Moorhouse Panel & Spray Limited v The Energy Saving Company Limited
[2019] NZHC 1804
•30 July 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-269
[2019] NZHC 1804
UNDER the Companies Act 1993 IN THE MATTER
of a statutory demand
BETWEEN
MOORHOUSE PANEL & SPRAY LIMITED
Applicant
AND
THE ENERGY SAVING COMPANY LIMITED
Respondent
Hearing: 23 July 2019 Appearances:
R G Smedley and K L Vilsbaek for the Applicant J S Angland for the Respondent
Judgment:
30 July 2019
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 30 July 2019 at 12.30pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 30 July 2019
MOORHOUSE PANEL & SPRAY LTD v THE ENERGY SAVING COMPANY LTD [2019] NZHC 1804 [30 July 2019].
[1] The applicant applies to set aside a statutory demand which bears the date 8 May 2009, but which was clearly intended to be 8 May 2019. The statutory demand was issued by the respondent itself.
[2] The amount claimed in the statutory demand is $10,238.60. It contains the following wording:
You were issued a payment claim under the Construction Contracts act 2002 on 20th day September 2015. You had 20 Working days to send a reply. You didn’t. This now a collectible debt.
[3] The respondent is a provider of electrical contracting services. It is common ground that the respondent carried out electrical work during 2015 for the applicant.
[4] When on the respondent’s case the applicant did not pay in full for the electrical work, the respondent issued a document called a “Payment Claim” which is dated 20 September 2015. Accompanying that Payment Claim was a covering letter dated 21 September 2015 addressed to the applicant. The covering note stated:
This work has been done under the Construction contracts Act 2002, you have failed to make payment or Provide a pay [sic] schedule. This is now a debt due and actions [sic] Will be taken to enforce this. Regards, Neil Clark
[5] The Payment Claim records the due date for payment as being 20 September 2015.
[6]There was no written contract between the parties.
[7] The Payment Claim refers to the “Contractor/Payee” as being “Neil Clark”. Mr Clark is the sole director and shareholder of the respondent company.
[8] The Payment Claim states the contract value as $10,238.60 being the amount claimed in the statutory demand. The payment records a payment of $3,206.25 meaning that the amount claimed as due under the Payment Claim is recorded as
$7,032.35.
[9] This Payment Claim was issued prior to the amendment to the Construction Contracts Act that came into effect 1 December 2015 that required all Payment
Claims, not just those relating to residential work, to contain a notice explaining the nature and effect of a Payment Claim.
[10] However, at the foot of the second page of the Payment Claim issued by the respondent, there appears under the heading “Important Notice” part of the notice which would have been provided under a residential building contract.
[11] I set out that part of the notice contained at the foot of the Payment Claim as it is material to one of the submissions made by the applicant:
Important Notice
You have been served with a payment claim under section 20 of the Construction Contracts Act 2002 (the Act). Under the Act, the person who has served the payment claim is called the payee.
If you do not respond to the payment claim promptly, you may lose your right to object to the payment claim.
You may choose to respond to the payment claim in either of the following 2 ways:
·you may pay the payee the amount claimed in the payment claim in full on or before the date due:
or
(my emphasis in italics)
[12]Accordingly, the applicant’s challenge to this Payment Claim is that:
(a)it names the “Payee” as Mr Clark personally and not the respondent;
(b)it records a due date for payment that is the same date that the Payment Claim was served, or perhaps a day prior to it being served if the date on the covering letter is correct; and
(c)that part of the notice prescribed by the Construction Contracts Act that was included in the Payment Claim renders the notice misleading because it undermined the “sudden death” nature of a Payment Claim.
Law relating to statutory demands
[13] Counsel were agreed as to the applicable principles. The general principles were set out in Confident Trustee Ltd v Garden and Trees Ltd as follows:1
(a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to the existence of the debt. The Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion that a dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved first in ordinary civil proceedings before any statutory demand is issued.
(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
(e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.
[14] Mr Smedley for the applicant, accepted that if the Payment Claim was valid then the statutory demand would stand and he referred to Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd.2 Accordingly, much of the submissions were focused on whether the respondent had issued a valid Payment Claim.
Approach to Payment Claims
[15] It is well established that mere technical issues with a Payment Claim will not be permitted to defeat the payments regime set up by the Construction Contracts Act.3
[16]In short, technical quibbles will not invalidate a Payment Claim.
[17] I have reached the view that the error in the payment date in this case was more than minor or technical. In reaching that conclusion I consider the covering letter that
1 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
2 Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd (2005) 18 PRNZ 97 (HC).
3 CMP Construction Ltd v Aluminium Technology Ltd [2013] NZHC 2481.
accompanied the Payment Claim as being important. That covering note communicated that the time to provide a payment schedule had passed, it stating: “You have failed to make payment or provide a pay [sic] schedule”. It went on to assert that the amount claimed as “now a debt due” and that enforcement action would follow.
[18] That is similar to the situation before Downs J in Auckland Electrical Solutions Ltd v Warrington Group Ltd.4 His Honour said:
[25] The case law to the effect an error in relation to the due date will not necessarily vitiate a payment claim is distinguishable, as here the invoices ‘dates were inconsistent with the actions of the appellant in seeking immediate payments. And importantly, the appellant implied the time for filing a payment schedule had passed when, if the payment claims were freshly issued, it had not.
[19] In the present case the respondent implied in its covering note that the time to oppose the Payment Claim had passed consistent with the Payment Claim stating that the amount claimed was due on the day the claim was dated.
[20] Counsel for the respondent accepted the inaccuracy over the due date for payment was a material error. In context, I consider that was a realistic acknowledgement.
[21] In line with counsel’s acknowledgment, and given what I have said, I consider the error in the due date for payment was not merely technical in nature and that it invalidated the Payment Claim.
[22] The other errors, that is the error in the name of the “Payee” and the inclusion of part of the notice then applicable to residential contracts, are relevant in terms of the cumulative effect of all the errors on the document.
[23] The error in the name of the “Payee”, if it had been the only error would, in my view, have been likely to be treated as merely technical in nature given there is no doubt the applicant knew who it was dealing with, and the Payment Claim was accompanied by the invoices giving the correct name of the creditor.
4 Auckland Electrical Solutions Ltd v Warrington Group Ltd [2016] NZHC 2245.
[24] As to the issue of the inclusion of part of the residential contract warning, Mr Smedley for the applicant acknowledged that at the time of the Payment Claim such notice was not required, but his submission was that if the notice was given it had to be accurate.
[25] Mr Angland’s submission for the respondent was that, there being no statutory obligation to give the notice, attaching only part of the notice was of no significance.
[26] That the notice was incomplete was plain from it concluding with the word “or” and not giving a further alternative. However, in my view, there is merit in the submission that the words I have emphasised in the notice set out at para [11] above would have had the effect of undermining the sudden death nature of the notice as submitted by Mr Smedley. That submission is slightly at odds with the fact that the covering note advised that the time to dispute the payment had already expired and the debt was due. I do not need to come to a conclusion about this last point, other than to repeat the point already made that the combined effect of the errors reinforces my view that the error in regard to the due date was more than trivial.
Payment Claim No. 2
[27] Mr Clark in his affidavit says that when he became aware of the error in the creditor’s name in the first Payment Claim, he personally served a second Payment Claim (“Payment Claim No. 2”) with the correct name of the Payee. He said he served Payment Claim No. 2 on Mr Hammond, the director and shareholder of the applicant, “on or about 20 October 2015”.
[28] Mr Clark says that although he recorded the applicant’s payment of $3,206.25 in Payment Claim No. 2, he did not deduct the amount from the total claimed of
$10,238.60. It is Payment Claim No. 2 that is referred to in the statutory demand.
[29] The difficulty for the respondent on this issue is Mr Hammond’s sworn evidence that he had not seen Payment Claim No. 2 before this proceeding. He gives unequivocal evidence that Payment Claim No. 2 was not served on his company and it was never brought to his attention.
[30] Given Mr Clark says that he served Payment Claim No. 2 on Mr Hammond, there is a stark dispute of fact in relation to whether Payment Claim No. 2 was served. That is a factual dispute that I cannot resolve in this application.
[31] Payment Claim No. 2 was a copy of the same document previously served, but with handwritten changes. Those handwritten changes are to the identity of the creditor and to the payment date.
[32] As Mr Hammond says he did not receive Payment Claim No. 2, I have not examined whether Payment Claim No. 2 overtook/replaced the original Payment Claim.
[33] The ability of the respondent to rely on Payment Claim No. 2 turns on the point of service which cannot be determined in this context.
Conclusion on the Payment Claim
[34] While the statutory demand referred to Payment Claim No. 2, I have put that issue to one side given Mr Hammond’s position that he did not receive it. If the date of the Payment Claim referred to in the statutory demand was incorrectly given as Payment Claim No. 2 but the first Payment Claim had been valid, then I doubt an error as to the date of the Payment Claim relied on would have invalidated the statutory demand given Mr Hammond said he had no knowledge of Payment Claim No. 2.
[35] However, having concluded that the first Payment Claim was invalid, I now need to consider whether the statutory demand can survive that finding.
[36] The statutory demand is overstated by the amount of the payment of $3,206.25 which Mr Clark failed to credit when totalling Payment Claim No. 2. Mr Clark also acknowledges that he should have given credit for a further $1,000 paid in cash. He says that the first Payment Claim, which contained the error in respect of naming him as creditor, did not include a credit for $1,000 paid in cash.
[37]Accordingly, the amount the respondent says is due is $6,032.35.
[38] It follows that the statutory demand issued was, even on the respondent’s case, overstated by 41 per cent.
[39] The respondent in an attempt to deal with this issue has sought to bring into account a claim for interest. The invoices issued by the respondent contain at the foot of the invoice “3% interest per month will be charged on over due accounts”.
[40] I do not consider that it is open to the respondent to seek to bolster the amount claimed in its statutory demand by reference to interest. I hold that view for the following reasons:
(a)The contract between the parties was oral and was completed before the invoices were provided. It is far from clear that the provision of three invoices over a relatively short period of time would amount to a course of conduct from which an agreement by the applicant to pay interest could be found.
(b)The amount of interest claimed was not quantified or demanded prior to the issue of the statutory demand nor referred to in the demand. Section 289(2)(a) of the Companies Act 1993 provides that a statutory demand may only be issued for an amount that is due. In the absence of the amount of interest being quantified, invoiced or demanded, there was no interest due and payable at the time the statutory demand was issued.
The dispute as to the existence of the debt
[41] The dispute concerns a fan motor included in a spray booth operated by the applicant. It is not in dispute that the motor was damaged in the course of the works and that it was required to be repaired before it could be re-installed. The issue is why this work was required.
[42] The respondent says that the work was required because of the motor’s considerable age. Mr Clark in his affidavit says:
The work started out as being relatively straightforward but became more difficult as the work progressed, mostly because of an issue that staff of the respondent encountered with an old electric motor, which I believe may have been about 40 years old.
I notified Mr Hammond of the issues that we had encountered involving the old electric motor. Mr Hammond did not raise any concern about the extra work that I told him we needed to do to do the job properly. He told me that he had insurance that would cover the cost.
[43] The issue with the motor was the subject of a heated email from Mr Clark to Mr Hammond. At one point in the email, Mr Clark says: “I told you that the motor was burnt out and that you should claim it on your insurance”.
[44] That Mr Clark recommended that the applicant should claim for the motor on the applicant’s insurance is consistent with the motor being damaged through an accident rather than it simply being worn out.
[45] The applicant’s position is that the motor was required to be rebuilt because of poor workmanship by the respondent. Mr Hammond’s evidence in this regard is rather brief. He says:
[The applicant] has paid ($4,206.25) for some of the Work, however, not all of it because much of the Work resulted from damage caused by the electrician to an electric motor whilst performing the Work.
[46] Accordingly, again the issue is not that the work was done, but the applicant asserts the respondent should not have charged for some of the work because the need for the work was caused by poor workmanship by the respondent.
[47] The evidence around exactly what work was done to the fan and why it was required, is sketchy at best. The circumstances in which the respondent would be suggesting to the applicant that the applicant was entitled to claim on its insurance lead me to conclude that the applicant has established, albeit by a narrow margin, that there is a genuine dispute about the responsibility for the work on the motor.
[48] If the motor failed simply because it was old, then that would not give the applicant the right to claim on its insurance. That it was the respondent suggesting that the applicant claim on its insurance (or at least that is what the contemporary email records) can be viewed as the respondent wanting to deflect responsibility for those costs.
[49] While the onus is on the applicant to demonstrate there is a reasonably arguable dispute and while, as I have said, its evidence is minimal on this point, the contemporary email from the respondent and its treatment of insurance in the way I have described means that in my view there is sufficient material to find that a dispute exists in respect of responsibility for the fan costs.
[50] On that basis, the applicant has established a dispute in respect of the balance due under the statutory demand.
[51] Even if I had not reached that view, I would have been minded to set the statutory demand aside given I consider that the extent to which it is overstated is significant. I remind myself that ss 290(5) and (6) of the Companies Act 1993 provide that a material mis-statement of the amount due can only result in a demand being set aside if substantial injustice would be caused if the statutory demand was not set aside.
[52] An applicant faced with statutory demand of just over $6,000 may well, despite the ill feeling between the parties, have sought to achieve a commercial outcome. One could well make the same comment about a statutory demand for just over $10,000 but the smaller the amount, the greater the imperative for a commercial outcome. Where the statutory demand here was overstated by a significant proportion (over 40 per cent), I consider that overstatement was material and created a risk of substantial injustice by making a commercial solution less likely.
[53] However, I do not base this judgment on the overstatement. For the reasons given in respect of the invalidity of the Payment Claim and the existence of a dispute as to the amount claimed, the statutory demand is set aside.
[54] In respect of costs, the applicant says it wishes to be heard. The applicant may file a memorandum in respect of costs (if such cannot be agreed) within 10 working days to be not more than five pages in length. The respondent’s reply, again not more than five pages, is to be filed and served within a further 10 working days.
Associate Judge Lester
Solicitors:
Anthony Harper, Christchurch
Ronald W. Angland & Son, Leeston
4
3
0