McWilliam Consulting Group Limited v Keith Ussher Architecture Services Limited HC Christchurch CIV-2011-409-002007

[2011] NZHC 1748

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2011-409-002007

IN THE MATTER OF     Section 290 of the Companies Act 1993

BETWEEN  MCWILLIAM CONSULTING GROUP LIMITED

Applicant

ANDKEITH USSHER ARCHITECTURE SERVICES LIMITED

Respondent

Hearing:         30 November 2011

Counsel:         B R Green and A L Sumner for Applicant

A N Riches for Respondent

Judgment:      2 December 2011

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]      This is an application to set aside a demand made by the respondent (to which I will refer as “Ussher”) under s 289 of the Companies Act requiring payment of a fee account issued to the applicant (to which I will refer as “McWilliam”) on

20 September  2011.    The  three  grounds  for  the  application  are  that  there  is  a substantial dispute in relation to the debt, McWilliam has a counterclaim against Ussher in respect of which it is entitled to a set-off, and in any event McWilliam is

not insolvent and can pay its debts as they fall due.

Solicitors:

Cameron & Company, PO Box 1985, Christchurch. Email:  [email protected]

Saunders & Co, Christchurch. Email:  [email protected]

MCWILLIAM CONSULTING GROUP LIMITED V KEITH USSHER ARCHITECTURE SERVICES LIMITED HC CHCH CIV-2011-409-002007 2 December 2011

Legal principles

[2]      In Focus International Export Ltd v Honeywell Ltd,1  the Court summarised the principles to be applied on an application to set aside a statutory demand:

The  Court’s  task  is  not  to  resolve  the  dispute  but  simply  to  determine whether there is either, in terms of s290(4)(a) of the Companies Act 1993 a substantial dispute whether or not the debt is owing or due or in terms of s290(4)(b) that the applicant appears to have a counterclaim, set-off or cross- demand and the amount specified in the demand less the amount of counterclaim, set-off or cross-demand is less than the prescribed amount.

The applicant must show a fairly arguable basis on which it is not liable for the amount claimed.  Forge Holdings Ltd v Kearney Finance (NZ) Ltd (HC Christchurch, M 149/95, Tipping J, 20 June 1995) at p2 and Queen City Residential Ltd v Patterson Co-Partners Architects (No. 2) (1995) 7 NZCLC

260,936.   Whilst mere assertion will not be enough some sort of material short  of  proof  which  backs  up  the  claim that  the  amount  in  dispute  is required. ...

[3]      I accept that these are the principles to be applied in this case.

The issue for determination

[4]      The issue in this case is whether McWilliam has an arguable defence to Ussher’s demand for payment, or an arguable counterclaim against Ussher in respect of which it is entitled to a set-off.

The facts leading to the issue of the statutory demand

[5]      McWilliam operates a motel in Riccarton Road, Christchurch.  In 2010 it was exploring the possibility of expanding the business by adding a 10 unit three storey building.   It approached Ussher with a view to engaging its professional services. On 3 August 2010 Ussher wrote to McWilliam in the following terms, via email:

I offer the following fee proposal for full Architectural, Structural and Civil

Engineering and Fire Safety engineering services as follows:

1      Focus International Export Ltd v Honeywell Ltd HC Auckland, M134-IM99, 28 May 1999, Master Faire

A fixed fee is offered of $30,000.00 plus GST ie 3% of estimated cost of

$1,000,000.00 plus GST.   This fee included Building Consent application and the drama associated with obtaining same, but not Council Fees.

We could complete all documentation in say 10 weeks but could do better if time is important.

[6]      This was followed on 20 August by an email in the following terms:

Confirming Fixed Fee of $30,000.00 incl. GST to complete Architectural, Structural, Civil, Geotechnical and Fire Safety Engineering services for proposed  new  Motel  at  158  Riccarton  Road  for  McWilliam  Consulting Group Ltd and all documentation to be complete by 30 September 2010.

The following costs are not included:

-   Surveyor

-   Construction Monitoring

-   Council Fees

[7]      McWilliam instructed Ussher to proceed, and it did so.  On 9 November 2010 it rendered an invoice to McWilliam for “taking instructions and preparation of Architectural, Structural, Civil, Geotechnical and Fire safety design services and Building consent application” for $30,000 including GST, described as “as quoted”.

[8]      How the fee was invoiced for $30,000 including GST, when the quote was for $30,000 plus GST, was not explained; nor is it relevant.  The statutory demand in issue reflects the invoice.

[9]      In his affidavit in opposition to this application Mr K P Ussher stated that at the time the invoice was rendered

a set of plans were (sic) in place which would enable a building consent to be prepared.  However at no point in the negotiations of final agreement was payment agreed to be conditional on the grant of a building consent.

The facts which are alleged to amount to a substantial dispute

[10]     Ussher elected to contract another firm of architectural draftspersons to assist with at least part of this assignment, including preparation of drawings.   It also engaged a firm of engineers to design certain aspects of the proposed building.  On

4 September  Christchurch  was  subjected  to  a  major  earthquake.    The  engaged engineering firm had to apply resources to the checking of buildings in Christchurch

so its work was held up by some two weeks.  McWilliam was prepared to accept a delay from this cause.  By 9 September some ground floor plans were forwarded to McWilliam’s intended building firm for consideration and pricing.  On 11 October

2010 the first set of architectural drawings for the project was provided by Ussher. These  were  submitted  to  the  Christchurch  City  Council  for  building  consent purposes.  There followed a long period of communications and negotiations with the City Council.   On 29 November 2010 the Council delivered a document requesting further information on 36 points.   This was nearly three weeks after Ussher rendered its account for its full quoted fee to McWilliam.  During the interim there had not been any indication from the City Council that building consent was imminent.  It is clear from the written documentation produced in evidence that by the time the fee was rendered the process for obtaining building consent was at a very early stage.  Equally it is clear that the plans provided to the City Council by the time the invoice was rendered failed to meet the City Council’s requirements in numerous respects.

[11]     As one of the deficiencies in the plans raised by the Council was emphasised by Mr Green, I will refer to it in a little more detail.  In the first set of plans, dated 14

October, the level of the floor slab was shown as “level 0”.  Point number 18 in the request for further information pointed out that for flood limitation purposes, and to comply with the performance requirements of a certain clause in the New Zealand building code, the minimum floor level should be at least RL 20.25 metres in terms of Christchurch City datum.  This level was stated to be equivalent to 250 mm above the crown of Riccarton Road and 300 mm above ground level.  Clause 18 went on to note that levels shown on the drawings suggested this performance clause would not be able to be achieved.

[12]     The context of the latter remark is that the site was the subject of a resource consent to build motels, up to a maximum height of 8 metres above average ground level.  If the floor slab were raised to the minimum flood level of RL 20.25 m, there would be a consequent rise in the height of the building unless the building design were changed in such a way as to absorb the raising of the floor slab within the building.  It seems the Council required convincing that the raised floor level would

allow the building, as drawn, to fit beneath the 8 metre maximum height, given that the building as initially drawn was shown as reaching that level.

[13]     On this basis Mr Green submitted that the plans which had been prepared by the time the invoice was rendered did not comply sufficiently with the City Council’s requirements for a building permit to be issued, and indeed it had not even been demonstrated at that point that the building could be raised at the bottom without also being raised at the top, and thus failing to comply with the resource consent.

[14]     On  15  December  a  further  plan  was  produced  showing  a  floor  level  of

20.18 m, still below the level stipulated by the City Council.   An explanation in relation to drainage was given but a further response from the City Council on

23 December pointed out that the site had been identified as located in a secondary flow path so the floor slab must comply with the RL 20.25 m requirement.  It was not until 26 January 2011 that a set of plans was provided to the Council which showed the floor slab at RL 20.25.   However, the Council was not satisfied that compliance with the 8 metre maximum height could in fact be achieved as a result of this change, even though the 8 metre maximum height was still shown on the plan.

[15]     In the notification from the Council on 23 December, 22 of the requests for further information had been satisfied but 14, including the problem with the datum level, remained unsatisfied.

[16]     On 1 February the City Council reissued its request for further information, by which point nine issues remained, with the Council noting that there had not been any revision to the superstructure dimensions to account for the 190 mm raising of the floor level in order to meet the flood level requirements.  Item 12 on the request related to issues concerning stairway or other access to upper floors which had not been satisfied by that point.

[17]     Over ensuing weeks Ussher continued to take steps in an endeavour to obtain the building consent but as time went on less work was undertaken and by May the City Council was concerned that it was not receiving communications.   Finally in June it declined the building permit as the plans were not compliant and there had

been no further information provided.   In the period from February to June, three things occurred which may be relevant to the amount of time taken in continuing to process the application.

[18]     On 22 February a further series of major earthquakes hit Christchurch City. From that point on most professional services in the city were severely interrupted and delays were experienced in many areas of commercial and private life.  The City Council came under substantial pressure and in relation to existing applications for building consents it became concerned to ensure that applicants were taking full account of the risk of seismic activity.  By May it had promulgated a new building code imposing a higher standard of structural strength for new buildings.

[19]     Another  effect  of  the  February  earthquake  was  that  Rugby  World  Cup fixtures  scheduled  for  Christchurch  were  shifted  to  other  centres.     It  was McWilliam’s intention, in extending the motel, to have a facility which could take advantage of an expected rise in tourist and visitor numbers from July 2011 onwards resulting from this international tournament.  Plainly, if this was a dominant reason for extending its motel operation, McWilliam had a reason to review its decision to do so at the time it was known that the Christchurch games were to be relocated.

[20]     Thirdly, although it remained throughout McWilliam’s wish to build a three storey extension, as originally intended, the height limitation combined with the floor level limitation appear to have led to preliminary work being undertaken by Ussher on drawing a two level option, and approaches being made to the City Council by McWilliam for feedback on whether this might be a project which could proceed under the existing resource consent for the site.  On the material before me it is not clear how this affected the speed, or otherwise, with which the City Council dealt with the principal application.   There is at least a suggestion that once this possibility was mooted, the City Council slowed down its processing of the application, though it is unclear why that should have been so.  Ussher apportioned responsibility for this to McWilliam on the basis that McWilliam approached the Council without the authority of Ussher to talk about amending the proposal. McWilliam said Ussher was aware of it from at least 30 November 2011 as it produced sketch plans for a two storey option.

[21]     Mr Riches argued that the contract of engagement did not provide for his client’s professional fee to be contingent upon the City Council actually issuing a building consent.  Rather his client’s professional responsibility was to complete, or arrange for completion of, all architectural, structural, civil, geotechnical and fire safety engineering services, and to deal throughout with the Council in order to take the project to a point where a building consent would be issued.  On that basis he argued that it was entirely appropriate for the fee to be rendered  when it was, because much of the design work had been undertaken by that point and his client remained obliged to see the project through by providing the listed services up to the point described.   He argued that his client did in fact continue to provide those services,  though  matters  beyond  the  control  of  everyone  caused  delays  and ultimately resulted in a more stringent building code applying, none of which could have been foreseen at the outset.  He submitted that the invoice is properly payable, and that McWilliam does not have an arguable defence to liability, thus justifying the issue of the statutory demand.   He pointed out that a project information memorandum was ultimately issued by the Council in June 2011 even though a building permit was ultimately declined.

Argument for McWilliam

[22]     Mr Green argued that the fee had not become payable at the time the invoice was rendered and has not ever subsequently become payable as full plans have never been prepared which are sufficient for the issue of a building permit.  In this respect he pointed in particular to unanswered requests for information over a long period extending well into 2011.

[23]     Mr Green also argued that the terms of engagement did in fact require that a building permit be issued before liability for fees arose.  In this respect he relied on the email from Ussher to McWilliam on 3 August 2010 quoted in paragraph 5 above.

[24]     On  this  application,  this  Court  is  sitting  in  its  company  insolvency jurisdiction.  Its role is not to adjudicate upon any dispute between the applicant and the respondent, in relation to the contract between them, but only to determine whether or not such a dispute exists, as noted in paragraph [2] above.

[25]     The first, and perhaps most obvious dispute between the parties is the extent of Ussher’s obligation under its contract of retainer, as outlined in paragraphs [21] and [23] above.

[26]     Secondly, and assuming (without deciding) in Ussher’s favour that its right to the agreed fee was not dependent on building consent being granted but arose from an obligation to provide the services described to the extent required for, and up to the point when, a building consent would be issued, it is strongly arguable that those services have not at any point been fully provided.

[27]     Thirdly, it is arguable whether Ussher was entitled to charge and be paid its full fee for all required services at a point when a set of plans had been submitted to the City Council but was in the early stages of consideration.  In effect Ussher takes the position that it was entitled to charge its fees, and be paid its fees, substantially in advance.  Nothing in the contract so provides; arguably liability for the contractually agreed fee did not arise until the work had been completed, and arguably also, that point has never been reached.

[28]     Fourthly, there were clear stipulations as to the time by which the services to be provided by Ussher were to be completed.  The evidence shows that Ussher was aware that McWilliam intended to extend its motel for the purposes of capturing Rugby World Cup trade and that it had a builder on standby who was able to build the building within the time limitations imposed by that imperative.  It is arguable, at the very least, that Ussher failed to perform within the time required, determination of this point requiring a detailed examination of the extent to which various factors contributed to the delay in the services being performed.  These factors include the February earthquake event, ([18] and [19] above), what effect, if any, discussion with

the Council about a two storey option had (and if so, who was responsible for it), and Ussher’s performance of its services on such issues as providing plans which complied with both the datum level requirements of the Council, and the existing resource consent, and the provision of significant items of information in accordance with   the   Council’s   requests   for   further   information   on   29   November   and subsequently.  It is not the role of this Court in this capacity to determine which of these causes led to the delay in provision of the services which Ussher agreed to provide, nor to determine whether there may have been any other issues which should also be considered.   It is sufficient  to  say that there is ample room for argument that Ussher failed to comply with its contractual obligations in a timely way and to a material extent.

Outcome

[29]     There are at least four areas where McWilliam has an arguable defence to liability.   The notice under s 289 of the Companies Act 1993 from McWilliam to Ussher dated 20 September 2011 is set aside.   It is not necessary to  determine whether McWilliam also has an arguable counterclaim.

Costs

[30]     Costs are reserved.   I record that Mr Green submitted that if the Court set aside the statutory notice it should award costs to his client on a solicitor/client basis, relying on his firm having given to Ussher’s solicitor a full explanation of the issues in dispute before the notice was issued, and having expressed a view that the issue of a notice under s 289 would be inappropriate.   Mr Riches indicated to me that he opposed an award of costs should he be unsuccessful, there being communications which I should take into account on this issue.  I therefore reserve costs.  Counsel are to file memoranda for my attention within five working days.  I will then decide this

issue on the basis of those memoranda.

J G Matthews

Associate Judge