Mega Project Holding Limited v Orewa Developments Limited
[2019] NZHC 866
•18 April 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-2815
[2019] NZHC 866
UNDER The Companies Act 1993, section 290 IN THE MATTER OF
an application to set aside a statutory demand
BETWEEN
MEGA PROJECT HOLDING LIMITED
Applicant
AND
OREWA DEVELOPMENTS LIMITED
Respondent
Hearing: 1 April 2019 Appearances:
R O Parmenter for the Applicant W A Endean for the Respondent
Judgment:
18 April 2019
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 18 April 2019 at 11:00am
pursuant to Rule 11.5 of the High Court Rules.
…………………………………
Deputy Registrar
Solicitors:
Winston Wang & Associates, Auckland, for the Applicant
Dawsons Lawyers (W A Endean), Howick, Auckland, for the RespondentCopy for:
Ray Parmenter, Barrister, Auckland, for the Applicant
MEGA PROJECT HOLDING LIMITED v OREWA DEVELOPMENTS LIMITED [2019] NZHC 866 [18 April 2019]
[1] The applicant and the respondent, both property developers, were each carrying out residential subdivisions at Orewa on adjoining properties. Their subdivision consents required them to upgrade West Hoe Heights Road, which runs between their properties. In December 2016, they made an agreement to share the costs. Orewa Developments Ltd would carry out the roading work and Mega Project Holding Ltd would pay Orewa Developments Ltd half the costs. Orewa Developments Ltd says that it has carried out the roading work and has asked Mega to pay its share, but Mega has paid nothing. Orewa Developments Ltd has served a demand under s 289 of the Companies Act on Mega requiring payment of
$1,452,803.62 “for roading construction costs adjoining the land belonging to you at West Hoe Heights Orewa, pursuant to a written agreement made on or about 5 December 2016 between you and the creditor”. Mega has applied to set aside the statutory demand as it says that there is a substantial dispute as to the alleged debt. It says that Orewa Developments Ltd has not met the conditions for payment. Mega had to be given certain information and it had to give certain approvals before work started, but Orewa Developments Ltd did the work without giving the information or obtaining Mega’s approval.
[2] Orewa Developments Ltd’s director was the late Liangren Li, who died in 2018. For its development, it had a project engineer, Property and Project Consulting Ltd. Mr Marsh, a director of that company has sworn an affidavit for Orewa Developments Ltd. Orewa Developments Ltd used CKL Surveys Ltd as its engineer. Mr Jackman, that company’s engineering manager, swore a late affidavit that was admitted without objection. The contractor who carried out the roading work was Dempsey Wood Civil Ltd. Mega’s director is Mr Jerry Zhu. Its engineering consultant was Mr Greg Richardson of Crang Civil Ltd.
Principles on setting aside applications
[3] There is no dispute as to the principles on applications under s 290 of the Companies Act to set aside statutory demands. Statutory demands under s 289 are used to create a presumption of insolvency under s 288(1) of the Companies Act for liquidation proceedings. If a company does not comply with the statutory demand within 15 working days of service, the company is presumed to be insolvent. That is
a rebuttable presumption and lasts for only 30 working days after the last day for complying with the demand.1 Section 290 allows statutory demands to be set aside on three grounds: two particular and one general. The overall purpose of s 290 is to prevent an injustice arising from the presumption of insolvency. In the case of applications under s 290(4)(a), if there is a genuine dispute about a debt, it would be unjust to hold that a company is insolvent for not paying on demand. The company must show that there is a genuine and substantial dispute as to the debt. It is not sufficient merely to assert the existence of a dispute. Some material, falling short of proof, is required to support the claim. If that material is produced, the dispute should normally be resolved by means other than liquidation proceedings. In most cases it will not be possible or appropriate to resolve disputes on material facts on such applications, particularly where issues of credibility arise. On the other hand, the court is not required to accept unequivocally any or every allegation of a disputed fact. It can and will assess whether facts advanced as constituting a dispute can pass a threshold of credibility, as where there are contemporary documents or other statements of the witness. The court’s task is not to resolve the dispute but to determine if there is a substantial dispute whether the debt is due.
Timing of the statutory demand
[4] The statutory demand was served on Tuesday 11 December 2018. Under s 290(2) of the Companies Act, a company served with a statutory demand has 10 working days in which to file and serve an application to set aside the demand. The time to apply cannot be extended.2 Nor can it be shortened. That makes for difficulties with statutory demands served in the two weeks before Christmas and the start of the summer break. A company served with a demand will need a lawyer to file and serve its application.3 Most businesses and almost every legal practice close over the Christmas break.4 It will be impractical to expect to use the time after Christmas to file and serve an application. In this case it would have been too late.
1 Companies Act 1993, s 288(1).
2 Companies Act 1993, s 290(3).
3 Under the rule in Re G J Mannix Ltd [1984] 1 NZLR 309 (CA).
4 Recognised by the definition of “working day” in the High Court Rules 2016, r 1.3, which excludes the time from Christmas Day to the following 15 January.
[5] That is because of the way the Companies Act and the High Court Rules operate. Under the Companies Act, “working day” is defined to exclude the period from 25 December to the 2nd day of January.5 Here the tenth working day after service of the statutory demand was 3 January 2019. But Mega could not have filed and served its application on that day. Mr Endean acknowledged that his practice had closed for the holidays and that the application could not have been served then. Moreover, the court registry was closed too. The registry must be open every day that is not a court holiday.6 Court holidays include the period beginning on 24 December and ending on the close of 3 January.7 The application could not have been filed on the ninth and tenth working days after service – 24 December and 3 January. So Mega had only eight working days in which to file its application. By serving its demand within two weeks before Christmas, Orewa Developments Ltd shortened the time for applying under s 290. The ten working day limit for applying is tight enough. A creditor has no right to make it shorter. In doing so, Orewa Developments Ltd put unnecessary pressure on Mega. That was sharp practice. It counts as an adverse factor for costs under rr 14.6(3)(b) and 14.7(f)(ii) of the High Court Rules.
[6] Under s 290(5) a demand must not be set aside by reason of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside. In this case Mega filed and served its application before Christmas and met the shortened deadline. It did not complain of substantial injustice from the short service. Accordingly, I do not set the demand aside but will take the short service into account in costs.
The debt claimed
[7]Orewa Developments Ltd sent progress claims for the roading work totalling
$1,284,122.94 (including GST) to Mega:
[a] 23 March 2018 - $266,133.41.
[b] 16 May 2018 - $777,412.80.
5 Companies Act, s 2.
6 High Court Rules, r 3.1.
7 Rule 3.2(1)(b).
[c] 27 August 2018 - $189,056.06.
[d] 23 November 2018 - $51,520.67.
A statement by Orewa Developments Ltd dated 30 November 2018 shows total charges of $1,452,803.62, the amount in the demand. It includes claims for interest on the unpaid total at the rate of 12 per cent per annum.
The contract
[8] The parties’ written agreement has recitals which, amongst other things, record that West Hoe Heights Road needs to be upgraded to collector status and that there is a mutual benefit for the upgrade works to be undertaken jointly by them both, with the costs of the works to be shared between them equally. Because Mega says that Orewa Developments Ltd did not meet the conditions for payment, I set out some of the terms:
3.West Hoe Heights Road Works
MEGA approvals
3.1 ODL will as soon as practicable after the date of this agreement, provide the following documentation to MEGA, this documentation will be subject to MEGA approval which shall be provided within 15 working days and shall not be unreasonably withheld;
3.1.1 The Development Programme which provides the following:
(a)A construction commencing date, targeted to be November 2016;
(b)A construction completion date, once the ODL contractor has been appointed;
(c)Key milestone dates for the design, regulatory consenting, tendering, procurement and construction of the West Hoe Height road Works;
3.1.2 A list of preferred consultants and contractors which ODL proposes to use for the West Hoe Heights road works. MEGA acknowledges CKL as engineers and surveyors, Property & Project Consultants Ltd (Kevin Marsh) as project coordinator, Kingston’s as quantity surveyors and subject to satisfactory cost negotiations, Dempsey Wood as contractor.
3.1.3 Confirmation that the Plans and Specifications meet the agreed design, the ODL resource consent and the requirements of Auckland Transport and any other Authority.
3.1.4 It is agreed the road levels previously agreement between Mega Project Holding Ltd and Harrison and Grierson Consultant will be generally accepted by the parties with adjustments to reflect current agreement on alignment and final levels.
3.1.5 The Cost Estimate including costs for Consents, consultants and contractors will be used as the basis to proceed with this agreement is subject to final costs on completion of the Works.
3.1.6 Final costs for the West Hoe Heights road Works which MEGA will pay a 50% share of.
3.1.7 Approval by Auckland Transport for the West Hoe Heights road works.
3.1.8 All consents and their conditions that are relevant to the West Hoe Heights road Works.
3.1.9 Tender and Construction Contract Documents that are relevant to the West Hoe Heights road Works.
3.2 ODL will not commence West Hoe Heights road Works until the following requirements are met:
3.2.1 MEGA has given its written approval to the estimated costs of the West Hoe Heights Road works;
3.2.2 ODL has engaged a contractor for the West Hoe Heights road Works using the approved Tender and Construction Contract documents;
3.2.3 It is acknowledged that MEGA will provide written approval to this agreement within 15 working days or otherwise extended by agreement.
It is acknowledged that for the West Hoe Heights road Works ODL may, subject to satisfactory costs negotiations, use the same contractor which ODL has engaged for other works on the ODL development.
If MEGA does not approve the costs of the West Hoe Heights road Works, the parties will jointly appoint an impartial quantity surveyor or other suitable professional to determine the fair and reasonable costs of the West Hoe Heights road Works which reflect the objective of this agreement and both parties will be bound by that decision.
3.3 ODL will ensure that all costs for which MEGA are responsible that relate to the West Hoe Heights road works, are separately identifiable and itemised in all terms of engagement, contracts and invoices with sufficient detail for those costs to be verified by a suitably qualified Quantity Surveyor acting impartially.
Construction
3.4 Promptly following the obtaining of all Consents required for the West Hoe Heights road Works, ODL shall undertake and complete construction of the West Hoe Heights road Works:
3.4.1in a good, professional and workmanlike manner;
3.4.2 in accordance with the approved Plans and Specifications or any variations approved by MEGA;
3.4.3 to sound and accepted architectural and engineering standards;
3.4.5 in accordance with the proper requirements of all relevant Authorities;
3.4.6 expeditiously and in accordance with the Development Programme.
3.5 ODL will not agree to any variation to any approved contract, Consents, Tender and Construction Contract Documents that are relevant to the West Hoe Heights road Works which may materially change the costs of the works or their design without MEGA approval which will not be unreasonably withheld.
3.6 ODL will actively co-operate with MEGA and will keep MEGA informed throughout the design, consenting, procurement, construction and ongoing monitoring of West Hoe Heights road Works.
…
Construction Costs
3.9 MEGA will pay ODL its share of the costs of the West Hoe Heights road Works provided that:
They have previously been approved by MEGA under clause 3.1.4 and are within the Cost Estimate and any variations to the costs have previously been approved by MEGA.
If there is any disagreement on costs, the parties will jointly appoint an impartial quantity surveyor or other suitable professional to determine the fair and reasonable costs of the West Hoe Heights road Works which reflect the objective of this agreement and both parties will be bound by that decision.
3.10 Payment shall not be made by MEGA earlier than when payment is due to the contractor or consultants.
3.11 ODL will provide MEGA a tax invoice for MEGA’s contribution to the costs, together with supporting documentation from consultants and contractors.
3.12 If a party does not pay to the other any money that is due under this agreement interest will be payable at the default rate of 10% per annum of the unpaid amount from the due date until actual payment.
There is an arbitration clause if there is a dispute which the parties cannot resolve by negotiation or mediation.
What happened
[9] The roading work was carried out, but the evidence for that is circumstantial. There is no direct evidence when it started and when it was completed. The matter is left for inference – Orewa Developments Ltd would not have provided breakdowns of its charges or required payment if the work had not been carried out. Mega does not contest that Orewa Developments Ltd did the roading work.
[10] Mr Zhu, Mega’s director, says that he did not receive any of the information required under cl 3.1 of the contract. He refers to cl 3.2, under which the road works are not to start until Mega has approved the costs and Orewa Developments Ltd has engaged a contractor using the tender and construction contractor and says that Mega was not asked to and did not give its written approval under cl 3.2.1. Orewa Developments Ltd has not given any evidence that it did provide the documents under cl 3.1 or that Mega did give a written approval under cl 3.2. Mr Zhu accepts, however, that the work was carried out. He does not suggest that any of the work out was defective, late, incomplete, or that his company has been charged for work that was not part of the project.
[11] Orewa Developments Ltd says that there was a meeting on 30 October 2017 at the offices of CKL. Roading work had already started. Those at the meeting were Mr Kevin Marsh of Property and Project Consulting, Mr Jackman of CKL, Mr Richardson of Crang Civil and Mr Zhu. An email by Mr Marsh dated 2 November 2017 records matters discussed, including a proposed process for establishing
costings. He sent the email to Mr Richardson and Mr Zhu, as well as others. Mr Marsh says that at the meeting, Mr Zhu never took issue with the fact that work had already started. Mr Zhu never objected to Dempsey Wood working as contractor. He and his consultants did not raise any queries about tendering the work out. Crang Civil had already agreed on the rates of work for Dempsey Wood.
[12] Mr Zhu says that he does not recall such a meeting. I accept however that the meeting did take place and he did attend, not only because of Mr Marsh’s email recording the meeting, but also because of a late affidavit by Mr Jackman of CKL (admitted without objection) confirming with supporting documents that the meeting took place on 30 October and was attended by Messrs Richardson, Jackman, Zhu and Marsh. His supporting documents include a cost estimate he prepared for the meeting with a 50/50 sharing of costs and showing Dempsey Wood as the contractor.
[13] During 2018, on behalf of Orewa Developments Ltd Mr Marsh was in contact with Crang Civil as Mega’s engineer. CKL sent progress claims to Crang Civil. On 16 February 2018, CKL wrote to Mr Greg Richardson at Crang Civil setting out a progress payment schedule for earthworks and underground works completed on the roading project. Mr Jackman certified that the amount due under the schedule was
$231,420.36 plus GST. There was a detailed schedule setting out the calculation of the claim. On 25 March 2018, Mr Richardson emailed Mr Marsh:
I have passed this on to Jerry for payment and confirmed I am happy with all the quantities and numbers. I am working with him on Tuesday so will relay any queries from his end.
That aside, Mega’s response to the payment claims was silence. At one stage, on 28 May 2018, Mr Richardson responded:
As discussed, Jerry is in China until mid-June. I will arrange a meeting as soon as possible once he is back in the country.
Mr Zhu was not, however, forthcoming with any payments or comments.
[14] While the detailed schedule showing how the first claim was calculated has been put in evidence (others have not been), the evidence shows that schedules were sent to Crang Civil. An email of Mr Marsh on 18 June 2018 recorded that claims 1
and 2 had been supplied to Crang Civil with supporting schedules. When the third payment claim was made, CKL provided a folder with additional information to support the claim. When the final claim was sent on 22 November 2018, documents were provided setting out how the claim was calculated. In short, every payment claimed by Orewa Developments Ltd was supported by a detailed schedule setting out how it was calculated. Mega could obtain advice from Crang Civil about the payment claims.
[15] Mega has not raised any specific complaints about any of the charges: that any of the charges in the schedules are excessive, that any of the work was defective or late or incomplete. Instead Mr Zhu’s complaint is general, that he was not given the opportunity to approve the costs before work started:
There are no key milestone dates and also there is no tender and construction contract documents. I did not receive any break down estimated costs of showing which contractor or sub-contractor was involved and their rate, I did not give written approval to the estimated cost in any form because I did not receive the estimated costs from ODL at all. Without having a cost estimate, I could not complain to ODL and have an independent assessment of the estimated cost.
Is there a genuine dispute as to contractual liability?
[16] Mega says that it is not required to pay under the agreement unless certain conditions have been met:
[a] It had to be supplied with the documents in cl 3.1 of the agreement for its approval, within 15 working days (but it could not unreasonably withhold its approval).
[b] Under cl 3.2, work was not to start until it had given its written approval to the estimated costs for the work; and any disagreement as to the costs was to be determined by an impartial quantity surveyor or similar professional.
[c] Under cl 3.9, it was only required to pay its share of the costs if they had been previously approved and were within the costs estimate and/or any variations which had been approved.
[d]These conditions were inserted for its benefit.
[17] Parts of the agreement are drafted untidily. Not all the matters listed in cl 3.1 are “documentation”: see cl 3.1.4 (an agreement as to road levels) and cl 3.1.6 (as to payment of 50 per cent of the final costs). The reference to clause 3.1.4 in the proviso to cl 3.9 is obviously a misnomer and should be read as referring to cl 3.1.5. Under cl
3.1.5 and 3.1.6 “final costs” are to be ascertained on completion and therefore could not be supplied before work had started. Notwithstanding the untidiness, it is clear however that Mega could not be required to pay for work until the contract had been carried out (cl 3.10) and work under the contract could not start until Mega had given its approvals under cl 3.1 and 3.2.1. Mega says that it was never supplied with all the documents required under cl 3.1; it was accordingly not given the opportunity to approve or disapprove that information; it never gave its written approval to any estimated costs; and therefore, the obligation to pay under the contract never arose.
[18] Orewa Developments Ltd has not suggested that it did supply all the information under cl 3.1 and that Mega did give a written approval under cl 3.2.1. Nor does it say that Mega approved the costs under cl 3.9. To get around the difficulty that it apparently did nothing to obtain the approval of Mega under cl 3.1, or a written approval under cl 3.2.1, Orewa Developments Ltd refers to the meeting on 30 October 2017. That could only be used for a waiver argument. If Mega had led Orewa Developments Ltd to believe that it would not require compliance with the conditions in the agreement, those conditions would be waived and Mega could not rely on non- satisfaction of those conditions as a defence. The evidence at present does not support any waiver argument. While Mr Zhu attended the meeting in October 2017, there is nothing in the evidence to suggest that he advised Orewa Developments Ltd.’s representative that Mega waived the requirement for approval of costs in the agreement. Indeed, the evidence suggests that there were discussions with a view to establishing what the costs would be, but the matter went no further than that. Moreover, work had already started. It is arguable for Mega that on the evidence of what was discussed at the meeting in October 2017, Mega had not waived its rights to require satisfaction of the conditions under the agreement.
[19] Orewa Developments Ltd tried another tack – there was an estoppel by silence. That is simply one aspect of the modern estoppel doctrine. As it is applied in New Zealand, equitable estoppel requires a party alleging it to prove:8
[a] a belief or expectation has been created or encouraged through some action, representation, or omission to act by the party against whom the estoppel is alleged;
[b] the belief or expectation has been reasonably relied on by the party alleging the estoppel;
[c] detriment will be suffered if the belief or expectation is departed from; and
[d] it would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.
[20] In the context of applications to set aside statutory demands, equitable estoppel is more frequently invoked by the debtor company to allege that the creditor’s demand is contestable. The debtor need only establish grounds for contesting the creditor’s claim; it is not required to establish the defence conclusively on the merits. In this case, the creditor alleges estoppel to refute the debtor’s claim that the debt is contestable for non-satisfaction of conditions. It therefore needs to prove the estoppel rebuttal to satisfy the court that the debtor’s grounds are not reasonably arguable. The point here is that it is much harder for a creditor to establish estoppel than the debtor.
[21] Proving the estoppel requires Orewa Developments Ltd to show that it was aware of the conditions in the contract requiring it to obtain the approval of Mega for the costs of the road works and it was prepared to provide all the other documentation required under cl 3.1 and to obtain its approval, but Mega led it to believe, by some action, representation or omission that it was not required to go through those preliminary steps and because of what Mega did, it did not satisfy the conditions before
8 James Every-Palmer “Equitable Estoppel” in Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 601 at [19.2].
starting work. It is arguable for Mega that the evidence is consistent with something entirely different. That is, Orewa Developments Ltd does not seem to have been concerned about the terms of the agreement at all except that it was aware that it could recover half the costs of the road works from Mega. There is no suggestion or evidence that anyone on the Orewa Developments Ltd side was aware of the terms of the contract and was ready and willing to obtain the approval of Mega but for representations by Mr Zhu. Instead, Orewa Developments Ltd started work before consulting with Mega; while there were discussions in October 2017 as to costs, nothing more came of them; and there is no evidence that Mr Zhu or anyone else on the Mega side led Orewa Developments Ltd or its consultants to believe that it was not requiring compliance with the conditions in the agreement.
[22] The claim that Mega was under a duty to speak (a claim of estoppel by silence), is contestable. A duty to speak will be rare between commercial parties dealing at arm’s length.9 In this case it is arguable for Mega that it did not have to advise Orewa Developments Ltd of its obligations under the agreement but could hold its hand to see if Orewa Developments Ltd complied with the conditions. In short, the estoppel response is contestable. Accordingly, Mega has shown an arguable case that the conditions for payment were not met and any arguments as to waiver or estoppel are not so strong that there cannot be any dispute as to its contractual liability. There is therefore a genuine and substantial dispute as to contractual liability.
Does Mega Project Holding Ltd owe Orewa Developments Ltd a non-contractual debt?
[23] That is not, however, the end of the matter. In its grounds for its setting-aside application, Mega accepts that it “might be willing” to pay its contribution to the fair and reasonable costs of the works once determined. It recognises some obligation to pay for the roading work, even though it contests its contractual liability. The question here is whether there can be recovery under restitution/unjust enrichment.
9At [19.5.4(1)]. See Lam v Ausintel Investments Pty Ltd (1989) 97 FLR 458 at 475 per Glesson CJ.
[24] The starting point is that if one person provides services for another, the other is not obliged to pay for them unless they have bound themselves to do so. That can be seen in the comment of Pollock CB during argument in Taylor v Laird:10
One cleans another’s shoes: what can the other do but put them on?
In Sumpter v Hedges,11 there was a contract to erect buildings for a lump sum which would be payable only when the work was completed. The contractor abandoned the job part-way through. It was held that he was not entitled to recover under a quantum meruit.
[25] The law, however, recognises that there are cases where a person benefiting from services should pay because of some factor that makes it unjust to assert that the services had no value to them. Relief has been granted in cases of mistake, duress, and necessity. Another class of cases where subjective devaluation of the services is not available has been described as “free acceptance”. Goff & Jones: The Law of Unjust Enrichment puts the principle this way:12
A defendant will be held to have benefited from the services rendered if he, as a reasonable man, should have known that the claimant who rendered the services expected to be paid for them, and yet did not take a reasonable opportunity open to him to reject the proffered services. Moreover, in such a case, he cannot deny that he has been unjustly enriched.
…free acceptance focuses on the defendant’s intention ….
According to the text, the elements of free acceptance are:13
[a] The defendant must know that the benefit is conferred with sufficient notice to allow a free choice whether to refuse the benefit.
[b] The defendant must appreciate that the benefits are not being conferred gratuitously.
[c]The defendant must have the opportunity to reject the benefit.
10 Taylor v Laird (1856) 25 LJ Ex 329 at 332.
11 Sumpter v Hedges [1898] 1 QB 673 (CA).
12 Charles Mitchell, Paul Mitchell and Stephen Watterson Goff & Jones: The Law of Unjust Enrichment (9th ed, Sweet and Maxwell, London, 2016) at [17–03].
13 At [17–09]–[17–17].
[26] In Munro v Butt,14 there was discussion of a plaintiff claiming quantum meruit after tendering incomplete contractual performance under a contract where complete performance was a condition of payment. If the incomplete performance consisted of supplying “an independent chattel, a piece of furniture for example”, and “if the party for whom it was to be made had yet accepted it, an action might, upon obvious grounds, be maintained”.15 In the case before the court, there had been building work which had not been completed. The owner of the land was held not to have accepted the incomplete performance when he resumed possession of the land. The court said that in the case of building work on the defendant’s land that did not conform to the contract’s specification, no action would lie. That was because the landowner had little choice but to resume possession to rectify the situation. But the court noted a qualification:16
If indeed the defendant had done any thing, coupled with the taking of possession, which had prevented the performance of the special contract, as if he had forbidden the surveyor from entering to inspect the work, or if, the failure in complete performance had been very slight, the defendant had used any language, or done any act, from which acquiescence on his part might have been reasonably inferred, the case would have been very different.
(Emphasis added)
[27] Cobbe v Yeoman’s Row Management Ltd,17 is an example of a successful claim for free acceptance. A property developer had carried out work on a proposed property development under an oral unenforceable agreement with a property owner. When she reneged on the agreement, he was held to be entitled to recover the value of his work (even though his claim to proprietary remedies failed). In Benedetti v Sawiris, the United Kingdom Supreme Court recognised free acceptance as the basis for a quantum meruit claim where a broker had facilitated the acquisition of a business in circumstances outside those in which the parties had contracted.18
14 Munro v Butt (1858) 8 El & Bl 738 at 752-753.
15 At 753.
16 At 753-754.
17 Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 WLR 1752.
18 Benedetti v Sawiris [2013] UKSC 50, [2014] AC 938.
[28]In Pavey & Matthews Pty Ltd v Paul, Deane J said:19
The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution.
…
And:
… There is no apparent reason in justice why a builder who is precluded from enforcing an agreement should also be deprived of the ordinary common law right to bring proceedings on a common indebitatus account to recover fair and reasonable remuneration for work which he has actually done and which has been accepted by the building owner.
… What the concept of monetary restitution involves is the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or “enrichment” actually or constructively accepted.
[29] In this case, the parties did enter into a valid binding contract. It was not defective because of mistake, undue influence, misrepresentation, illegality or any other vitiating factor. But when it came to performance, Orewa Developments Ltd disregarded entirely the requirement to obtain the approval of Mega. It did not even go through the motions of submitting documents and seeking approval. When it started work without Mega’s approval, it was operating entirely at its own risk. It was acting outside the contract.
[30] That aspect changes once the meeting of 30 October 2017 is considered. Mr Zhu and Mega’s engineer, Mr Richardson, attended. It is obvious from Mr Marsh’s email of 2 November 2017 that the representatives of Mega knew that Orewa Developments Ltd was carrying out the roading work on the basis that the costs would be shared between Mega and Orewa Developments Ltd. A schedule was to be submitted, which Crang Civil would review and confer with CKL with a view to agreeing quantum.
19 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256-257.
[31] While the evidence is silent as to follow-up from that meeting, the record of discussions in Mr Marsh’s email is enough to show that Mega accepted that Orewa Developments Ltd was carrying out the work on a shared costs basis, and on the basis of costings which were to be agreed. While the evidence does not point to a concluded agreement as to costs, it is clear from the email (which Mega does not dispute) that it accepted that the work would be carried out on that basis. That amounts to free acceptance and generates an obligation to pay the fair and reasonable value of the work performed. It was the acquiescence the court had in mind in Munro v Butt. Mega had the knowledge and opportunity to reject what was being done but did not do so. Accordingly, Mega came under an obligation to pay the reasonable value of the work carried out by Orewa Developments Ltd.
[32] As Deane J noted in the Pavey case, the parties’ agreement can be referred to as evidence, although not as creating obligations:20
In such an action, it will ordinarily be permissible for the plaintiff to refer to the unenforceable contract as evidence, but as evidence only, on the question whether what was done was done gratuitously… [i]n those cases, where a claim for a reasonable remuneration or price is involved, the unenforceable agreement may, as Jordan CJ pointed out in Horton v Jones [No 1], be referred to as evidence, but again as evidence only, on the question of the appropriate amount of compensation.
In this case, the agreement is evidence that the reasonable value of the work by Orewa Developments Ltd was to be fixed at one-half of the costs it incurred in carrying out the roading work.
[33] Mega was provided with detailed schedules showing the work carried out and how the charges are made up. Mega’s engineer, Mr Richardson, saw no problems with the amounts claimed under the first payment claim. Mega has not challenged any item in any of the payment claims, suggested that the amounts have been wrongly calculated, or identified any other arguable error in Orewa Development Ltd’s schedules, even though it had the schedules for months before the statutory demand was served and had consultants who could advise it on the claims. It has done no more than contest its contractual liability. In the absence of any challenges by Mega on specific matters, the detailed schedules can be accepted as setting out the amounts that
20 Pavey & Matthews Pty Ltd v Paul at 257.
Orewa Developments Ltd can recover for the work carried out. This aspect is little different from a contractual claim for the reasonable value of goods or services supplied. In the absence of any challenge by the payer, the amount will be accepted as reasonable. The common law accepted that a quantum meruit claim for the reasonable value of services supplied was for a liquidated sum.21 That is also the case under the High Court Rules for default judgments for liquidated demands.22 Accordingly the reasonable value of Orewa Developments Ltd’s work is the total of its payment claims, $1,284,122.94 (including GST). Mega has not shown grounds for dispute as to the amount of Orewa Development Ltd’s claim. It has done no more than generally deny its liability. Mere assertions are not enough.
[34] Because Orewa Developments Ltd is not recovering under the contract but at restitution, it is not entitled to contractual interest. The amount of its claim is therefore the total amount of the payment claims without any allowance for interest.
Can Orewa Developments Ltd use a statutory demand to enforce its non- contractual debt?
[35]Orewa Developments Ltd has established that it is entitled to be paid
$1,284,122.94 in restitution but not in contract. Mega is nevertheless indebted to Orewa Developments Ltd for the purpose of a statutory demand. Under s 289(1) of the Companies Act, a statutory demand is “a demand by a creditor in respect of a debt owing by a company”. In OPC Managed Rehab Ltd v Accident Compensation Corporation, the Court of Appeal held that a claim to recover payments made by mistake could be a debt claimable in a statutory demand under s 289:23
[54] In the result, we conclude that, if a payment is received in circumstances where the recipient is obliged to repay it, whether because of a contractual or statutory provision to that effect or because the circumstances give rise to an obligation to repay on the basis of money had and received, the amount can be treated as a “debt due” for the purposes of s 289(2)(a). If the defence provided for in s 94B or the equitable defence of change of position may be available to the recipient, that may mean that there is a substantial dispute which would justify the setting aside of the statutory demand, but it would not disentitle the payer (sic) from using the statutory
21 Pavey & Matthews Pty Ltd v Paul at 266.
22 High Court Rules, r 15.7(5)(c).
23 OPC Managed Rehab Ltd v Accident Compensation Corporation [2006] 1 NZLR 778 (CA) at [54]-[55].
demand procedure on the basis that the recipient’s obligation to repay is a
“debt due”.
[55] The complexities which may be inherent in an action for money had and received in many circumstances may mean that recourse to the statutory demand procedure will not be appropriate. But that is no different to the situation where the circumstance allegedly giving rise to a debt in contract are complex. In principle, where a payer has a clear entitlement to reimbursement of an amount overpaid to a recipient in an action for money had and received, it may have recourse to the statutory demand process if it is otherwise appropriate to do so.
[36] In this case, the statutory demand has been used to recover the reasonable value of Orewa Developments Ltd’s roading work. There would be no difficulty where the debt in the statutory demand is based on a contractual quantum meruit. The fact that the obligation arises in restitution, rather than in contract, should not change the position. It remains a demand for a liquidated amount and as such is a debt due under s 289.
Outcome
[37] In summary, the statutory demand is sound for the sum of $1,284,122.94. It is set aside to the extent that it exceeds $1,284,122.94.
[38] While Orewa Developments Ltd has succeeded and is entitled to costs it should not have full costs, because it short-served the statutory demand. There will be a deduction of 25 per cent under r 14.7(f) of the High Court Rules from the costs to which it would normally be entitled.
[39]I make these orders:
[a]The statutory demand is set aside, except for the amount of
$1,284,122.94.
[b]Mega Project Holding Ltd is to pay Orewa Developments Ltd
$1,284,122.94 by 17 May 2019.
[c]If it does not pay that sum in full, Orewa Developments Ltd may begin a liquidation proceeding against Mega Project Holding Ltd.
[d]Orewa Developments Ltd has costs on the application under category 2, but with a deduction of 25 per cent, plus disbursements.
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Associate Judge R M Bell
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