles had become fixed to its land, and that Strategic, as mortgagee in possession or exercising its power of sale, was able to pass title to them to March. In the alternative, March contends that there is a substantial dispute as to the value of undamaged sheet piling (because a significant amount of it had to be cut to remove it
from the land), and that it has an arguable counterclaim and set-off for the cost of removal.
(a) Did the piles become fixtures?
[20] The starting point for March’s case is that QCL cannot claim for the value of the sheet piles because ownership passed to QIHL when the piles were fixed to its land.
[21] Property in a chattel will pass from the owner of the chattel to the owner of land where the chattel is affixed or attached to the land so as to become part of it.[1]
The two main indicators as to whether a chattel can be said to have become part and parcel of the land are:
a) The degree of annexation; and b) The object of annexation.[2]
[1] Fenton (ed) Garrow & Fenton’s Law of Personal Property in New Zealand (6th ed, Butterworths, Wellington 1998) at para 3.001; G W Hinde (et al) Hinde McMorland and Sim Land Law in New Zealand (10th ed, LexisNexis, Wellington 2010) at para 6.036.
[2] Elitestone Ltd v Morris [1997] 2 All ER 513, 518 (HL); Auckland City Council v Ports of Auckland
Ltd [2000] 3 NZLR 614 at [72] – [74].
[22] The modern day analysis, as stated in the last paragraph, can be traced back
to the following passage from the judgment of Blackburn J in the early English authority Holland v Hodgson:[3]
... articles not otherwise attached to the land than by their own weight are not to be considered as part of the land, unless the circumstances are such as to shew that they were intended to be part of the land, the onus of shewing that they were so intended lying on those who assert that they have ceased to be chattels, and that, on the contrary, an article which is affixed to the land even slightly is to be considered as part of the land, unless the circumstances are such as to shew that it was intended all along to continue a chattel, the onus lying on those who contend that it is a chattel.
[3] Holland v Hodgson (1982) LR 7 CP 238 at 335.
[23] The learned authors of Hinde McMorland & Sim, Land Law in New Zealand, express the view that the degree of annexation clarifies the purpose of the annexation. They comment:[4]
Although the degree of annexation still establishes a prima facie finding, places the burden of proof, and is relevant to the extent of that burden, the Courts now give greater weight than they once did to the purpose of the annexation which may support or be contrary to the prima facie finding based on the degree of annexation.
[4] Garrow & Fenton’s Law of Personal Property in New Zealand, above n1, at para 6.037.
[24] The learned authors then turn to consider the purpose of annexation, and comment:[5]
[5] Hinde McMorland & Sim Land Law in New Zealand above n1, at 6.038 see also Auckland City Council v Ports of Auckland above n2 at [72] - [73].
6.038 The purpose of annexation
The most important element in deciding whether an item has become a fixture is the purpose with which it was brought on to the land. If it was for the permanent and substantial improvement of the land or building, the item is a fixture; but if it was for a temporary purpose or for the more complete enjoyment and use of it as a chattel, then it remains a chattel. The degree of annexation and the damage that would be caused to the land or building by the removal of the item may assist in determining the purpose of the annexation.
The prima facie conclusion drawn from whether there is any annexation of not may be strengthened by a consideration of the purpose of the annexation or may be rebutted by it. The purpose of the annexation is to be considered objectively.
[25] The purpose or object of annexation may be ascertained from a visual inspection, but is not necessarily determined in that way.[6] In Elitestone[7] Lord Lloyd of Berwick referred to cases where a greenhouse, and a removable house temporarily connected to mains services such as water and electricity, remained chattels. This would not have been really apparent from a merely visual inspection. Similarly, in Lockwood,[8] the Court of Appeal noted that the purely visual approach would not necessarily apply when a question arose between landowner and person claiming the
item had remained a chattel (Tipping J)[9] and that a “patent to all to see test could be a self-defeating and unjustly limiting exercise in clarification” (Cooke P).[10]
[6] Lockwood Buildings Ltd v Trust Bank [1995] 1 NZLR 22 (CA); Elitestone Ltd v Morris [1997] 2 All ER 687 (HL).
[7] Elitestone Ltd v Morris above n2, at 692 - 693.
[8] Lockwood Buildings Ltd v Trust Bank [1995] 1 NZLR 22.
[9] Above n8.
[10] Ibid at 22.
[26] As a consequence of the decision in Elitestone (adopted by the Court of Appeal in Auckland City Council v Ports of Auckland)[11] it is an open question as to whether agreements or private arrangements between parties can allow an item to retain its chattel status (one of the findings of the Court of Appeal in Lockwood Buildings v Trust Bank).[12]
[11] Auckland City Council v Ports of Auckland, above n2.
[12] Lockwood Buildings Ltd v Trust Bank, above n6.
[27] What is clear, however, is that the purpose of annexation is to be construed objectively:[13]
It is important to observe that intention in this context is to be assessed objectively and not subjectively. Indeed it may be that the use of the word intention is misleading. It is the purpose which the object is serving which has to be regarded, not the purpose of the person who put it there. The question is whether the object is designed for the use or enjoyment of the land or for the more complete or convenient use or enjoyment of the thing itself.
[13] Elitestone Ltd v Morris above n2, at 698E.
[28] I am not persuaded that the sheet piles became part of the QIHL land. Although they were firmly fixed to the land (it is questionable that they were firmly anchored to it) this was in circumstances which show that the piles were brought onto and annexed to the land for a temporary purpose, namely to provide support during the excavation of QCL’s land and erection of its carpark building. They were capable of being removed and were in fact removed. The presumption which might otherwise have applied by reason of the manner of fixing to the land is conclusively rebutted, in my view, by the clearly temporary purpose. This purpose can be found in the following:
a) The contract for installation of the sheet piles clearly contemplated that the piles on QIHL’s land were intended to be temporary;
b)The arrangement between QCL and QIHL was clearly to the same effect;
c) The temporary nature of the installation is reflected in the parties’ conduct: some were removed even before the main scope of work was completed (that is recorded in the contract claim of March 2007); March’s final contract claim acknowledged the temporary nature of the remaining piles by showing a potential credit for their value upon removal; the project engineer issued an instruction for their removal in accordance with the contract, which instruction was never challenged by March; and ultimately the piles were removed;
d)Neither the owner of the land (QIHL) nor the mortgagee has made a claim to ownership: Strategic has stated in correspondence to QCL that it was unaware of the arrangement between QCL and QIHL; its engineer has stated in correspondence to QCL that March had not told him of any contractual obligations between itself and QCL, and that if March had done so Strategic’s approach to removal of the piles would have been different (the purpose of Strategic’s arrangement was to achieve a tidy site ahead of sale).
[29] In an affidavit in reply, Mr Carvel contended that the piles had been installed permanently. This contention is not credible in light of the express terms of the contract between QCL and March, the performance of the contract, and Mr Carvel’s own evidence and statements made in correspondence:
a) In his affidavit in reply Mr Carvel acknowledges that if the piles had been removed before the finalisation of the installation contract then there would have been a credit to QCL of $72,596. He also refers to the fact that the west wall piles, were expected to be in place for a shorter period that the east wall piles in support of an argument that the original contract rates should not apply having regard to the period of time that had elapsed. It is implicit in both of these statements that the piles now in issue were intended to be temporary;
b)Mr Carvel acknowledged the prospect of removal in his email correspondence with Mr Barr on 24 September 2008 when he referred to 69.21 tonnes of steel still in the ground, having a value after removal of $72.961.87l;
c) Mr Buzz March and Mr Barr had a meeting on site on 15 October
2008 at which removal of the piles was discussed. Mr March’s evidence about the meeting is equivocal in that he says he has no recollection of any specific agreement about terms of removal, but he does not deny that removal of the piles was discussed;
d)The following day Mr Carvel was one of the recipients of the project engineer’s instruction to remove the west wall piles. In his affidavit in reply, he acknowledges that March did not dispute an obligation to remove the piles until it came to its arrangement with Strategic (although he contends that the cost of removal was unresolved up to that point, he did not suggest that removal had not been contemplated);
e) When the subject (removal of the piles) was raised again by Mr Barr in January 2009, Mr Carvel’s response was a suitable time would need to be found for that work, again giving rise to the inference that it was always contemplated.
[30] The view that these piles were always intended to be temporary is also supported by the evidence of project engineer, Mr Soundy, who took issue with Mr Carvel’s claim that the piles were “designed and installed as permanent piles”. Mr Soundy said that the type of anchor, the design details, and the documentation for the west wall piles were totally different to that for the permanent piles, and as an example he said that the anchors in these piles had no corrosion protection which was an absolute requirement for permanent piles. Although March has not had an opportunity to reply to that evidence, it can be anticipated that Mr Soundy, as engineer for the contract, would have specific knowledge of these facts.
[31] The last matter which assists in dealing with the purpose of the annexation is that it is difficult to see that there could have been any benefit to QIHL in anything other than a temporary sense, in having these piles installed (save, perhaps, for the small amount of piling that was ultimately retained). This is reflected in Strategic’s wish (informed by its own engineer) for the piles to be removed as part of the cleaning up of the QIHL land.
[32] Counsel for March focused his argument on the degree of annexation of the piles to the land, and argued that on an objective view of them (adopting the “patent to all to see” approach of Cooke P in Lockwood Buildings), that was all that was required. He relied on dicta by Tipping J in arguing that they should be considered from the objective standpoint of a third party (such as Strategic) who had not had any dealings with the owner of the land or the owner of the chattel. That argument would have greater weight if QIHL or Strategic was claiming ownership. However, there is no reason to confine the text in this way in this case – where March is clearly aware of the temporary nature of the piles.
[33] In any event, and as already mentioned, the visual approach is not necessarily determinative of the matter. In this case the purpose of annexation (to provide support during a period of excavation and development of QCL’s land) would have been apparent. Apart from the period of construction, and re-establishment of support land by the foundations and structure of the newly constructed carpark building, there was no need for the piles. Clearly this was also the view of Strategic when it became involved. Counsel for March referred to evidence that the piles were needed to support a ramp placed on QIHL’s land. Again, however, that ramp was temporary, and only for the purpose of aiding access to the building under construction. There was no other purpose to it. Again, that would have been obvious to any objective onlooker.
[34] Counsel for March also argued that a significant factor to take into account was the difficulty of removing the piles. He referred to comments in Elitestone to the effect that if a structure could not be taken down and re-erected elsewhere, there was at least a strong inference that the purpose of placing it on the original site was
to form part of the realty at that site, and thereby it ceased to be a chattel.[14] He argued that the fact that a number of the sheet piles had to be cut to remove them (presumably to sever them from the anchors) should weigh more heavily than the subjective intentions of QCL in installing the piles.
[14] Elitestone Ltd v Morris above n2, at 690A - B and 693A.
[35] This point has still to be considered in the context of a construction contract requiring temporary measures to open up the land and support it during construction. In Elitestone, the court was addressing the situation of a bungalow, most of which rested on concrete piles attached to the ground. It could be removed only by being demolished. In the present case, there is no suggestion that the integrity of the piles was affected when some had to be cut to separate them from the anchors. Indeed, the contract anticipated this, by providing for reimbursement only of undamaged piles.
[36] The last factor to consider is that these piles provided no benefit to QIHL’s land save during the period of construction. This can be contrasted with the permanent piles on QCL’s site where it was clear that they were to become part of the land (because of the ongoing need for retention) or even the piles that remained on QIHL’s land which clearly were retained because they did provide ongoing support.
[37] I am satisfied, weighing both the degree and purpose of the annexation, that the clear temporary purpose, judged objectively, outweighs any conclusion that might otherwise have been drawn from the extent and nature of the annexation of the piles to the land. The purpose (temporary retention whilst other support for the land is not available) explains the annexation. On this analysis, I find that the sheet piles for which QCL now claims compensation were not fixtures on QIHL’s land, so that ownership did not pass to QIHL.
(b) Was Strategic able to pass title?
[38] In view of the decision I have reached as to these piles not having become fixtures, it is not strictly necessary for me to address the second aspect of March’s
argument, namely that Strategic was able to dispose of them as it saw fit. However, for the sake of completeness, I will do so.
[39] March’s case was initially presented on the basis that Strategic, as mortgagee, became owner of the piles. This clearly is not the case. Its mortgage gave Strategic a charge only: s 100 Land Transfer Act 1952. However, at the hearing, counsel for March focussed its argument on the contention that it was mortgagee in possession and, as such, was entitled to possession of fixtures including the piles, and was able to dispose of them as part of its security. He relied on Whenuapai Joinery (1988)
Ltd v Trust Bank Central Ltd[15] in support of this argument.
[15] Whenuapai Joinery (1988) Ltd v Trust Bank Central Ltd [1994] 1 NZLR 406.
[40] I do not consider that Whenuapai Joinery helps the decision in this case. It concerned competing claims to joinery installed in a luxury house. The competing claimants were the mortgagee (Trust Bank) claiming that the joinery was part of its security and the supplier of the joinery (Whenuapai Joinery) which claimed that it had reserved title under a Romalpa clause in its supply agreement. It was found in the High Court, and not contested on appeal, that the joinery had become fixtures and thereby part of the bank’s security and that the Romalpa clause had created an equitable interest which gave Whenuapai Joinery a general entitlement to enter and
take possession. The Court of Appeal’s finding,[16] on which counsel for March
relied, that a Land Transfer Act mortgage charges everything which becomes part of the realty, would apply if Strategic was claiming an interest, but does not assist in this case where the issue is whether Strategic as mortgagee (whether or not in possession) has power to sell the sheet piles to March separate from the land itself.
[16] Ibid at 412.
[41] It is trite law that a mortgagee only has the powers conferred by the mortgage or by statute. The power of sale must be conducted strictly in accordance with the power conferred on the mortgagee,[17] and there is authority to the effect that mortgagee’s power of sale does not extend to exchange of the land unless that is expressly authorised in the mortgage.[18] The implied powers under the Property Law
Act 1952,[19] and now the Property Law Act 2007,[20] refer only to entry into possession or sale of the mortgaged land as a whole. They do not provide a specific power to deal with fixtures separately.
[17] Hinde McMorland & Sim Land Law in New Zealand above n1, at 15.133.
[18] Ibid at 15.133; Taylor v Parkinson & Blyth (1911) 31 NZLR 354.
[19] Schedule 4.
[20] Schedule 2.
[42] At the time of hearing the mortgage had not been produced. Rather than leave the point open, counsel for March was given leave to produce the mortgage and make any further submissions in writing as to whether any of its provisions could be construed as providing power for Strategic to sell the piles so as to pass ownership to March, separate to sale of the property as a whole.
[43] The mortgage as subsequently produced was in a standard form, and contained no provision which could be construed as specifically permitting a sale of any fixture separately from the land as a whole. Nevertheless, counsel for March sought to argue that Strategic entered into the agreement with it (March) as mortgagee in possession, and subsequently in exercise of its power of sale, and that March was protected from QCL’s demand by clause 13.3 in the mortgage.
[44] Clause 13.3 (dealing with protection of third parties) provides that Strategic’s acts as mortgagee were deemed to be authorised as regards other parties. This argument was not advanced in the hearing. As there is no evidence that Strategic entered into possession., it has to be considered merely in relation to Strategic’s purporting to exercise its power of sale (although I do not see that this makes a material difference).
[45] Counsel for QCL argued that even if clause 13.3 applied to the exercise of the power of sale, it could not create a power to exchange property. Furthermore he submitted even if it could be argued that Strategic was able to pass title to March, acting either as mortgagee in possession or pursuant to the power of sale, there was no evidence that Strategic was purporting to grant title.
[46] The first point to note in this respect, is that there is no direct evidence from
Strategic as to the material or source of the power it was exercising. Both parties
rely on statements made by Strategic or its consulting engineer in correspondence sent to them. Although in its initial correspondence Strategic saw itself (incorrectly) as owner of the site, when it confirmed its instruction to March shortly before the piles were removed, it merely authorised access to the site for piling to be removed at the cost of March “who then retain ownership of those piles”. In later correspondence with QCL, after the dispute had arisen, Strategic confirmed that the piles were removed at its request, selling as mortgagee of the property, and explicitly stated:
Strategic does not claim ownership of the piling and was merely trying to tidy up the site to assist the sales process.
Strategic’s engineer subsequently advised QCL:
... At no stage did Buzz March or Nick Carvell advise me of any contractual obligations that existed between himself and the car-park developers. Had March Construction advised me of this then of course the approach to the sheet piling removal would have been different.
I was not aware of my legal ownership issues despite asking the relevant parties to confirm if ownership was an issue. My negotiations with March were simply to assist my client in in [sic] the best outcome of a tidy site at with [sic] limited expenses. It was not my intention to negotiate any ownership transfer of materials, rather to negotiate a fair trade of effort to achieve a tidy site.
[47] I doubt whether a power of sale will permit a “deal” as distinct from a sale between the mortgagee and a third party,[21] but I do not consider that I should make a definitive finding on the point in this case (given that it emerged so late and the finding is not necessary to determine the application).
[21] Taylor v Parkinson (1911) 31 NZLR 354.
[48] I also consider that it is a moot point whether by their arrangement, as reflected in this correspondence, Strategic was purporting to exercise its power of sale to transfer ownership of the piles to March. The impression that I have is that it was disclaiming any ownership interest in them and was merely wishing to obtain a clear site so as to maximise the return from its forthcoming mortgagee sale. The later statement by Strategic’s engineer, that a different arrangement would have been negotiated had he known of the contract terms between March and QCL, supports the view I take.
(c) Does QCL have an ongoing contractual entitlement?
[49] There is a further obstacle for March to overcome, even if it could be argued that the piles became fixtures. Although, as a result of the decision in Elitestone (adopted in New Zealand in Auckland City Council v Ports of Auckland Ltd) it is now an open question whether parties may agree that an item is to retain its status as a chattel, it is possible for parties to agree that chattels may be severed from the land:[22]
The terms expressly or implicitly agreed between the fixer of the chattel and the owner of the land cannot affect the determination of the question whether, in law, the chattel has become a fixture and therefore in law belongs to the owner of the soil: . . . The terms of such agreement will regulate the contractual rights to sever the chattel from the land as between the parties to that contract and, where an equitable right is conferred by the contract, as against certain third parties. But such agreement cannot prevent the chattel, once fixed, becoming in law part of the land and as such owned by the owner of the land so long as it remains fixed.
[22] Melluish v B.M.I. (No. 3) Ltd [1896] AC 1454, 473, cited in Elitestone above n2, at 690E.
[50] It is clear that QCL had an arrangement with QIHL to remove the sheet piles. QCL also had a contractual arrangement with March to do this on QCL’s behalf, and to account for recovered piles as provided in the agreement.
[51] I accept the submission by counsel for QCL that the subsequent arrangement that March made with Strategic cannot circumvent March’s existing contractual obligation to extract and remove the sheet piles on behalf of QCL. March cannot by
[52] its own conduct put itself in a position that prevents performance of that existing contract:
By the same token:
... if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstance under which alone the arrangement can become operative.[23]
[23] Chitty and Beale (eds) Chitty on Contracts (30th ed, Sweet and Maxwell, London, 2008)
at para 13.012; see also Whenuapai Joinery (1998) Ltd v Trust Bank Central Ltd above n15 at 414.
[53] In circumstances where Strategic makes no claim to the piles under its mortgage, QCL must be entitled to exercise its contractual rights (as it did by issuing its contract instruction), and March cannot avoid its obligations under that contract by taking steps to prevent QCL exercising its right to remove the piles and recover the value of them. This also answers March’s argument that it can rely on clause
13.3 of the mortgage.
(d) Is QCL’s claim barred by clause 12.2 of the general conditions
[54] Counsel for March also argued that the demand had no contractual basis because QCL had not issued a claim in accordance with the requirements of clause
12.2 of the general conditions of contract. I see nothing in this point. Clause 12.2 refers to the processing of claims by the contractor. It does not require QCL, as the principal, to make a claim for an agreed refund under those provisions. The contract is clear that March is obliged to refund the value of steel piles removed at a rate of
$1,054.21 per tonne. I accept that that is a contractual debt for which QCL is entitled to make demand.
(e) Is there a dispute over the value of damaged piles?
[55] March contends that if QCL has a claim for the value of the piles, it is only in respect of piles that were recovered undamaged. It contends that 21.72 tonnes of piles, having a value of $22,902.50, were recovered damaged, as they had to be cut extensively to remove them from the ground.
[56] The contract provides for reimbursement of steel that is recovered “complete and undamaged”. March asserts that 21.72 tonnes of the piling have been cut or damaged and for that reason it is not liable to reimburse QCL for them. It has not provided any evidence to support assertion, as to the condition of the piles, and has declined QCL the opportunity to inspect the piles and satisfy itself there is no claim for reimbursement.
[57] March has the onus of establishing a dispute. Although QCL did not dispute that some of the piles had been cut in the removal process (and that might give rise
to an argument because the piles were not “complete”), March has not provided any material to support its assertion that the piles were damaged. The terms of the agreement do not expressly permit March to retain the steel if it is damaged. There is merit in the submission of counsel for QCL that March cannot have it both ways by declining to pay compensation for it yet retaining the steel. I infer from the fact that March has not returned these piles that this 21.72 tonnes is useable, even though the piles may have been cut in order to remove them.
[58] I accept that there may be an argument that March may not have to account for some of the piles it has removed, but I consider that it is for March to make its case to that effect under the contract. Unless and until it can do so, to the satisfaction of the contract engineer, I consider that it should reimburse QCL for all piles that it holds.
[59] It is agreed that some of the piling has not been removed, but there is a difference of view as to the amount of it. The contract engineer has estimated approximately 4.74 tonnes (or $5,000 worth) whereas March contends that
8.23 tonnes (or $8,680.79) remains in the ground. Again, March has failed to provide any evidence to support its position and has refused to allow QCL the opportunity to inspect what was removed. Although it cannot rely on its own conduct to defeat its contractual obligations, I am prepared for the purpose of this application to accept that there is a dispute over approximately 3.5 tonnes that cannot be resolved on this application.
(f) Does March have an arguable claim for the cost of removal?
[60] March contends that if it is obliged to reimburse QCL for the steel it has removed and retained, it is entitled to offset the cost of extracting it. QCL, on the other hand, says that that was part of the contractual rate (it was built into the differential between the cost of supply and the sum to be reimbursed following recovery).
[61] I accept that the cost of removal was built into the contractual rates. There is support for this in the March contract claim, and the fact that the only time that QCL
paid anything more for removal of the piles was one occasion in 2006 because unexpected costs were incurred in the mobilisation of the necessary equipment. March could have advanced a claim for variation but did not do so or even signal an intention to do so when removal was discussed in September and October 2008 or in Mr Carvel’s acknowledgement in January 2009 of the need to undertake this work. I find there is no genuine and substantial dispute on the point. I make no finding on whether or not March could still make a claim for a variation.
Conclusion
[62] I am not persuaded that there is a genuine and substantial dispute as to QCL’s entitlement to claim the value of the steel sheet piles extracted from QIHL’s land in May 2009, with the possible exception of 21.72 tonnes of steel allegedly damaged when removed from the ground. March has had the opportunity to resolve this under the contract, but has not done so. However as there could be an argument that March does not have to reimburse QCL for cut but otherwise undamaged piles, I consider there is a sufficient basis to set the demand aside to that extent, albeit on conditions. March must pay for all the steel it has removed unless it can establish to the satisfaction of the contract engineer that the steel does not meet the contractual requirement that it be complete (whatever that means, properly interpreted) and undamaged.
[63] I also accept that there is a dispute in respect of approximately 3.5 tonnes of steel which may remain in the ground.
[64] I do not accept that March is entitled to set-off for the costs of removal of the steel from the ground but I record the (proper) concession by counsel for QCL that there is an arguable set-off in respect of a contractual retention in the sum of
$11,249.97. This dispute needs to be determined under the contract, or in some other forum.
[65] I find that QCL currently has a valid claim for reimbursement for all steel piles removed, at the contract rate of $1,054.21 per tonne, subject to March establishing with the contract engineer that 21.72 tonnes of this is not reimbursable
under the contract. It will also be for the contract engineer to determine whether March is liable to reimburse QCL for any piles that March can no longer return to QCL. Again it is also a matter for the contract engineer to determine the amount of steel that remains in the ground, and therefore whether QCL is also entitled to be reimbursed for the further 3.5 tonnes in dispute (or some other amount).
Decision
[66] The net effect can be set down as follows (using March’s most recent figures, but subject to adjustment to actual as tonnages in particular are approximate):
Value @ contract rate of $1,054.21
a) Steel piles originally left in ground
(69.2 tonnes less 8.21 tonnes
removed by March 2007) 69.204 72,955.55
b) Steel piles accepted by March as remaining in ground 4.7429
(5,000.00)
c) Steel piles remaining in ground
- in dispute ($8,680.79 - $5,000)
3.4915
3,680.79
d) Steel piles claimed to be damaged 21.72 22,897.44 e)
Steel piles undisputably reimbursable
39.2496
41,377.32
f) Contractual retention in dispute 10,000.00 31,377.32
[67] March contends that it is solvent. The Court has power under s 290(7) to set aside a demand on conditions.[24] The application to set aside the statutory demand is granted subject to the following conditions:
[24] Business Continuity Services NZ Ltd v Contract Energy Ltd HC Wellington CIV 2009-485-1531,
25 November 2009, at [21].
a) March is to pay the sum of $31,377.32 plus GST, being a total of
$35,299.49 to QCL within ten working days; and
b) March is to pay the sum of $22,897.44 plus GST, being a total of
$25,759.62, into Court, or into an agreed stakeholder’s account, also
within ten working days, such sum to be retained until the issue over its claim that 21.72 tonnes of steel has been damaged is determined and a value is fixed for the sum that is not reimbursable in accordance with the contract (at which point the sum and interest on it are to be paid out in accordance with the determination);
c) If March defaults on either of the conditions, QCL may immediately bring an application to place March into liquidation.
[68] Both parties have had some success. The application has been side aside, but on conditions which reflect the merit of much of QCL’s case. In the circumstances I
am satisfied that costs should lie where they fall. There is no order as to costs.
Associate Judge Abbott
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