MEKHANE LIMITED AND METALWORK SOLUTIONS (2000) LIMITED
[2024] NZHC 3000
•15 October 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-1324
[2024] NZHC 3000
UNDER Section 290 of the Companies Act 1993 IN THE MATTER OF
an application for an order to set aside a statutory demand
BETWEEN
MEKHANE LIMITED
Applicant
AND
METALWORK SOLUTIONS (2000) LIMITED
Respondent
Hearing: 10 October 2024 Counsel:
M G P Martin for the Applicant
J Cordeiro / A Cherkashina for the Respondent
Judgment:
15 October 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 15 October 2024 at 12.30 pm.
Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors:
Lane Neave, Auckland Norling Law Ltd, Auckland
MEKHANE LTD v METALWORK SOLUTIONS (2000) LTD [2024] NZHC 3000 [15 October 2024]
Introduction
[1] The applicant, Mekhane Ltd (Mekhane), is part of a group of companies known as NZ Build Group (NZBG). Mekhane’s business includes services related to roofing.
[2] In 2023, NZBG had a business relationship with Remarkable Roofing Ltd (in liquidation) (Remarkable). The legal form of the business relationship is unclear. Remarkable was placed into liquidation on 4 December 2023.
[3] The respondent, Metalwork Solutions (2000) Ltd (MSL), supplies flashings. From 21 September 2023 to 4 December 2023, MSL supplied flashings for projects involving Remarkable and Mekhane. After 4 December 2023, Mekhane continued to work on the projects, and Mekhane placed further orders with MSL.
[4] MSL invoiced Mekhane for the flashings it supplied for all projects. Mekhane paid some of the invoices. There are outstanding invoices with a total value of
$157,657.77.
[5] MSL says that Mekhane is liable for the outstanding invoices, and served a statutory demand. Mekhane has applied to set the statutory demand aside. Mekhane says that it is not liable for the outstanding invoices because:
(a)the underlying supplies were to Remarkable; and
(b)Mekhane has mistakenly paid some invoices and it has a counterclaim or set-off against MSL for the payments made by mistake.
[6] If Mekhane can establish that it is arguable that there is a genuine and substantial dispute as to the existence of the debt then the statutory demand should be set aside. The issue is whether Mekhane is the party that is liable to pay the outstanding invoices.
Setting aside a statutory demand
[7] Section 290(4) of the Companies Act 1993 (the Act) provides that, when a statutory demand is issued under s 289, of the Act, it may be set aside by the Court if:
(a)there is a substantial dispute as to 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.
[8] For an alleged debtor to succeed in setting aside a statutory demand, some material short of proof is required to support the claim that the debt is in dispute; mere assertion of a dispute will not suffice.1 In deciding an application, the task for the judge is not to resolve the actual dispute but to determine whether there is in fact a genuine and substantial dispute as to whether the debt is due.2
[9] If the ground relied on is the availability of a set-off, the alleged debtor must show that it has “clear and persuasive grounds” for the claimed set-off with the consequence that the applicant’s claim to be a creditor is, to the extent of the set-off, seriously in doubt.3
[10] The Court is entitled to act in a robust manner and is not required to uncritically accept statements made in an affidavit, particularly where those statements are inconsistent with contemporaneous documents.4
[11] Under s 291 of the Act, the Court may order the alleged debtor to pay the debt within a specified period if the Court is satisfied that there is a debt due from the alleged debtor to the creditor that is not the subject of a substantial dispute, counterclaim, set-off or cross-demand. In default of payment, the creditor may make an application to put the company into liquidation.
1 Link Electrosystems Ltd v GPC Electronics (New Zealand) Ltd [2007] NZCA 501, [2008] NZCCLR 19 at [17].
2 At [17].
3 Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA) at [11], citing
Bryanston Finance Ltd v de Vries (No 2) [1976] CH 63 (EWCA) at 78.
United Homes (1998) Ltd v Workman [2001] 3 NZLR 447 (CA) at [34].
What happened
[12] In their first report, the liquidators of Remarkable record that the directors of Remarkable advised that the circumstances that led to the appointment of liquidators included:
An agreement in May 2023 between the shareholders and third parties for the purposes of introducing solvency to the companies, but which ultimately led to the partial phoenixing of the companies for the benefit of the third parties.
[13] That is a hearsay statement. There is no evidence of whether any transaction in respect of the business of Remarkable was completed between NZBG and Remarkable before Remarkable was placed into liquidation. Mekhane elected to provide minimal evidence regarding the relationship between NZBG and Remarkable during the latter part of 2023.
[14] Clinton Webber (Mr Webber), a director of Mekhane and other companies in NZBG, says that NZBG was looking at buying into the group of companies which included Remarkable. He acknowledges that Mekhane was involved in projects commenced by Remarkable from 21 September 2023 to 4 December 2023, including NZBG seconding Remarkable staff who then used a combination of email addresses for Remarkable and email addresses for companies in NZBG.
[15] Adrian Donlon (Mr Donlon) was the general manger of Platform Projects Ltd, now known as NZ Build Projects Ltd, a member of NZBG. He says that Mekhane was carrying out work on Remarkable jobs and taking on work that Remarkable could not commit to.
[16] Ivan Messenheimer (Mr Messenheimer), the sole director of MSL, says that he was first approached by Mr Donlon to see whether MSL was interested in pricing work for Platform Homes Ltd, another company in NZBG. Mr Donlon does not comment on his initial contact with Mr Messenheimer.
[17] The first order was placed by a purchase order on Remarkable’s letterhead on 21 September 2023, by an email sent by a Remarkable staff member. This was shortly
followed by an email from Mr Donlon, from a Remarkable email address, requesting that MSL invoice Mekhane. Mr Messenheimer responded:
Is this for all invoices to do with Flashings?
[18] Mr Donlon responded in the affirmative by an email sent from his Remarkable email address, including a prominent “Platform Projects” logo and his Platform Projects email address.
[19] Mr Messenheimer understood Mr Donlon’s response to apply to all invoices for flashings for all Remarkable projects. Mr Donlon now says that his response was limited to the specific project that the order on 21 September 2023 related to, and not to other Remarkable projects.
[20] From 21 September 2023 to 4 December 2023, MSL received and fulfilled numerous orders for various Remarkable projects. The orders were placed by purchase orders generated on Remarkable’s letterhead. In all cases, MSL issued its tax invoices to Mekhane. NZBG staff were involved in email correspondence with MSL regarding some of the orders. NZBG staff sought clarification of some of the invoices.
[21] On 25 October 2023, Mekhane made a payment of $44,980.56 towards the invoices. By November 2023, Mekhane was behind in paying the invoices. On 1 December 2023, Mekhane made a part payment of $90,000 towards the outstanding invoices.
[22] The payments of $44,980.56 and $90,000 were in respect of more than 50 invoices, including projects other than the first project that the order on 21 September 2023 related to.
[23] Mekhane placed orders using its own purchase orders after Remarkable was placed into liquidation. MSL continued to invoice Mekhane.
[24] On 30 January 2024, Mekhane made a further payment of $29,625.67 towards invoices rendered by MSL in September and October 2023.
[25]It is agreed by the parties that the total value of MSL’s outstanding invoices is
$157,657.77.
The issues
[26]There are two issues:
(a)Was Mr Donlon authorised to commit Mekhane to payment of orders?
(b)If so, was Mr Donlon’s instruction to MSL to invoice Mekhane limited to the first project that was the subject of the email on 21 September 2023?
Was Mr Donlon authorised to commit Mekhane to payment for orders?
Legal principles
[27] The test for establishing the existence of a contractual relationship is whether, viewed as a whole and objectively, the dealings between the parties show a concluded bargain.5 Where the issue is the identity of the debtor, the Court should assess the evidence of any acceptance of legal liability by an appropriate officer of the company.6
[28]The concept of actual authority was explained by the Court of Appeal in
Giltrap City Ltd v Commerce Commission:7
Actual authority can be of two kinds – express or implied. Express authority is authority which is expressly given by the principal to the agent for or covering the transaction in question. One form of implied authority is the authority which the law regards as existing by reference to the position held by the agent vis-à-vis the principal. In the corporate arena, as here, the role performed by the servant or agent in the corporate structure will influence the extent of that person’s implied authority. In general terms the more senior the role greater the person’s implied authority is likely to be.
[29] The implication of authority by reference to the position that the agent holds is consistent with s 18 of the Act , which relevantly provides:
5 Savvy Vineyards 3552 Ltd v Karaka Estate Ltd [2014] NZSC 121 at [29], citing Meates v Attorney- General [1983] NZLR 308 (CA) at 377.
6 For example, see Fletcher v Jadie Trustee Ltd [2011] NZCA 603.
7 Giltrap City Ltd v Commerce Commission [2004] 1 NZLR 608 (CA) at [40].
18 Dealings between company and other persons
(1)A company or a guarantor of an obligation of a company may not assert against a person dealing with the company or with a person who has acquired property, rights, or interests from the company that—
(a)this Act or the constitution of the company has not been complied with:
(b)a person named as a director of the company in the most recent notice received by the Registrar under section 159—
(i)is not a director of a company; or
(ii)has not been duly appointed; or
(iii)does not have authority to exercise a power which a director of a company carrying on business of the kind carried on by the company customarily has authority to exercise:
(c)a person held out by the company as a director, employee, or agent of the company—
(i)has not been duly appointed; or
(ii)does not have authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company customarily has authority to exercise:
(d)a person held out by the company as a director, employee, or agent of the company with authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company does not customarily have authority to exercise, does not have authority to exercise that power:
(e)a document issued on behalf of a company by a director, employee, or agent of the company with actual or usual authority to issue the document is not valid or not genuine—
unless the person has, or ought to have, by virtue of his or her position with or relationship to the company, knowledge of the matters referred to in any of paragraphs (a), (b), (c), (d), or (e), as the case may be.
(2)Subsection (1) applies even though a person of the kind referred to in paragraphs (b) to (e) of that subsection acts fraudulently or forges a document that appears to have been signed on behalf of the company, unless the person dealing with the company or with a person who has acquired property, rights, or interests from the company has actual knowledge of the fraud or forgery.
[30] Section 18 of the CA confirms the common law indoor management rule. As explained by the Court of Appeal in Bishop Warden Property Holdings Ltd v Autumn Tree Limited:8
8 Bishop Warden Property Holdings Ltd v Autumn Tree Limited [2018] NZCA 285, [2018] 3 NZLR 809 at [32].
It means those dealing with a company are entitled to presume the company’s internal procedures have been complied with. A company cannot assert against a third party a non-compliance, lack of authority or invalidity of a document unless the third party has or ought to have by virtue of his or her position with or relationship to the company, knowledge of such matters.
Analysis
[31] Managers and staff of companies are routinely authorised to place orders on a company’s behalf. Parties accepting those orders are protected by s 18 of the Act. A person in Mr Donlon’s position would customarily have authority to commit his employer to payment of invoices from a supplier.
[32] Mr Webber’s affidavit was affirmed on 7 June 2024. He disavowed any knowledge of Mr Donlon’s email to MSL on 21 September 2023 that requested that Mekhane be invoiced for the orders. He says that he did not agree to that arrangement.
[33] Mr Donlon’s affidavit was affirmed on 12 July 2024. He says that he instructed MSL to invoice Mekhane for Remarkable’s purchase order for the particular project that was the subject of that first order, because Mekhane was the contractor working onsite.
[34] Any reasonable reader of the email and purchase order sent on 21 September 2023 would assume that Mr Donlon was representing Platform Projects. I find that Mr Donlon’s instruction to MSL to invoice Mekhane was made within Mr Donlon’s actual or apparent authority.
[35] Even if there was no actual or apparent authority, this is not a situation where Mr Messenheimer ought to have known that Mr Donlon was not authorised to commit Mekhane to pay the invoices. Mekhane is prevented from relying on a lack of authority by s 18 of the Act.
Was Mr Donlon’s instruction to MSL to invoice Mekhane limited to the first project that was the subject of the email on 21 September 2023?
[36] The MSL invoices in respect of the first project have been paid. Mekhane argues that it paid MSL invoices that related to other Remarkable projects by mistake,
and it is entitled to a refund of those payments. That would give rise to a set-off in respect of any liability that Mekhane has for its own orders after 4 December 2023.
[37] The emails between the parties that are in evidence confirm that, from 21 September 2023 to 3 December 2023, at least three staff employed by companies in NZBG were involved in administering the Remarkable projects that the disputed invoices relate to.
[38] It was entirely reasonable for MSL to believe that all orders placed on Remarkable purchase orders from 21 September 2023 to 4 December 2023 were subject to the arrangement that MSL was to invoice Mekhane and Mekhane would pay.
[39] This is confirmed by the conduct of MSL and Mekhane from December 2023 to February 2024.
[40] On 5 December 2023, Mr Messenheimer sent Mr Donlon an email, copied to the accounts department at NZBG, attaching a statement recording an outstanding balance of $30,548.18. Mr Messenheimer asked for confirmation of when the amount would be paid and threatened to add a late payment fee of 25% pursuant to the terms of trade on MSL’s invoices.
[41] A member of the NZBG accounts department, Ces Dulnuan, responded on 7 December 2023 using a Platform Homes email address, attaching a statement and inviting Mr Messenheimer to reconcile the invoices against the payment of $90,000 made on 1 December 2024. The email was copied to four other NZBG staff including Mr Donlon.
[42] On 13 December 2023, Mr Messenheimer emailed the accounts department at NZBG with an updated statement. Ces Dulnuan responded by email the same day, apologising for the delay in payment and advising that the overdue payments would be cleared by the end of the following week. That email was copied to Mr Donlon and two other NZBG staff.
[43] On 11 January 2024, Mr Messenheimer sent an email to Ces Dulnuan, copied to Mr Donlon and two other NZBG staff. Mr Messenheimer requested contact details for a director, confirming that he had added late payment penalties to all outstanding invoices.
[44] Ces Dulnuan responded on 12 January 2024 by email from the Platform Homes email address including Platform Homes letterhead, advising that “we intend to settle the account sooner.” That response was copied to Mr Donlon and two other NZBG staff members.
[45] It is significant that during these exchanges Mr Donlon did not raise any issue regarding Mekane’s liability to pay invoices for Remarkable projects. He did not assert that his instruction to MSL on 21 September 2023 was limited to one project.
[46] On 22 January 2024, Mr Messenheimer sent an email to Marcus Tansley, one of the Mekhane staff members copied into previous emails, requesting a director’s contact details. Mr Tansley provided contact details for Aaron Dempsey (Mr Dempsey), one of Mekhane’s directors.
[47] On 23 January 2024, Mr Donlon sent a text message to Mr Messenheimer, stating that:
I have just come down from accounts and your full bill, circa $120k will be sorted this week.
[48] On 24 January 2024, an NZBG staff member, Mandeep Mann, sent an email to MSL’s accounts department requesting copies of two of the outstanding invoices.
[49] On 30 January 2024, MSL sent Mekhane a statement which recorded the total amount outstanding on 30 January 2024 of $252,012.69. This included charges of late payment penalties. This statement was forwarded to Mr Dempsey. Mr Dempsey emailed Mr Messenheimer, asking whether the late fees were going to be waived. An email exchange followed. Mr Dempsey confirmed that Mekhane had major cash flow issues. No other reason was put forward for non-payment of the invoices.
[50] On 15 February 2024, Mr Messenheimer exchanged text messages with Jason Dobbie, a director of NZBG. Mr Messenheimer was pressing for payment. Mr Dobbie said:
I haven’t got any further news, except for what we discussed where once our clients pay this month, between 20-29th, payment will be forthcoming.
[51] By mid-February 2024, Mr Messenheimer had been pressing for payment of MSL’s outstanding invoices for six weeks. A director of Mekhane was aware of the situation. A director of NZBG was aware of the situation. At no point during that six-week period did Mekhane take any issue with its legal liability for the invoices.
[52] I reject Mekhane’s submission that it is reasonably arguable that its arrangement with MSL was limited to the few invoices that related to the project that was the subject of the first Remarkable purchase order. The contemporaneous documentary evidence between the parties overwhelmingly proves that the arrangement extended to:
(a)all Remarkable purchase orders after 21 September 2023; and
(b)all Mekhane purchase orders after 4 December 2023.
[53] During March 2024, EC Credit Control (NZ) Ltd attempted to recover the debt on MSL’s behalf. In his second affidavit dated 23 August 2024, Mr Messenheimer produced a document from EC Credit Control which includes the “contact notes” made by EC Credit Control from 1 March 2024.
[54] Mekhane argues that the communications referred to in the contact notes confirm that Mekahne took issue with its liability to pay the invoices during this period. This includes notes of communications between EC Credit Control and Mr Webber.
[55] I have reviewed the contact notes. The only dispute raised by Mr Webber was regarding the penalty charges that Mr Messenheimer had threatened, and that MSL included in its statement dated 30 January 2024.
[56] On 13 March 2024, EC Credit Control sent an email to the accounts department at NZBG, confirming that MSL would accept the sum of $157,657.77 in full and final settlement, which is the face value of the invoices and the amount subsequently demanded in the statutory demand.
Conclusion and orders
[57] Mekhane has failed to satisfy the onus upon it to establish that there is a substantial dispute in respect of the amount demanded. Mekhane does not have a counterclaim, set-off or cross-demand to recover the payments that it has already made to Mekhane. This is not an appropriate case to set aside the statutory demand. It is appropriate for Mekhane to be given a final opportunity to pay the amount demanded.
[58] The applicant’s application to set aside the statutory demand dated 24 May 2024 is dismissed.
[59] The applicant shall pay the respondent the amount demanded of $157,657.77 within 10 working days of this judgment, and in default of payment the respondent may make an application to put the applicant into liquidation.
[60]Costs should follow the event. If the parties are unable to agree on costs then:
(a)the respondent may file and serve written submissions on costs, of no more than five pages, by 1 November 2024;
(b)the applicant may file and serve written submissions on costs, of no more than five pages, by 15 November 2024 ; and
(c)I will then determine costs on the papers.
Associate Judge Brittain
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