Oceania Football Confederation Inc v Engineered Solutions & Systems Ltd

[2019] NZHC 1439

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-1450

[2019] NZHC 1439

UNDER

the Companies Act 1993

BETWEEN

OCEANIA FOOTBALL

CONFEDERATION INCORPORATED
Applicant

AND

ENGINEERED SOLUTIONS & SYSTEMS LIMITED

Respondent

Hearing:	12 December 2018
Appearances:	N R Williams and W R Potter for the Applicant C J Booth and R A Monigatti for the Respondent
Judgment:	21 June 2019
Reissued:	3 July 2019

REISSUED JUDGMENT OF ASSOCIATE JUDGE SMITH

This judgment was delivered by me on 21 June 2019 at 3.30pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors / Counsel:

Meredith Connell, Auckland Kensington Swan, Auckland

OCEANIA FOOTBALL CONFEDERATION INCORPORATED v ENGINEERED SOLUTIONS & SYSTEMS LTD [2019] NZHC 1439 [21 June 2019]

Reissued judgment

[1]    On 21 June 2019 I issued a judgment in this matter. The judgment was made available to counsel only in the first instance, on the basis that they would have five working days to make any requests for appropriate redactions or non-publication orders that might be necessary to protect confidential commercial information or to avoid prejudice to the conduct of any other Court proceeding. In the event, neither counsel has requested any redaction or non-publication order, and this judgment is now issued on an 'open' basis. Counsel did, however, draw to my attention two minor errors in the text of the judgment issued on 21 June 2019,1 and those errors have been corrected under r 11.10 of the High Court Rules in this reissued judgment.

Application to set aside statutory demand

[2]    On 29 June 2018 the respondent (ESSL) issued a statutory demand to the applicant (OFC), demanding payment of $557,518.87. The statutory demand was issued  in respect  of a  total  of six invoices dated between 28 February 2018 and   30 April 2018, which were said to constitute payment claims under the Construction Contracts Act 2002 (the CCA). The statutory demand alleged that OFC did not issue any payment schedules under the CCA challenging the payment claims, and that as a consequence the invoiced amounts became a debt due and payable on 14 May 2018 in accordance with the relevant provision of the construction contract and ss 22 and 23 of the CCA.

[3]    OFC now applies under s 290 of the Companies Act 1993 (the Act) for an order setting aside the statutory demand.

[4]    On 3 August 2018 Associate Judge Bell made an order extending the time for complying with the statutory demand, pending further order of the Court.

[5]I now give judgment on OFC's setting aside application.

1      The amount of $365,200 in the first line of the table at paragraph [35] of the judgment issued on 21 June 2019 should have read "$346,940", and the figure  of  $365,200  plus  GST  in  paragraph [173] of that judgment should have read "$3,652,000 plus GST".

The parties

[6]    OFC is an incorporated society, which is one of six regional confederations established by Federation Internationale de Football Association (FIFA). One of FIFA's objectives is to advance the game of association football (football) globally, and to that end it provides "forward funds" and other resources to its member associations for the purpose of promoting football in their areas.

[7]    OFC is managed by an executive committee which is responsible for implementing OFC statutes and decisions of the OFC Congress. OFC must also ratify all decisions made by OFC's Standing Committees and judicial bodies. The executive committee consists of a president, three vice-presidents, and seven members who are appointed by the associations which make up the confederation.

[8]    Relevant to this case, Mr David Chung is a former president of OFC, and   Mr Tai Nicholas is a former general secretary of OFC. Neither is presently working for OFC, both having resigned following an audit conducted by PriceWaterhouseCoopers which is said to have identified certain irregularities in the financial affairs of OFC which are referred to below. The principal evidence for OFC in support of the setting aside application was given by its current acting general secretary, Mr Frank Castillo.

[9]    ESSL is a construction and engineering company, established in August 2003. The directors and shareholders are Mr Shakti Singh and his wife Ms Nirmala Singh. It has three salaried employees and one contractor. It subcontracts work to specialist construction companies as and when required.

The home of football project

[10]   The home of football project (the Project) was conceived by OFC in or before 2012. It involved the building and establishment of a football facility at Ngahue Reserve, Auckland, which would consist of two full-sized FIFA-standard football pitches with spectator stand and facilities, and an office building/indoor futsal2

2      A form of football usually played on an indoor court by teams of five players.

complex. The Project was to be constructed in two stages. First, fields and facilities would be constructed, including artificial pitches, practice pitches, and changing rooms. Secondly, the building complex would be constructed. It would include OFC offices, a café, conference rooms, changing room facilities, a gymnasium, and a physiotherapy room.

[11]   OFC approached FIFA to assist in funding the Project, and in September 2012 FIFA agreed to provide an interest-free loan of US$10 million to assist. Mr Chung and Mr Nicholas signed a loan agreement with FIFA on OFC's behalf.

[12]   Mr Castillo said in his evidence that OFC engaged three separate contractors to carry out the work. First, 3D Consultants Ltd (3D) was retained as architect and engineer. The contract between OFC and 3D was signed by Mr Sataya Pillay on 3D's behalf. Mr Castillo said that Mr Pillay had links with Mr Chung, Mr Nicholas, and the other contractor companies, and that Mr Chung and Mr Nicholas engaged 3D without going through a formal tender process (notwithstanding FIFA regulations requiring such a process).

[13]   The other two contractors were Green Turf (NZ) Ltd (Green Turf), who would complete the installation of the stage 1 football fields and accompanying facilities, and GM Engineering Ltd (GM Engineering), who would complete the construction of the stage 2 facilities. Mr Castillo said that Green Turf's sole director and shareholder,  Mr Kenneth Dentice, had links with Mr Pillay, and that Mr Pillay's son, Shaanan Pillay, is the sole director and shareholder of GM Engineering.

[14]   Stage 1 of the Project commenced at the end of 2012, and has now been completed. Stage 2 began under GM Engineering in 2014, and ESSL began working on stage 2 from around early 2017. Mr Castillo said that stage 2 is far from complete.

[15]   Mr Castillo said that ESSL was introduced to the Project following the death of Mr Sataya Pillay in 2016. When that occurred, OFC terminated its contract with GM Engineering (the directors of which had been Mr Sataya Pillay and Mr Dentice). A tender process was then commenced to identify a construction company to complete stage 2 of the Project, and ESSL was selected by the OFC executive committee as the

successful tenderer. Mr Nicholas confirmed the appointment of ESSL on behalf of the executive committee.

[16]   In an affidavit filed for ESSL, Mr Singh said that ESSL had also been involved in stage 1 of the Project, carrying out design work as a subcontractor to 3D (including reviewing engineering design work carried out by the engineers then involved in the project). ESSL was not involved in the stage 1 construction work, and its work for 3D ended in or about July 2013.

[17]   Mr Singh said that when he became aware of the tender for the stage 2 work in January 2017, he spoke to Mr Nicholas. He knew Mr Nicholas from the consulting work ESSL had done on stage 1.  In the course of a discussion with Mr Nicholas,  Mr Singh was told that the Project had been on hold for a while, and FIFA had required more tenders for the Project. Also, OFC had come to realise that the stage 2 buildings would need to be re-sized and modified. Amended structural engineering plans had been submitted to Auckland Council.

[18]   There were delays in the early part of 2017 in obtaining approval of the plans for the changes from Auckland Council,  and  the  Project  was  suspended  while  Mr Nicholas endeavoured to sort out the Auckland Council consent issues. Mr Singh said that meant that he had to place tags on the tender he submitted in February 2017

— for example, he did not know the approved cladding materials, or what conditions there might be on the building consent.

[19]   ESSL was awarded the contract for stage 2, and on 22 February 2017 it signed a contract with OFC subject to some exclusions and conditions. This contract was generally approved by FIFA's Development Committee  on 28 March 2017, and  on 3 April 2017 Mr Nicholas advised Mr Singh that FIFA had approved funding for the contract. However, Mr Singh said that the FIFA development and legal divisions requested additional detailed information and documentation relating to the contract between 21 April 2017 and 1 June 2017.

[20]   Mr Singh said that ESSL received consented structural drawings and drainage plans for the work on 2 June 2017. On 17 July 2017 OFC and ESSL entered into a

revised form of contract for the stage 2 work (the ESSL contract). The ESSL contract was for the "shell" only, and did not include any fit-out, stairs or lifts, or building services apart from underfloor drainage.

Relevant provisions of the ESSL contract

[21]   The ESSL contract was over 400 pages long, and neither party produced a complete copy. However, there was no suggestion by either party that relevant provisions of the ESSL contract had not been produced.

[22]   The first part of the ESSL contract was a two page document described as a "Contract Agreement".

[23]Clause 2 of the Contract Agreement provided:

[OFC] shall pay [ESSL] the sum of THREE MILLION SIX HUNDRED AND FIFTY TWO THOUSAND DOLLARS $3,652,000 together with goods and services tax at the times and in the manner provided in the Contract. On execution of the Contract Agreement a deposit is immediately due of $365,200 plus GST as stated in "Schedule of Payments" and "Construction Work Programme" as attached herein in Appendix C of this agreement.

[24]   The "Schedule of Payments" referred to the deposit of $365,200 plus GST payable on signing the ESSL contract, and then provided for 10 instalment payments due on the 20th of each month, from August 2017 to May 2018.

[25]The Schedule of Payments provided that:

(a)each instalment "represents work to be undertaken in accordance with the Construction Work Programme (attached to the schedule)"; and

(b)each claim for payment was not to exceed more than 10% of [the ESSL contract], provided the total of all the payment claims were not to exceed 95 per cent of the contract price (5 per cent was to be retained in accordance with the retention provision of the ESSL contract).

[26]   The Construction Works Programme set out the various elements of the ESSL contract works, and when they were intended to be carried out.

[27]The ESSL contract was said to consist of the following documents:

(a)The Contract Agreement;

(b)The notification of acceptance of tender or award of Contract;

(c)Schedule 1: Special Conditions of Contract – Specific Conditions of Contract;

(d)Schedule 2: Special Conditions of Contract – Other Conditions of Contract (including Appendices);

(e)The General Conditions of Contract based on NZS3910:2013 (including other Schedules);

(f)Specifications issued prior to the Date of Acceptance of Tender;

(g)Drawings issued prior to the Date of Acceptance of Tender;

(h)The Principal's Request for Tender;

(i)The Contractor's tender.

In case of any conflict or ambiguity between the provisions of those documents, each document would prevail over documents lower in the list.

[28]   Under cl 12(c) of the Contract Agreement, the deposit was to remain in place for the term of the ESSL contract, and was to be deducted from each monthly payment claim at "prorate of the % of each claim".

[29]   Under cl 12(g) of the Contract Agreement, all invoices were to be issued as Payment Claims pursuant to the CCA, and were to be accompanied by a "Progress Claim Form". Under cl 12(e), payments were due no later than five working days from the issue of ESSL's invoice.

[30]   Clause 12.1.3(b) of NZS3910:2013 provides that each payment claim is to identify:

… the manner in which the claimed amount has been calculated, in particular:

(i)the estimated extent and value of the Contract Works which has been carried out, excluding Variations;

(ii)the estimated extent and value of all work done or other Cost which is claimed for Variations.

…

[31]   Variations were provided for at cl 9.1 of NZS3910:2013. Under cl 9.1, the contract Engineer could order any variations to the Contract Works. Variations could require additional work to be done, and the value of Variations was to be added to the contract price only once it was agreed as a Variation under the contractual mechanism.

[32]   Clause 9.2.1 of NZS3910:2013, as amended by Schedule 2 of the Special Conditions, provided:

The Contractor shall not vary the Contract Works without an order in writing from the Engineer. The Contractor must give immediate notice to the Principal of any direction received from any representative of the Principal. The Contractor shall not be obliged to comply with any such instruction unless confirmed in writing by the Principal. The Contractor will not be entitled to any adjustment to the Contract price or the Due Date for Completion unless and to the extent the Principal issues an order in writing instructing a Variation.

[33]   The last of the documents making up the ESSL contract was ESSL's tender. Mr Singh produced a copy of the tender letter, dated 2 February 2017. The tender proposed a number of provisions which would constitute the First Schedule to NZS3910:2013, on the basis that if there was any conflict between ESSL's proposed Special Conditions and the corresponding general provisions of NZS3910:2013, ESSL's proposed Special Conditions would prevail. Under "Payment Terms", ESSL's proposed Special Conditions provided that payments to be made by OFC under the ESSL contract be made in accordance with a schedule, the relevant part of which read:

[After payment of the deposit] Progress Claims will be made fortnightly based on % of work completed to date including material supply on site less equal

% deposit paid.

Claims by ESSL and payments made by OFC

[34]   On 20 July 2017 OFC paid ESSL the 10 per cent deposit ($419,980 including GST). Mr Castillo said that OFC made further payments to ESSL on 21 September 2017, 3 November 2017, and 1 February 2018. In total, it has paid $997,089.60 to ESSL.

[35]   For the reasons set out below, OFC made no further payments after 1 February 2018. It advised ESSL in early February 2018 that the project was suspended.

[36]   ESSL subsequently issued a further six invoices, totalling $503,059.02 plus GST (total $558,518.87). These are the claims which were the subject of the statutory demand. The further claims by ESSL were as follows:

ESSL Invoice No.	Date	Amount	Alleged due date
1	20170718R2	28/02/2018	$346,940	09/02/2018
2	20170720	09/02/2018	$36,300	16/02/2018
3	20170721	16/03/2018	$11,250	23/03/2018
4	20170722	16/03/2018	$36,196	23/03/2018
5	20170724	16/04/2018	$36,196	23/04/2018
6	20170725	30/04/2018	$17,917.02	07/05/2018

[37]   It is common ground that these invoices were not immediately submitted as payment claims under the CCA. It was not until 7 May 2018 that ESSL re-issued each of the invoices as payment claims under the CCA.

[38]   OFC says that there was no written Variation order issued by it relating to the amounts claimed in the statutory demand.

[39]   After the payment claims were issued on 7 May 2018, there was some correspondence between the parties. OFC made it clear that it would pay ESSL for work genuinely conducted and invoiced under the ESSL contract, but it required documentation and information supporting the works described in the invoices. OFC says that the documentation and information sought has never been provided.

OFC's investigations into the ESSL contract

[40]   Mr Castillo said that OFC was conducting an internal investigation into potential  irregularities  within  OFC,  relating  in   particular   to   Mr Chung   and Mr Nicholas. OFC has engaged Deloitte to assist with the investigation, and also retained Meredith Connell to advise. It has also engaged a quantity surveying firm, Maltbys, to assess the true value of the work done on the Project to date. The investigations include potential misuse of the FIFA loan facility for the Project.

[41]   In February 2018 OFC put the Project on hold pending the outcome of the investigations. On 10 September 2018 it terminated the ESSL contract.

[42]   Mr Castillo referred to a number of concerns (referred to by him as "irregularities") over the ESSL contract. He said that Deloitte was in the process of examining some 280,000 documents received from OFC, and as part of its review the following "red flags" had emerged:

(1)ESSL has no fixed address. Its invoices refer to a P O Box address. It has no website.

(2)ESSL did not provide any genuine evidence of experience relevant to its entry into the ESSL contract.

(3)The contracts (including those with 3D, Green Turf and GM Engineering) are said to have been heavily against OFC's interests, and required large upfront payments before any work was undertaken.   Mr Nicholas appears to have agreed to fund ESSL by way of an advance payment of 10 per cent of the ESSL contract price on signature of the ESSL contract.

(4)The ESSL contract, and the contracts with 3D, GM Engineering, and Green Turf, allocated risk to the parties in terms that were outside normal construction practice in New Zealand.

(5)Payment from OFC to ESSL was not linked to payment for work actually done under the ESSL contract. Rather, payment was required on the basis of monthly instalments which would be payable regardless of ESSL's actual performance.

(6)At no stage has ESSL, to OFC's knowledge, provided any cost breakdown of the calculation of the ESSL contract price, or provided a breakdown of any of the calculations of the amounts claimed.

(7)Mr Nicholas appears to have made payments for variation claims on the basis of emails from ESSL, without any evidence of supporting documents establishing that the costs claimed were genuine or actually incurred (or to be incurred) in carrying out the ESSL contract works.

[43]   More generally, Mr Castillo noted that 3D, Green Turf, and GM Engineering were all set up shortly before being awarded their contracts by OFC. He said that none of them had any track record of experience, and they subcontracted the majority of their works to other companies.

[44]   A stage 2 tender summary report prepared by 3D and Mr Nicholas is alleged not to have resembled actual bids. Mr Castillo said that there were "various irregularities" around the creation and submission dates of the bids.

[45]   3D, Green Turf and GM Engineering are all said to have been closely associated with Mr Nicholas and Mr Chung, and with each other. Mr Sataya Pillay is said to have been a central figure in this group, and he and his colleagues are alleged to have travelled the world and stayed in overseas countries at OFC's expense. On the instruction of Mr Chung and Mr Nicholas, OFC is alleged to have paid for flights and accommodation for OFC staff and their families to travel to China for Mr Chung's wedding, and OFC is said to have made a $10,000 cash gift to Mr Chung.

[46]   Mr Castillo produced certain correspondence and minutes which appeared to show that Mr Singh had participated as an "OFC representative" during meetings with the contract engineers as early as January 2013. There was also an email from

Mr Singh to Mr Pillay and OFC staff in February 2013, and Mr Singh was referred to in a February 2013 email from passing between Mr Nicholas and Mr Chung, relating to Mr Singh removing equipment from the site. Mr Singh was recorded in minutes of a meeting held at the engineer's office on 15 February 2013 as having attended the meeting, and the minutes of an OFC executive committee meeting held in April 2013 named Mr Singh as the project and value engineering manager for the home of football project.

[47]   Mr Castillo provided evidence of a meeting between a Deloitte representative and Mr Singh on 16 April 2018, but it is not clear that Mr Castillo attended the meeting. If he did not, the statements made in his affidavit appear to be hearsay.

[48]   In response to a letter from Deloitte, Mr Singh provided details of ESSL's registered office and its business address, but he declined to provide details of any prior relationships with OFC personnel or other OFC contractors or suppliers.

[49]   In an email to Deloitte dated 19 April 2018, Mr Singh said that ESSL provides total development services for architecture, civil/building engineering and construction services to niche clientele. Mr Singh went on to say:

Prior to this project, I did not know either Tai Nicholas or David Chung nor PDP Consultants or Babich Consultants and ESSL has no history of working with them before. ESSL was not involved during the construction of stage 1 of the project apart from the above work with 3D done over a brief period as noted above.

[50]   Mr Castillo said that ESSL has refused to provide full details of its previous engagements, and has refused to provide documentation supporting its invoices.

[51]   Mr Castillo produced copies of correspondence passing between the parties' solicitors in July 2018, in which OFC's solicitors urgently requested a number of documents, including progress claims in support of each payment claim, and documents and information supporting the works described in ESSL's invoices.

[52]   ESSL's solicitors replied on 11 July 2018. They contended that OFC's ongoing investigations did not provide a basis for withholding payments otherwise due and owing under the CCA. They said that Mr Singh had voluntarily attended the interview

with Deloitte, but he ended the interview when Deloitte sought personal information regarding ESSL's employees and subcontractors which Mr Singh considered to be private. ESSL's solicitors provided a copy of the contract between the parties and copies of the relevant payment claims provided with the statutory demand, but they contended that no other information was relevant or necessary for the purposes of identifying the debt owed to ESSL.

[53]   Mr Castillo produced copies of OFC's most recent full-year audited financial statements, being the accounts for its financial year ended 31 December 2016. Audited accounts for the December 2017 year were said to be not available, due to the ongoing investigation into the home of football project.

[54]   Mr Castillo's evidence showed that OFC's closing equity as at 31 December 2016 was NZ$10.76 million. As for its current financial position, Mr Castillo said that (as at 11 July 2018) OFC held over US$1 million in foreign currency cash balances, and over NZ$3.4 million in New Zealand dollar denominated cash balances. He said that OFC would be prepared to pay into Court part or all of the amount claimed as the Court sees fit, pending determination of OFC's liability by ordinary action.

[55]   Mr Castillo referred OFC's concern that the investigations it has been conducting might be prejudiced if individuals suspected of fraud are alerted to the information provided in the proceeding. He also referred to the commercially sensitive information relating to OFC's finances, noting that there has already been media interest in the investigations relating to the home of football project. He produced an article from the New York Times edition of April 6, 2018, and an article posted on the stuff.co.nz website on April 10, 2018, both of which referred to the ongoing investigations.

The evidence of Mr Townsend

[56]   Mr Townsend has over 20 years' experience in New Zealand as a professional quantity surveyor. He was instructed by OFC to provide evidence relating to the ESSL contract and the home of football project generally.

[57]   Mr Townsend said that he could not recall ever coming across a construction project in New Zealand structured the way the ESSL contract was structured (payment in advance completely delinked from work progress, and no requirement for evidence of project or actual costs incurred). Nor had Mr Townsend ever been involved in a project where there was no breakdown of the contract sum, as in the ESSL contract.

[58]   Mr Townsend noted that in the ESSL contract the period between the submission of a payment claim and the due date for payment was truncated from the usual 20 business days to 5 business days. He noted that 20 business days is the industry standard under NZS3910:2013.

[59]   Mr Townsend said that the advance (deposit) payment to ESSL before any work was done appears to have been "pocketed" by ESSL; it was not deducted from the payment claims subsequently submitted by ESSL.

[60]   Mr Townsend then noted that no engineer was appointed to administer the contract, as might have been expected, and as the ESSL contract required. He expressed the view that an engineer's involvement would have been critical to determine whether the contract works were progressing properly, and to determine the validity of time extension or variation claims. Another of the engineer's roles is to issue payment schedules in response to payment claims.

[61]   Mr Townsend noted that ESSL prepared various designs. That would not normally be the function of the contractor under a build-only contract, other than in respect of shop drawings. He noted that the ESSL contract contained no design obligation on ESSL.

[62]   Mr Townsend was also instructed to independently assess the actual value of the work undertaken at the home of football. He expressed the view that OFC has overpaid at least $6 million to contractors, although he qualified that view by saying that investigations were ongoing, and that his ability to draw conclusions was limited by the number of documents OFC had been able to provide.

[63]   Mr Townsend said that he had reviewed the invoices making up the statutory demand, and the other invoices issued by ESSL. He expressed the preliminary view that ESSL had overcharged at least $500,000 in total, and at least $160,000 on the invoices which were the subject of the statutory demand. Again, he qualified that view by saying that it was limited by both the time constraints under which he was working and the absence of supporting documentation from ESSL which would have enabled him to determine if amounts charged were reasonable, and costs were actually incurred. He said that he would have expected to see pricing information or breakdowns, and that the correlation between the costs and the work done was not clear.

ESSL's opposition and evidence

[64]   ESSL contends that its payment claims satisfied the requirements of s 20 of the CCA, and adequately set out how ESSL calculated the amount claimed. It says that the various other grounds relied upon by OFC in support of its contention that the payment claims did not comply with the CCA are all matters that should have been addressed by serving payment schedules under the CCA. OFC failed to serve any payment schedules, and it therefore became liable to pay the amount claimed in full, under s 22 of the CCA.

[65]   ESSL says that the effect of s 79 of the CCA is that OFC cannot raise any counterclaim, set-off, or cross-demand in support of its application. Having failed to submit any payment schedules in response to ESSL's payment claims, it is obliged to "pay now and argue later".

[66]   ESSL says that the contract is valid, and binding on OFC. However, if the Court should find that one or more of the payment claims did not comply with the CCA, then any overstatement of the amount claimed in the statutory demand would not constitute a substantial defect or irregularity in the demand such as which would cause injustice if the demand were not set aside.

[67]There was one affidavit in opposition, being an affidavit by Mr Singh.

[68]   Mr Singh is an engineer, with a New Zealand Certificate in Engineering (Civil) obtained in 1988 and a Bachelor of Engineering obtained from Auckland University in 1997. He is also a licensed building practitioner.

[69]   Mr Singh gave details of his professional experience, going back to his work as an engineer for Fletcher Construction in the 1990's. He also worked for Humes Pipelines Systems (part of the Fletcher Building Group) for 3 years, up to September 2001.

[70]   Mr Singh set up ESSL in 2003, and he has used the company for contracting and consultancy work, and also as a construction and engineering company. However, in the period from October 2010 to January 2013 he was employed by MWH NZ International Ltd (now Stantec New Zealand International Ltd), and he did not actively seek contracts for ESSL during that period. He described several major design and engineering projects with which he was involved during his time with MWH.

[71]   Mr Singh said that he has developed ESSL through client recommendations and referrals, and direct marketing and networking. ESSL does not have a website because it has not needed one — Mr Singh has always focused on face-to-face relationships with clients.

[72]   Mr Singh described two projects with which ESSL was involved prior to the home of football project. One involved a substantial subdivision near Pukekohe, and the other involved design and build work on a commercial and apartment development in Ellerslie.

[73]   Turning to the home for football project, Mr Singh said he has never seen the contract between 3D and OFC, and that he had no knowledge of how 3D and Mr Pillay became involved with OFC (although he recalled Mr Pillay telling him that he had a project management contract to coordinate work of architects, engineers, planners, surveyors and all specialist consultants required to assist OFC in obtaining resource consent for the home of football project, and also to secure a lease of the relevant reserve land).

[74]   Mr Singh said he did not know how Green Turf or GM Engineering came to be involved with OFC either. Again, he said he has not seen the contracts between Green Turf or GM Engineering and OFC.

[75]   Mr Singh said that he first met Mr Pillay in 2008, when ESSL was doing contracting work with one of Mr Pillay's companies, Hames Sharley International Ltd, on various project management projects, and some design and build works. When Mr Singh left MWH and began networking to get ESSL working again, he contacted Mr Pillay to see if he had any potential work. It was then that Mr Pillay told him about the home of football project. Mr Pillay also said that 3D was having some issues with the design work carried out by one of its subcontractors.

[76]   ESSL then contracted with 3D to review the existing engineering design work, and to resolve a number of engineering and planning issues relating to the necessary resource consent for the home of football project. Mr Singh said that in the course of this work he had some face-to-face meetings with the project engineers, and with Auckland Council, to seek ways to resolve the issues. When ESSL was undertaking this work it operated alongside 3D at OFC's premises in Greenlane. Mr Singh said that he was first introduced to Mr Nicholas while he was working there on ESSL's subcontract with 3D.

[77]   ESSL did approximately five months' work for 3D on stage 1, ending in about July 2013.

[78]   Mr Singh said that he became aware of the letting of tenders for the stage 2 part of the home of football project, in late 2016. He spoke to Mr Nicholas early in 2017, and was told that the project had been on hold for a while, and that FIFA had required OFC to provide it with more tenders for the project.

[79]   OFC invited ESSL to be part of the new round of tenders, and on 9 February 2017 Mr Singh had a meeting at the OFC site office with Mr Nicholas and the project manager, Mr Malcolm Savill. It became apparent at that meeting that OFC had not then obtained approval from Auckland Council for its stage 2 building plans. That meant that ESSL would have to place tags on its tender price.

[80]   ESSL submitted its tender on 21 February 2017, and the ESSL contract was eventually signed on 17 July 2017.

[81]   Mr Singh said that Mr Nicholas and Mr Savill were ESSL's main points of contact during the tender process for the project. Mr Glenn Turner later took over as ESSL's main point of contact after Mr Savill's departure. Mr Singh confirmed that he did not know of Mr Nicholas or Mr Chung, and that ESSL had no history working with them, prior to the home of football project.

[82]   Mr Singh said that the scope of works under the ESSL contract was set out in the contract programme, which formed part of the special conditions. The contract programme provided for completion of the following work on the structure, or "shell", of the buildings:

(i)structural steel work;

(ii)concrete works;

(iii)roof cladding;

(iv)wall cladding;

(v)aluminium and glass joinery; and

(vi)underfloor drainage.

[83]   Mr Singh described a number of problems that developed with the project. He said that, from the outset, the site was unsafe and messy, with littered structural steel work, broken concrete and protruding reinforcing steel scattered throughout the building site. The site had to be cleared before construction site set-up could occur. OFC agreed to pay for the removal of the materials. Next, Mr Singh described a number of defects and inconsistencies in the existing building foundation works which had been completed by previous contractors. There were issues with a gas protection membrane, incorrect heights for the concrete footings, and incorrect building size and steel work. Mr Singh also described an issue over a missing retaining wall. He said that he was not aware of any of these defects when Mr Nicolas invited ESSL to tender for the stage 2 work.

[84]   Mr Singh's evidence was that OFC ordered the gas protection membrane works as a variation to the contract. He provided a copy of an email from Mr Nicholas confirming the variation at a price of $158,700. ESSL invoiced OFC for the variation and design works done to date on 17 July 2017, in the sum of $199,200 plus GST. OFC declined to fully pay the invoice, and ESSL received only $157,956.18 for the variation, as initially quoted. ESSL met the costs of this work out of the deposit OFC had paid, and it was later (in February 2018) reimbursed to the extent of the

$157,956.18 approved by OFC.

[85]   Mr Singh said that ESSL only ever received enough money from the deposit to be compensated for variation costs it incurred.

[86]   Mr Singh described the work completed by ESSL under the ESSL contract as follows:

(i)Steel work, including procurement of materials, preparing and fabricating materials, setting-out, temporary timber bracing, drilling and coring of hold-down bolts, lifting and access hire, and engagement of riggers for installation.

(ii)Roof work, including preparation of roof steel purlin shop drawings, procurement of purlin materials, installation of structural steel cross bracing, and grouting steel column bases.

(iii)Architectural drafting services, including architectural plans for a new OFC approved floor layout.

[87]   ESSL engaged its own subcontractors for the works, including Tate Excavators, a civil and roading contractor. Bunnings Warehouse provided building materials, concrete and structural steel, and Dimond Roofing supplied purlins and girts.

[88]Payments under the ESSL contract were made by OFC as follows:

Invoice No	Date Paid	Amount Paid	Works Detailed in Invoice
201707100	20 July 2017	$419,980.00	10% deposit
201707102	21 September 2017	$20,172.50	Additional work schedule by OFC in August 2017
201707111	03 November 2017	$398,981.00	Instalment No 2 Construction services for

OFC building structure (shell/close up only)
201707117	01 February 2018	$157,956.18	Gas protection remedial works claim to 08/12/2017 – on site overheads

Total:  $997,089.68

[89]   Mr Singh said that instalment number 2 paid by OFC (a payment of $398,981) was used by ESSL to meet the costs of further works, including engineering surveying and column set-out, producing engineering shop drawings for each structural steel member, paying for structural steel fabrication, transportation to site, and a number of other tasks. The remainder was applied to ESSL's overheads and margins.

[90]   The third payment from OFC (the payment for the gas protection membrane remedial work) was applied to enable ESSL to get more steel and do more work on the site. By the time this payment was made, all moneys paid by OFC had been spent on ongoing costs.

[91]   Mr Singh said that he met  Mr Castillo  for  the  first  time  in  early  2018.  Mr Castillo initially told him that the project had been put on hold because OFC had to finalise leasing issues  with  Auckland  Council.  However,  at  a  meeting  with Mr Castillo on 14 March 2018, Mr Singh was told that OFC was under investigation by FIFA. Mr Singh said this was the first time he had heard anything about an investigation by FIFA. Mr Castillo told Mr Singh that he would be contacted by Deloitte shortly, and that he should cooperate with them until OFC was given the green light to proceed with the project. Mr Singh said that Mr Castillo did not give him any information about the nature of the investigation.

[92]   Mr Singh responded  to  each  of  the  affidavits  filed  by  Mr Castillo  and Mr Townsend. He denied any suggestion that the ESSL contract was unfairly balanced in ESSL's favour, saying that that was a matter that could have been addressed when the ESSL contract was being negotiated by OFC or reviewed by FIFA. Moreover, the ESSL contract was OFC's contract, with contractual terms largely written by OFC. The final terms of the ESSL contract also reflected reviews that FIFA undertook.

[93]   As for the funding of the stage 2 works, Mr Singh said that he understood that OFC and FIFA decided to structure the ESSL contract the way it was structured "due to OFC's funding structure, so that they could work as they go, knowing what was being spent and when more funding was required."

[94]   Mr Singh said that ESSL had to provide progress reports to Mr Turner, who he described as OFC's special projects manager. Mr Singh said that he understood that Mr Turner was responsible for confirming that ESSL had done the works, and reporting to OFC. In an email to Deloitte dated 19 April 2018, Mr Singh said that all work carried out since ESSL took possession of the site was carried out under the observation of Mr Turner, "including the PCG meetings to date and fully documented at OFC." The OFC Emergency Committee, a committee apparently empowered to make necessary decisions between scheduled OFC executive committee meetings, approved invoices. On one occasion OFC's accountant, Mr Guillemont, asked for a breakdown of ESSL's costs. Mr Singh provided OFC with the breakdown requested, on 19 December 2017.

[95]   Mr Singh said that the ESSL contract did not require costs of each particular job to be set out separately. The invoices that ESSL rendered to OFC particularised the items and work that each invoice would be used to pay. This was what OFC and FIFA indicated they wanted when the contract was set up.

[96]   Mr Singh did not regard the provision for payment of a large initial deposit by OFC as unusual. He said that the deposit was provided to cover ESSL's preliminary and general costs, site establishment, other associated costs as noted in the ESSL contract, and allowance for off-site work.

[97]   Generally, Mr Singh said that ESSL had done nothing wrong or improper. He acknowledged that he  had  had  previous  dealings  with  Mr Pillay,  but  rejected  Mr Castillo's view that those previous dealings were cause for significant concern. Mr Singh generally confirmed ESSL's involvement assisting 3D with the stage 1 works. He asserted that he was only ever a consultant to 3D, and was never an OFC representative. He acknowledged attending meetings referred to in the minutes

produced by Mr Castillo, as part of ESSL's contract with 3D to review the engineer's design work and consult on issues relating to resource consents.

[98]   Mr Singh confirmed that he declined to provide Deloitte details of ESSL's employees and subcontractors, for privacy reasons.

[99]   Mr Singh said that he did not want to provide Deloitte with ESSL's financial information, as he understood this was not required of any other contractors hired by OFC, and it was not required under the terms of the ESSL contract. He provided a copy of the ESSL contract to Deloitte, together with project references, but declined to provide further information Deloitte requested, saying that he wanted to speak to his solicitors about what should be provided.

[100]   In response to Mr Townsend's evidence, Mr Singh repeated that the ESSL contract was "OFC's contract" — largely written by OFC and approved by FIFA, and "structured to suit their funding arrangements". Mr Singh said that he understood from Mr Nicholas that OFC wanted to apply for further funding from FIFA in order to complete the internal fit-out and services, and finish the external civil works, which is why OFC did not award ESSL a complete contract for the stage 2 work. He said that OFC wanted to commence the contract and work on a month by month cashflow basis to suit their funding arrangements.

[101]   As for the amount of the ESSL contract price, Mr Singh said that, without consented plans, an estimated amount of costing was included to come up with the tender price. He understood that OFC wanted to let a contract for the structural work only, because it did not have any approved architectural building consent plans. The contract price could vary once the final plans were presented, and it was on that basis that Mr Singh submitted ESSL's tender.

[102]   Mr Singh denied that the funds received by way of deposit were "pocketed" by ESSL. He said that the payments (including the deposit) went towards costs ESSL had incurred on the variation and design works. The advance payments also went towards purchasing steel that would be needed for the structural works, preliminary and general costs as stated in the contract, and to cover overheads and margins.

[103]   Mr Singh agreed that no engineer was appointed under the ESSL contract. He said that that was OFC's responsibility, and it was not discharged (notwithstanding a request made by Mr Singh at a project control group meeting, held on 8 January 2018).

[104]   In response to Mr Townsend's point that a contractor in the position of ESSL would not normally prepare designs, Mr Singh said that Mr Nicholas approached him after the ESSL contract was signed to have ESSL draw up a new layout concept plan. Mr Nicholas told Mr Singh that OFC was unhappy with the plans presented to them by the existing architects. OFC wanted a layout concept plan done on which a new firm of architects would be invited to tender.

[105]   ESSL was also engaged to prepare structural plans and details. Mr Singh said that the serious pad level foundation defects that ESSL found when it came onto the site were serious structural defects, as the final floor height of the building would change and the structural details as shown in the consent plans would not work. He said that the engineers advised that they were too busy to look at the issue of how to tie up the pad shear reinforcement to the flooring system, so OFC and ESSL agreed that it would be most efficient for ESSL to prepare plans for how to remedy the issue, with the engineers simply reviewing and signing off on the plans or including them in their lodgement process to Auckland Council.

[106]   Mr Singh agreed with Mr Townsend that the way the ESSL contract was set up, monthly instalments did not necessarily have to be linked to the value of the work performed. The ESSL contract provided that each instalment was not to exceed 10 per cent of the total contract sum, so that payment would be provided in a staged manner. Nevertheless, in respect of each of the payment claims, ESSL set out the particulars of work done in the relevant period.

[107]   Mr Singh rejected Mr Townsend's other criticisms of the ESSL contract. ESSL asked that the due date for payment be reduced to five working days to assist its cashflow, and OFC agreed to that (although the five working day period was never adhered to in practice by OFC). Mr Singh rejected Mr Townsend's opinion that ESSL overcharged OFC for the contract work.

Reply affidavits from Mr Castillo and Mr Townsend

Mr Castillo

[108]   Mr Castillo said that aspects of the home of football project and OFC's affairs prior to 2018 remained substantially unclear. However, he maintained the view that, from the information available to date and from Deloitte's initial conclusions supporting his concerns, funds lent to OFC by FIFA for the home of football project have been misused. An enquiry by the Serious Fraud Office was said to be ongoing.

[109]   Mr Castillo said that he had reviewed the documents annexed to Mr Singh's affidavit, including the contract documents annexed to ESSL's tender submission. These documents were signed by both Mr Singh and Mr Nicholas following OFC's initial acceptance of the ESSL tender.

[110]   Mr Castillo said that Deloitte has recently located another, different, version of the contract documents that has also been signed. He produced a copy of this document, consisting of pages numbered 16 through 30. Mr Castillo noted that cl 12 of the Contract Agreement appears to have been largely taken from ESSL's "Contract Documents" that it submitted with its tender, while the structure of the "Schedule of Payments" appears to have been based upon the version of ESSL's "Contract Documents" found by Deloitte.

[111]   Mr Castillo agreed that OFC had issued one formal variation order to ESSL for variation work, and that payment for that variation work was made by OFC in accordance with the variation order (a reference to the $157,956.18 paid by OFC for the gas membrane protection remediation works). Mr Castillo produced a copy of this variation order, signed by Mr Singh and by Glenn Turner for OFC. Mr Castillo said that, to his knowledge, OFC did not issue any other variation orders to ESSL. In particular, he was not aware of any variation orders relating to the work ESSL claims to have done that is reflected in its invoices 20170721 and 20170722.

[112]   Mr Castillo produced a number of further documents located by Deloitte. These documents concerned (i) prospective property investments between Mr Singh,

Mr Nicholas and/or Mr Chung in their private capacities, and (ii) a prior connection between Mr Singh and Sataya Pillay and his companies 3D and GM Engineering.

[113]   Mr Castillo  produced  copies  of  emails  passing   between   Mr Nicholas, Mr Chung, and Mr Singh in August 2017 relating to the following investment or development properties in the Ellerslie area:

(i)375 Great South Road;

(ii)3 Gavin Street;

(iii)42 Arthur Street.

[114]   It is not necessary to set out details of the emails in full: some extracts will suffice. First, Mr Singh sent an email to Mr Nicholas on 28 August 2017 referring to a proposed investment in the property at 375 Great South Road. On 31 August 2017 Mr Nicholas emailed details of the potential investment to Mr Chung, with a copy to Mr Singh. The email said that a profit of approximately $1.43 million could be split four ways, producing $356,862 for each of four investors (who presumably would include Mr Chung, Mr Nicholas, and Mr Singh). Mr Chung responded on 31 August 2017, asking Mr Nicholas whether the $356,000 return included the proposed capital investments of $150,000 each of the investors would make. Mr Chung sent a second email to Mr Nicholas later the same day, with further comments on the proposed investment. Mr Singh had earlier expressed  certain  views  on  the  investment  to Mr Nicholas which Mr Nicholas had passed on to Mr Chung. Mr Chung made further comments on this proposed investment in an  email sent to Mr Nicholas later on     31 August 2017.

[115]   The emails relating to the proposed investment in 3 Gavin Street were similar. A real estate agent emailed details of the property to Mr Nicholas on 24 August 2017. The property consisted of a row of six properties, and was clearly an investment proposition. On 31 August 2017 Mr Nicholas sent an email to Mr Singh advising that the property was passed in at auction the previous day.

[116]   The Arthur Street property was also the subject of email communications between Mr Nicholas and Mr Singh in August 2017. A real estate agent emailed details of the property to Mr Nicholas on 24 August 2017, and Mr Nicholas forwarded the email on to Mr Singh the same day. Mr Singh sent some proposals to Mr Nicholas on 25 August 2017, and Mr Nicholas replied by email the following day, saying "How does the financing work. How much do we each put up. Exciting and its Arthur Street".

[117]   Mr Castillo went on to address alleged connections between Mr Singh and Mr Sataya Pillay and related companies. He noted Mr Singh's evidence that he had had previous dealings with Mr Pillay through Hames Sharley in 2008, and in the course of ESSL's subcontract with 3D on stage 1 of the home of football project. He noted that Mr Singh said in his affidavit that the only contract he had involving     Mr Pillay was in or around March 2013, being the contract with 3D to review the engineer's work on stage 1.

[118]   Mr Castillo produced two documents recently discovered by Deloitte, being an agreement for sale and purchase of a property at 181 Captain Springs Road, Onehunga, dated 11 April 2013, and an agreement for sale and purchase of a structural engineering and fabrication business at the same address. Both agreements had recorded the purchaser as "Shakti Singh and/or Nominee", but that was crossed out and "Three Dimension Consultants Ltd" written above it. The settlement statements referred to GM Engineering 2013 Ltd as the purchaser in both cases.

[119]   The physical addresses of "3D Consultants" and Green Turf have been stated to be 181 Captain Springs Road on those companies' websites. Mr Castillo said that the 181 Captain Springs Road address has also been the registered office of GM Engineering 2013 Ltd and GM Engineering 2014 Ltd.

[120]   Mr Castillo provided copies of certain further correspondence passing between the parties' solicitors, in which OFC's solicitors sought further documents in support of ESSL's claims. ESSL's solicitors responded on 13 September 2018 advising that in their view the documents sought were irrelevant to the matters presently in issue.

[121]   On OFC's failure to appoint an engineer under the ESSL contract, Mr Castillo acknowledged that, following Mr Nicholas' resignation, many irregularities had been identified with the home of football project. One of them was OFC's omission to appoint an engineer. On 6 September 2018 OFC appointed Mr Richard Maiden as an engineer to the contract.

[122]   Mr Castillo confirmed that OFC remains solvent and is able to pay the amount claimed by ESSL. He said that it remains willing to pay part or all of the sum claimed into Court, if the Court sees fit.

[123]   Mr Castillo produced a copy of  a  letter  dated  11 September  2018  from  Mr Maiden to Mr Singh, in which Mr Maiden expressed his opinion that the costs of suspending the works should be treated as a variation to the ESSL contract.

[124]   In a further letter to ESSL dated 17 September 2018, Mr Maiden assessed the value of the work performed by  ESSL  under  the  ESSL  contract,  at  $693,444.  Mr Maiden referred to "a complete lack of any substantiating information to give me the ability to process [ESSL's] claims in a precise manner and consequently I need substantiating information to be able to satisfy the amounts claimed". Mr Maiden said that his assessment of the value of the works was based on his own site inspection. With the letter, Mr Maiden provided a "Payment Schedule (Provisional)", certifying a figure of $693,444 for the work performed by ESSL, and referring to payments made by OFC totalling $867,034.50.

[125]   There were some further communications between Mr Singh and Mr Maiden, but no resolution was reached.

Mr Townsend

[126]   Mr Townsend provided a short affidavit in reply. Mr Townsend noted the requirement in the Contract Agreement that payment claims issued by ESSL were to be accompanied by a "progress claim form". He said that that was not a type of document he had come across before. He noted that cl 12.1.3(b) of NZS3910:2013 requires the contractor's payment claims to identify the actual extent and value of the contract works that have been carried out. Mr Townsend held to his view that the

contract terms in this case were "highly unusual and unduly favour [ESSL] over [OFC]".

[127]   Mr Townsend then said that he had completed his review of relevant documents and the work in evidence on site. He had also considered the points raised by Mr Singh in his affidavit. Mr Townsend provided an updated assessment of the value of the works completed by ESSL under the ESSL contract, at $471,213.24 plus GST. On that assessment, OFC has already overpaid ESSL by an amount in the order of $395,821.26 plus GST.

The payment claim regime under the CCA

[128]   The essential principle of the relevant provisions of the CCA is that if a principal is served with a payment claim that is valid under s 20 of the CCA and the applicable construction contract, and the principal fails to respond with a payment schedule complying with s 21 of the CCA, the principal must "pay now and argue later".3 The amount in the (valid) payment claim to which the principal has not responded becomes a debt due and payable to the contractor under s 23 of the CCA, and the debt is enforceable by way of the statutory demand process.4

[129]   The purpose of the CCA is to ensure timely cashflow in the building trade and avoid immediate engagement of substantive issues. Issues such as set-off are to be argued at a later stage and any adjustments made then. Should the principal not follow the correct procedure, it is obliged to pay in the interim what has been claimed, whatever the merits.5

[130]   Unless a valid payment claim is served, the principal has no obligation to respond with a payment schedule.6 However, the Court of Appeal made it clear in George Developments Ltd v Canam Construction Ltd that "technical quibbles" will

3      Salem Ltd v Top End Homes Ltd (2005) 18 PRNZ 122 (CA) at [11]: if a progress claim is made and the employer does not respond within the period stipulated in the construction contract or, by default, within the time specified in the CCA, the amount of the claim becomes payable forthwith.

4      Gill Construction Co Ltd v Butler [2010] 2 NZLR 229.

5      Sol Trustees Ltd v Giles Civil Ltd [2014] NZCA 539; [2015] 2 NZLR 482, at [42]-[44].

6      Jamon Construction Ltd v Bricon Asbestos Ltd [2015] NZHC 1926.

not be permitted to vitiate a payment claim that substantively complies with the requirements of the CCA.7

[131]Sections 20-23 of the CCA materially provide:

20Payment claims

(1)A payee may serve a payment claim on the payer for a payment,—

(a)if the contract provides for the matter, at the end of the relevant period that is specified in, or is determined in accordance with the terms of, the contract; or

(b)if the contract does not provide for the matter in the case of a progress payment, at the end of the relevant period referred to in section 17(2); or

(c)if the contract does not provide for the matter in the case of a single payment expressly agreed under section 14(1)(a), following the completion of all of the construction work to which the contract relates.

(2)A payment claim must—

(a)be in writing; and

(b)contain sufficient details to identify the construction contract to which the payment relates; and

(c)identify the construction work and the relevant period to which the payment relates; and

(d)state a claimed amount and the due date for payment; and

(e)indicate the manner in which the payee calculated the claimed amount; and

(f)state that it is made under this Act.

(3)A payment claim must be accompanied by—

(a)an outline of the process for responding to that claim; and

(b)an explanation of the consequences of—

(i)not responding to a payment claim; and

(ii)not paying the claimed amount, or the scheduled amount, in full (whichever is applicable).

(4)The matters referred to in subsection (3)(a) and (b) must—

7      George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 at [43].

(a)be in writing; and

(b)be in the prescribed form (if any).

21Payment schedules

(1)A payer may respond to a payment claim by providing a payment schedule to the payee.

(2)A payment schedule must—

(a)be in writing; and

(b)identify the payment claim to which it relates; and

(c)state a scheduled amount.

…

22Liability for paying claimed amount

A payer becomes liable to pay the claimed amount on the due date for the payment to which the payment claim relates if—

(a)a payee serves a payment claim on a payer; and

(b)the payer does not provide a payment schedule to the payee within—

(i)the time required by the relevant construction contract; or

(ii)if the contract  does  not  provide  for  the  matter,  20 working days after the payment claim is served.

23Consequences of not paying claimed amount where no payment schedule provided

(1)The consequences specified in subsection (2) apply if the payer—

(a)becomes liable to pay the claimed amount to the payee under section 22 as a consequence of failing to provide a payment schedule to the payee within the time allowed by section 22(b); and

(b)fails to pay the whole, or any part, of the claimed amount on or before the due date for the payment to which the payment claim relates.

(2)The consequences are that the payee—

(a)may recover from the payer, as a debt due to the payee, in any court,—

(i)the unpaid portion of the claimed amount; and

(ii)the actual and reasonable costs of recovery awarded against the payer by that court; and

…

[132]Section 79 of the CCA materially provides:

79Proceedings for recovery of debt not affected by counterclaim, set- off, or cross-demand

In any proceedings for the recovery of a debt under section 23 … the court must not give effect to any counterclaim, set-off, or cross- demand raised by any party to those proceedings other than a set-off of a liquidated amount if—

(a)judgment has been entered for that amount; or

(b)there is not in fact any dispute between the parties in relation to the claim for that amount.

Applications to set-aside statutory demands — legal principles

[133]   A statutory demand is a demand, made in accordance with s 289 of the Act, by a creditor in respect of a debt owing by a company to the creditor.8 The statutory demand must be in respect of a debt that is due and is not less than the prescribed amount (currently $1,000), and it must require the company to pay the debt, or enter into a compromise or otherwise compound with the creditor, or give a charge over its property to secured payment, to the reasonable satisfaction of the creditor, within 15 working days of the date of service of the demand.9 If a company fails to comply with a statutory demand, that failure provides prima facie proof that the company is unable to pay its debts – a ground on which the creditor may apply to put the company into liquidation.10

[134]Section 290 of the Act materially provides:

290Court may set aside statutory demand

(1)The court may, on the application of the company, set aside a statutory demand.

8      Companies Act 1993, s 289(1). Although OFC is an incorporated society under the Incorporated Societies Act 1908, ss 289-291 of the Act apply equally to incorporated societies: Incorporated Societies Act 1908, ss 25 and 26(3).

9      Section 289(2).

10 Sections 287(a) and 241(4)(a).

…

(4)The court may grant an application to set aside a statutory demand if it is satisfied that—

(a)there is a substantial dispute whether or not the debt is owing or is due; or

(b)the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c)the demand ought to be set aside on other grounds.

(5)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.

(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.

(7)An order under this section may be made subject to conditions.

[135]Section 291 of the Act materially provides:

291Additional powers of court on application to set aside statutory demand

(1)If, on the hearing of an application under section 290, the court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the court may—

(a)order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or

(b)dismiss the application and forthwith make an order under section 241(4) putting the company into liquidation,—

on the ground that the company is unable to pay its debts.

(2)For the purposes of the hearing of an application to put the company into liquidation pursuant to an order made under subsection (1)(a), the company is presumed to be unable to pay its debts if it failed to pay the debt within the specified period.

[136]   Where an applicant relies on s 290(4)(a), the onus is on the applicant to show that there is a genuine and substantial dispute as to the existence of the debt. The dispute must be real and not fanciful or insubstantial; the applicant must show a fairly arguable basis upon which it is not liable for the amount claimed. The mere assertion that a dispute exists is not sufficient.

[137]   Where an applicant relies on s 290(4)(b), the applicant must establish that any counterclaim or cross-demand is reasonably demandable in all the circumstances. The obligation is not to prove the actual claim; such an obligation would amount to the dispute itself being tried on the application.11

[138]   If an application to set aside a statutory demand is made on the basis that the debt is disputed, proof of solvency is not determinative but will support the applicant’s case that the dispute is genuine.12

OFC's grounds for setting aside the demand

[139]In his written submissions, Mr Williams advanced two principal grounds:

(i)OFC has a fairly arguable basis for challenging ESSL's payment claims, because they do not comply with the CCA in a number of substantive respects (including insufficient detail, no supporting documents, and claims not representing work to be undertaken).

(ii)There is reason to believe that the ESSL contract may have been entered into in irregular circumstances, such that the ESSL contract is not binding on OFC. ESSL's refusal to provide any evidence in support of its claims supports the "irregular circumstances" argument.

[140]   Alternatively, Mr Williams submitted that the demand should be set aside on "other", broader, grounds, based on the interests of justice, under s 290(4)(c) of the Act. He referred to the following matters:

(i)the ongoing enquiry into ESSL's role in the irregularities being investigated by OFC;

11  Howes & Ors Brookers Company and Securities Law (looseleaf ed, Brookers), at CA 290.02,  citing North Harbour Equine Hospital  Limited  v  Little  HC  Auckland  CIV-2006-404-7585, 19 February 2007.

12    AMC Construction Limited v Frews Contracting Limited [2008] NZCA 389, (2008) 19 PRNZ 13 at [7].

(ii)the opinion of Mr Townsend that the terms of the ESSL contract were highly unusual, and unduly favoured ESSL over OFC; and

(iii)the opinion of both Mr Townsend and the contract engineer that OFC has already paid ESSL substantially more than the true value of the work it has completed (before taking into account ESSL's claims under the statutory demand).

[141]   On the first ground, OFC accepted that s 290 of the Act must be interpreted with respect to the payment claim/payment schedule provisions set out in the CCA. This is the position even if at first glance there is a clear dispute over the payments.13 But while the payment claims/payment schedules regime under the CCA was designed to create a "pay now, argue later" regime, OFC says that the Court considering a summary judgment application (or application to set aside a statutory demand issued by the contractor) will pay close attention to whether or not the contractor has complied with its own obligations under the CCA. For example, in CJ Parker Construction Ltd v Ketan, the High Court held that a tax invoice provided by the contractor did not meet the requirements of s 20 of the CCA as it did not clearly indicate how the contract sum was calculated. The contractor's summary judgment application was dismissed on that basis,14 and the decision of the High Court was upheld by the Court of Appeal.15

[142]   In Jamon Construction Ltd v Bricon Asbestos Ltd, the High Court acknowledged the George Developments Ltd v Canam Construction Ltd 16 requirement that technical quibbles are not to invalidate a payment claim which substantially complies with the CCA, but noted that the Court must nevertheless be entitled to assess the likely validity of a payment claim on an application for summary judgment.17

13     GPW Investments v Dreamhome Construction Group Ltd [2017] NZHC 2057 at [20].

14     CJ Parker Construction Ltd v Ketan [2015] NZHC 2421.

15     CJ Parker Construction Ltd (In Liquidation) v Ketan [2017] NZCA 3.

16     George Developments Ltd v Canam Construction Ltd, above n 7.

17     Jamon Construction Ltd v Bricon Asbestos Ltd, above n 4, at [44].

[143]   OFC also relies on the decisions of this Court in Luxta Ltd v Paragon Builders Ltd 18 and Herbert Construction Company Ltd v Toogood.19

[144]   On the second ground, OFC relied on the judgment of Associate Judge Bell in SGL v EGL 20 for the proposition that if a contract was entered into as part of a wider fraud on a company by its former officers, the contract may be void (or at least voidable). In this case, OFC says that that would be so whether or not ESSL or its director were directly complicit.

DISCUSSION AND CONCLUSIONS

First ground for setting aside relied upon by OFC — alleged deficiencies in the payment claims under the CCA

Payment claim 1

[145]   The first payment claim is by far the largest of the claims that are the subject of the statutory demand. It claims a total sum of $365,200 plus GST, representing one-tenth of the total price payable under the ESSL contract. It is for the third listed instalment, due on 20 September 2017.

[146]   The payment claim form is in the form of a tax invoice dated 28 February 2018, with "ACCOUNT IS OVERDUE PLEASE SEND PAYMENT IMMEDIATELY" stamped on the invoice. It refers to the Schedule of Payments and Construction Work Programme constituting Appendix C to the Contract Agreement.

[147]   The invoice is stated to be a payment claim made under the CCA, and the particular construction project is sufficiently identified by reference to the ESSL contract.

[148]   The invoice states "refer to OFC Sports Complex Progress Report No 2", and it then lists a total of 17 individual items, including such matters as the production of

18     Luxta Ltd v Paragon Builders Ltd HC Wellington, CIV-2010-485-1824, 17 December 2010.

19     Herbert Construction Company Ltd v Toogood HC Napier, CIV-2010-441-283, 20 August 2010.

20     SGL v EGL [2012] NZHC 1973.

shop drawings, the procurement of steel beams, and the cost of delivery to site and stockpiling. No individual prices or rates are stated for any of the 17 items.

[149]   Payment claim number 1 deducts the 5 per cent for retentions, but no deduction is made in respect of the proportionate part of the deposit paid by OFC.

Argument for OFC on payment claim 1

[150]   Mr Potter submitted that the Contract Agreement did not simply provide for payment by lump sum instalments equal to 10 per cent of the total contract price. Rather, ESSL was required to present its claims in the form of genuine pre-estimates of the work forecast to be undertaken each month, as detailed in the Construction Work Programme. The monthly amount billable was capped at 10 per cent of the total contract price, and should have been subject to a 15 per cent deduction (reflecting a pro rata proportion of the deposit and 5 per cent for retentions).

[151]   Mr Potter submitted that it is not clear whether payment claim 1 covers work alleged to have been done, or whether the claim is in respect of work still to be done. He submitted that ESSL has failed to provide any supporting information, despite repeated requests from the day the payment claims were issued.

[152]   Mr Potter submitted that, to qualify as valid payment claims under the CCA, the payment claims had to be structured in a way that addressed the reasonable value of the work being claimed for. He submitted that OFC has been given no detail or any breakdown of hourly rates or time spent on any particular works. Similar payment claims were held to be invalid in CJ Parker Construction Ltd (In Liquidation) v Ketan.21

[153]   Mr Potter next submitted that the statutory requirement for such particulars is supported by cl 12(g) of the Contract Agreement, which required progress claims to be accompanied by a "Progress Claim Form". None of the payment claims were accompanied by anything described as or resembling a "progress claim form".

21     CJ Parker Construction Ltd (In Liquidation) v Ketan [2017] NZCA 3.

[154]   OFC's contention is that payment claim 1 cannot be said to represent work "to be undertaken" in accordance with the Construction Work Programme. The home of football project was "on hold" when the invoice was issued on 28 February 2018, and by the time the invoice was subsequently re-issued as a payment claim on 7 May 2018, work had been on hold for three months. There was no basis for ESSL to assume that further work would be required.

[155]   At the hearing, Mr Potter also submitted that payment claim 1 failed to meet the requirements of s 20(2)(d) of the CCA, which provides that the payment claim must state the due date for payment of the claimed amount.

[156]   OFC says that these are not mere "technical quibbles", and ESSL has fallen well short of the standard required by s 20 of the CCA: the invoice comprising payment claim 1 bears no relation to ESSL's entitlements under the ESSL contract, or to the payment mechanism set out in the ESSL contract, which does not comply with the CCA.

ESSL's response on payment claim 1

[157]   Mr Booth began by addressing OFC's arguments based on alleged failure by ESSL to comply with the provisions of the ESSL contract. He submitted that the formal requirements of a payment claim are set out in s 20 of the CCA, which makes no reference to any contractual requirements or other sections of the CCA. It is incorrect to suggest that contractual clauses and s 17 of the CCA have any bearing on the consideration of a payment claim's validity. Mr Booth submitted that references in s 20(1) of the CCA to the construction contract cannot be read as imposing a mandatory formal requirement. And s 17 of the CCA provides a default position for how the amount of a "progress payment" is to be calculated. It has no bearing on the formal requirements of a payment claim under s 20, and it only applies if the parties have not agreed a mechanism under the contract.22

22     Sections 14 and 15 of the Construction Contracts Act 2002.

[158]   Nor does cl 12 of NZS3910:2013 give rise to any mandatory formal requirement as to the period a payment claim can cover.23

[159]   Similarly, attempts to suggest that a "Progress Claim Form" is a mandatory requirement is a "technical quibble", of the kind the Court of Appeal in George Developments v Canam Construction said should not invalidate a payment claim. The "Progress Claim Form" is only mentioned once in cl 12(g) of the Contract Agreement, and it is not defined or included as a template form in the ESSL contract. Nor is there any established convention of a "Progress Claim Form" in the construction industry. In those circumstances, the reference to such a form in cl 12(g) could only be a reference to the form required by s 20(3) of the CCA.

[160]   Mr Booth also submitted that the fact that a payment claim might contain "all sorts of errors" will not render the payment claim invalid.24 Under the CCA, the proper response to errors in a payment claim is for the payer to provide a payment schedule within the mandatory timeframe, rejecting the claim. OFC has not done that, and it must now bear the statutory consequences.

[161]   On the s 20(2)(e) requirement that a payment claim must indicate the manner in which the payee calculated the claimed amount, Mr Booth submitted that the ESSL contract provided for a lump sum price, to be payable by instalments. A deposit was to be paid on the execution of the ESSL contract, and thereafter the contract price was to be paid by 10 instalments.

[162]   Mr Booth submitted that lump sum contracts such as the ESSL contract are well recognised in the construction industry, and such contracts may be based on predetermined amounts payable on certain dates or upon the completion of certain milestones (or indeed on any other basis the parties might agree upon). Such lump sum contracts are recognised by the CCA, which allows for instalment contracts providing for the parties to agree on the number, interval, amount and/or date of payments to be made under the construction contract.25

23     Marsden Villas Ltd v Wooding Construction Ltd [2007] 1 NZLR 807 (HC).

24     Referring to Marsden Villas Ltd v Wooding Construction Ltd, above n 23, at [32].

25     Construction Contracts Act 2002, s 14(1).

[163]   In this case, Appendix C to the Contract Agreement does not fix a set amount for each instalment, but it does provide a date by which the amount is payable. The number of instalments is set at 10, and the clause can only mean that the parties agreed for each instalment to be one-tenth of the lump sum contract price (subject to the deductions of 5 per cent for retentions and 10 per cent in respect of the deposit).

[164]   On that interpretation, payment claim 1 shows sufficient calculation and therefore complies with s 20(2)(e) of the CCA.

[165]   Mr Booth also noted that payment claim 1 was in substantially the same form as ESSL's claim for "instalment number 2", which was paid by OFC on 3 November 2017. OFC took no point about the sufficiency of the calculation provided by ESSL in its invoice for instalment number 2. If the manner of calculation was clear in ESSL's tax invoice for instalment number 2, its invoice and payment claim in respect of instalment 3 (the first payment claim) must have been equally clear.

[166]   In response to OFC's apparent reliance on the wording of Appendix C (… "represents work to be undertaken in accordance with the Construction Work Programme"), Mr Booth rejected OFC's submission that each payment claim had to be a "genuine pre-estimate of the work forecast to be undertaken each month". That could not be correct, as there would have been no need to create Appendix C if that had been the parties' intention. Reliance could have been placed on the default position under s 17 of the CCA. The more natural reading of Appendix C is that the parties intended that the work described in the applicable part of the Contract Work Programme for each month would represent approximately 10 per cent of the total value of the contract work.

[167]   OFC's argument based on alleged failure to comply with s 20(2)(d) of the CCA is met by the covering letter that accompanied the payment claims, which sufficiently stated the due date for payment.

Conclusion on payment claim 1

[168]I accept Mr Booth's submissions on this issue.

[169]   First, I am not here concerned with the propriety or otherwise of the ESSL contract from OFC's perspective. That will be a matter to be considered below, on the issues of whether the ESSL contract was void or voidable for illegality, and if not whether  there  are  other  grounds  for  setting  aside  the  statutory  demand  under   s 290(4)(c) of the Act.

[170]   There is no doubt that parties to a construction contract may contract for a lump sum for the work in question, which may be payable by instalments. The learned authors of Construction Law state:26

If a lump sum contract is an entire contract, the contractor's entitlement to payment will not (at common law) accrue until all of the contractor's works have been completed, unless the parties have agreed upon the contractor being entitled to interim payments for work performed … where a lump sum contract makes provision for incremental payments, the entitlement to such payments may be founded on any number of bases. A contract may, for example, permit the contractor to claim instalments of the lump sum based on the value of work it has performed, based on predetermined amounts that are payable on certain dates or upon the completion of certain "milestones", or indeed on any other basis the parties agree upon.

(Emphasis added.)

[171]   Section 14 of the CCA recognises the wide variety of construction contracts that may exist, and provides that the parties are free to agree on a mechanism for determining the number of payments under the contract, the interval between those payments, the amount of each of those payments, and the date when each of those payments becomes due. If the parties to the construction contract fail to agree upon a mechanism for determining any of those matters, ss 16 to 18 of the CCA will apply to the extent the parties have not reached agreement.

[172]   Section 16 of the CCA provides that a party who has agreed to carry out construction work under a construction contract has the right to progress payments, calculated in accordance with s 17 of the CAA.

Discussion and conclusions on OFC's second ground

[215]   I do not need to address Mr Potter's argument based on cl 9.2.1 of Schedule 2 to the Special Conditions of the ESSL contract in respect of any payment claims other than those arising in respect of payment claim 3. Payment claim 1 was not a claim based on a variation to the ESSL contract, and I have found in respect of the other payment claims that they were not valid payment claims under the CCA. In respect of payment claim 3, the work is said to have been authorised and instructed by OFC's project coordinator, who I take to be Mr Turner. No evidence has been provided by Mr Turner to the effect that he did not authorise the work, and I am not sure in circumstances where OFC has itself failed to provide an essential step in the variation approvals process (appointment of an engineer) that it can rely on other parts of the contractual variations regime in support of its present claim. But even if it is entitled to do that, I accept Mr Booth's submission that this was a matter to be raised in an appropriate payment schedule, and not as some separate, stand-alone, ground existing alongside but outside of the CCA payments regime. There was nothing which would have prevented OFC answering payment claim 3 with a payment schedule stating that the claim was rejected in full because of failure to comply with cl 9.2.1.

[216]   To the extent that Herbert might hold that there is nothing preventing a Court dealing with a summary judgment or statutory demand proceeding based on a payer's failure to provide a payment schedule under the CCA from enquiring into the merits of the claim, including whether or not the payee has complied with this or that provision in the construction contract, I would respectfully disagree with the learned Associate Judge. In my view, the CCA's objective of securing timely cashflow to contractors and subcontractors in the construction industry, and in particular the "sudden death" provisions of ss 22 and 23 that apply where a payer has failed to submit a payment schedule, could easily be compromised if the Court were to entertain on a

s 23 enforcement claim an argument to the effect that the money is not owing on account of some breach of the construction contract by the payee.

[217]   In my view the correct approach was summarised by Associate Judge Sargisson in GPW Investments Ltd, where Her Honour said:35

Ordinarily, a court is not entitled to interrogate the merits of a Payment Claim that has crystallised as an enforceable debt under the [CCA]. If the payer has not provided a Payment Schedule in time, the court will not (and cannot) interfere on the basis of a dispute over the amounts claimed.

[218]   I do not consider that the decisions in Luxta and Jamon assist OFC. I accept Mr Booth's submission that the decision in Luxta was whether a valid payment claim had been issued at all. Similarly, I do not think the decision of Associate Judge Matthews in Jamon went further than holding that the Court is entitled to assess, in the context of a setting aside application, whether a payment claim has been validly issued. The Associate Judge said:36

[43] … If a company does not respond to a payment claim by serving a payment schedule, and it can establish on a sound arguable basis that no valid payment claim was issued, application of the principles relating to the setting aside of statutory demands dictates that a demand based on that claim should be set aside.

[219]   Any challenge must be based on an alleged defect in the payee's compliance with the statutory requirements of the CCA, not with some additional requirements the construction contract might impose.

[220]   Similar considerations apply to OFC's argument based on alleged failure by ESSL to comply with cl 12.1.3(b)(i), although in my view payment claim 1 did sufficiently show the manner in which the claim had been calculated. In the particular context of this case, payment claim 1 was a claim for a "deemed value" of one-tenth of the total contract price, for work identified in the relevant part of the Construction Work Programme. Payment claim 1 did in my view sufficiently describe the extent and value of the work carried out.

35     GPW Investments Ltd v Dreamhome Construction Group Ltd, above n 13, at [30].

36     Jamon Construction Ltd v Bricon Asbestos Ltd, above no 6, at [43].

[221]   For the foregoing reasons, OFC has failed to show that there is a genuine and substantial dispute under s 290(4)(a) of the Act.

Third ground relied upon by OFC — statutory demand should be set aside on other grounds (s 290(4)(c) of the Act)

Submissions for OFC

[222]   In his written submissions, Mr Williams referred to the decision of this Court in SGL v EGL, where the applicant to set aside the relevant statutory demand satisfied the Court that the respondent had bribed its employees in order to obtain the contract under which payment was demanded.37 The submission was made that SGL can be applied in this case: if the contract was entered into as part of a wider fraud on OFC by its former officers, the contract may be void (or at least voidable).   However,   Mr Williams did not rely specifically on SGL v EGL at the hearing, and he acknowledged that in this case there is no evidence that any of the parties accepted a bribe.

[223]   Mr Williams also acknowledged at the hearing that OFC does not (at least at this stage) have  evidence  of  other criminal  wrongdoing on the  part of ESSL or  Mr Singh. The main argument, as developed at the hearing, was that the joint property investment activities in which Mr Singh was apparently involved with Messrs Nicholas and Chung in August 2017 put Messrs Chung and Nicholas, as officers of OFC, in a clear conflict of interest position, and thus in breach of their fiduciary obligations owed to OFC. Mr Singh was clearly aware of that situation, and would have been either a knowing assister of their breaches of fiduciary duty, or guilty of knowing receipt. That is substantially how the argument was put at the hearing, and Mr Williams submitted that at very least the circumstances were sufficient to constitute "other grounds" on which the statutory demand should be set aside under  s 290(4)(c).

[224]   Mr Williams submitted that the Court's discretion under s 290(4)(c) is extremely wide.38 He relied on Mr Singh's close connections to the main contractors

37     SGL v EGL, above n 20.

38     Referring to Jamon Construction Ltd v Bricon Asbestos Ltd, above n 6.

(3D, Green Turf, and GM Engineering), and the evidence relating to the purchase of the properties and the business at Captain Springs Road. Mr Williams also referred to the evidence of Mr Townsend — in his view ESSL has been overpaid by approximately $395,000 on the work done under the contract.

[225]   Mr Williams indicated that OFC's concern is that there was or may have been tender fraud involved. As he put it, all three companies are inter-related, used interchangeably, without regard to corporate form. Mr Williams drew attention to  Mr Singh's failure to disclose in his affidavit the full extent of his relationships with Mr Pillay, Mr Nicholas, and Mr Chung (as illustrated by the transactions relating to the property and business at Captain Springs Road).

[226]   Mr Williams also referred to the minutes of a project  meeting convened on 15 March 2013, which suggested that Mr Singh had attended as a representative of OFC. He referred to the "very informal friendly relationship" between Mr Nicholas and Mr Singh.

[227]   Mr Williams then referred to ESSL's refusal on a number of occasions to provide information requested, whether by Deloitte or by the contract engineer appointed in September 2018, Mr Maiden.

[228]   Generally, Mr Williams submitted that the case is an unusual one in a number of respects. It should not be regarded as a commercial dispute given that OFC is a not-for-profit organisation, and the circumstances show that OFC has raised a reasonable case of knowing assistance by ESSL in apparent breaches of fiduciary duty by Mr Nicholas and/or Mr Chung.

Submissions for ESSL

[229]   Mr Booth submitted that Mr Singh has sufficiently answered the matters relied upon by OFC in support of its application under s 290(4)(c). There is no evidence of involvement by ESSL or Mr Singh in any bribery or other corrupt activities associated with the home of football project, and the mere suggestion that a contract has been tainted by a party's conduct, without further evidence, is insufficient to raise a case of illegality. Mr Booth submitted that OFC's allegations amount to pure conjecture, and

do not raise any substantial or genuine dispute, or provide other grounds for setting aside the statutory demand.

[230]   In answer to Deloitte's "red flags" referred to by Mr Castillo, Mr Booth submitted that there is nothing in the allegations relating to ESSL's lack of commercial office premises or a website. It is a small company which operates by word of mouth referrals, and it has no need for a website. Although ESSL may be small, Mr Singh's evidence shows that he has extensive experience on a number of key engineering projects.

[231]   As for the contention that the nature of the ESSL contract itself was unfairly tilted in ESSL's favour, Mr Booth pointed to the period of some months between March 2017 and July 2017 when the ESSL contract was under scrutiny by both OFC and FIFA (including FIFA's legal department). He referred to Mr Singh's evidence that the contract as eventually signed was mostly prepared by OFC. The payment regime provided for in the ESSL contract was the subject of scrutiny by FIFA, and it apparently suited OFC's purposes to proceed with the payment arrangements as they were written. The deposit was not unusual, and was intended to cover ESSL's preliminary and general costs, site establishment, and other associated costs. The deposit was approved by both OFC and FIFA.

[232]   In respect of the property investment dealings considered by Messrs Nicholas, Chung, and Singh in August 2017, Mr Booth noted that they occurred after the contract was signed, and accordingly could not affect its validity. Any suggestion that the "full picture" might show that the ESSL contract was "procured in questionable circumstances" is unsubstantiated.

[233]   Mr Singh has sufficiently explained his  previous  business  dealings  with  Mr Pillay. Mr Castillo's second affidavit raised new matters regarding the purchase of the property and business at Captain Springs Road, which occurred in the early stages of the home of football project. That evidence was not strictly evidence in reply, and ESSL has not had the opportunity to respond to it. Nevertheless, the evidence does not suggest any improper link to Mr Pillay, or any wrongdoing.

[234]   Mr Booth submitted that ESSL has provided valuable work on the home of football project, including undertaking extensive remedial works without imposing time extension costs on OFC. The fact that OFC's experts might consider the value of the actual work done to be lower than that contemplated by the agreed payment schedule is irrelevant — the contract is enforceable according to its terms. Further, OFC has itself expressly affirmed the ESSL contract since making the present application, by appointing an engineer to the contract. It subsequently purported to cancel the ESSL contract, but its actions in both respects are inconsistent with any allegation of invalidity. Mr Booth submitted that it would be unjust to allow OFC to suspend payment pending completion of its investigation. ESSL should not be left out of pocket indefinitely, and any residual dispute can and should be dealt with by way of arbitration.

Discussion and conclusions on OFC's third ground

[235]   The meaning of "other grounds" in s 290(4)(c) was considered by Tipping J in Commissioner of Inland Revenue v Chester Trustee Services Ltd, where the learned Judge noted that all cases involving s 290(4)(c) came down to a Court's judgment as to whether the creditor's prima facie entitlement to liquidate the company is outweighed by some factor making it plainly unjust for liquidation to ensue. The ground advanced by the insolvent company must be sufficiently compelling to overcome the general policy of the Act with regard to insolvent companies.39 Ultimately, it appears that the s 290(4)(c) jurisdiction is designed to cover any situation where "substantial injustice" would be caused if the demand were not set aside.40

[236]   I accept that the Court's discretion under s 290(4)(c) to set aside a statutory demand on "other grounds" is a very broad discretion. However, I am not prepared to exercise the discretion in this case. While OFC has raised certain suspicions that there may have been fraudulent and/or collusive tendering by the main contractors (including ESSL on stage 2),  or  knowing  assistance  by  ESSL  in  breaches  by  Mr Nicholas and/or Mr Chung of their fiduciary obligations owed to OFC, it seems to

39     Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395; 9 NZCLC 263, 016 (CA), at [3].

40     Pioneer Insurance Company Ltd v White Heron  Motor Lodge Ltd  [2008] NZCA 450; (2008) 19 PRNZ 286.

me that the position advanced by OFC is effectively saying "we do not yet have grounds for a "substantial dispute" on these bases for the purposes of s 290(4)(a), but if we are given sufficient time to pursue further investigations we may be able to find such grounds." In that regard, I note that the PriceWaterhouseCoopers audit investigation began in 2017, and Mr Nicholas resigned from OFC in December 2017. The application to set aside the statutory demand was not heard for approximately one year after Mr Nicholas' resignation, and I do not consider that it would be a proper use of the s 290(4)(c) discretion to require ESSL, as payee under a construction contract, to wait indefinitely until OFC and the other investigating parties have completed their investigations.

[237]   I accept that OFC has shown that there were a number of connections between 3D, Green Turf, and GM Engineering, and that Mr Singh was closely associated with Mr Pillay (and had been since 2008), but I do not consider that the closeness of those relationships would justify delaying payment to ESSL on the basis of what is still at this stage no more than suspicion or conjecture. I note in that regard that there does not appear to be any allegation that Mr Nicholas or Mr Chung was involved in the April 2013 transactions relating to the property and business at 181 Captain Springs Road, and nor is there evidence that the transactions support the view that there was or might have been fraudulent tendering on the home of football project, to which ESSL was a party.

[238]   Nor can Mr Singh's refusal to provide information to Deloitte or Mr Maiden in 2018 elevate the matter to one where some arguable case against ESSL has been shown which would justify indefinite further delay. Mr Singh was entitled to take the view (at least on payment claim 1) that OFC was not entitled to call for further information before it paid ESSL, and I think he was entitled to sit on that position, particularly where Deloitte's enquiries seemed unlikely to result in any early settlement of ESSL's claims.

[239]   Mr Williams referred to the minutes of a March 2013 meeting that recorded Mr Singh's attendance as an OFC representative, but Mr Singh denies that he ever attended meetings in that capacity. There is insufficient information to conclude that the minutes will or might assist OFC's case.

[240]   OFC was on stronger ground when it referred to the apparent property investment joint venture between Mr Nicholas, Mr Chung, and Mr Singh. However, the effective commitment to ESSL for the stage 2 work appears to have been given by OFC and FIFA as early as 3 April 2017, when Mr Nicholas wrote to Mr Singh advising that FIFA had approved the funding "and for your company to have the contract". There is no evidence at this stage to show that the joint property investments discussed four months later in August 2017 affected the letting of the ESSL contract to ESSL, or in any way rendered that contract invalid.

[241]   As for what OFC says is the unusual form of the ESSL contract (allegedly biased in favour of ESSL), it appears that the contract was discussed and reviewed with FIFA's development and legal departments over several months between April 2017 and 17 July 2017, when it was signed. FIFA expressly noted the provision for the upfront payment of the deposit, but elected to proceed in any event. No reply evidence was provided to suggest that FIFA was not fully aware of the contents of the ESSL contract, notwithstanding that the tenor of Mr Singh's evidence in opposition was to that effect.

[242]   There was no explanation for the absence of direct evidence from those who have been conducting the investigations (Deloitte), although I accept that there would have been time constraints for OFC in getting its affidavit evidence in promptly which may have made it difficult to obtain that evidence. Mr Turner did not give evidence, and as far as I can see ESSL progress reports (of the kind referred to by ESSL in payment claim 1) have not been produced.

[243]   Having regard to all of those considerations, I decline to exercise my discretion under s 290(4)(c) to set aside the statutory demand on the basis of the "other grounds" relied upon by OFC.

The parties' solvency

[244]   OFC contends that it is solvent, and that the use of the statutory demand procedure is inappropriate in such circumstances.

[245]   Mr Castillo produced copies of OFC's audited accounts to 31 December 2016. No subsequent financial statements were provided, but Mr Castillo did give evidence that, as at July 2018, OFC held substantial deposits (in the order of NZ$5 million). No up-to-date evidence has been provided as to OFC's liabilities, which would presumably have included an advance of $10 million by FIFA for the home of football project. Approximately $17 million has been spent on the project, and stage 2 is apparently still some distance from completion.

[246]   It appears that OFC's revenue is substantially comprised of grants from FIFA, but the April 2018 New York Times article produced by Mr Castillo reported that FIFA had suspended its financial support to OFC because of the issues raised by the PriceWaterhouse review.

[247]   Quite apart from those facts, the Court of Appeal has said that cases in which an applicant's solvency might constitute a stand-alone ground for setting aside a statutory demand are likely to be extremely rare. If a debt is indisputably owing, it should be paid.41

[248]   Having regard to the combination of factors referred to above, I am not satisfied that it has been sufficiently shown that this is one of the rare cases where a statutory demand should be set aside because of the applicant's claimed solvency (whether on that basis alone or considered with OFC's other arguments).

[249]   An issue also arises as to the solvency of ESSL. That is because OFC is concerned that if it is required to pay the amount demanded to ESSL, ESSL might not be in a financial position to repay if it later transpires (at arbitration or in an appropriate Court proceeding) that ESSL was not entitled to the money.

[250]   Possible insolvency of the respondent to a setting aside application was considered by Associate Judge Bell in Kariiti Ltd v Donovan Drainage & Earthmoving Ltd.42 The Associate Judge noted that, if the payee is in substantially the same financial position as it was when the payer chose to engage it under the construction

41     AMC Construction Ltd v Frews Contracting Ltd (2008) 19 PRNZ 13.

42     Kariiti Ltd v Donovan Drainage & Earthmoving Ltd HC Auckland CIV-2010-488-000613.

contract, the payer can hardly complain about the risk of non-payment, because that is a risk the payer took when it entered into the contract with the payee. Similarly, if a payee's weakened financial position is attributable to a significant degree to the payer's failure to pay sums due under ss 23, 24 or 59 of the CCA, that is not a good reason for relieving the payer of its obligation to pay.43

[251]   Associate Judge Bell concluded in Kariiti that for the payer to persuade the Court that it ought to be relieved from enforcement of its obligations under ss 23, 24 and 59 of the CCA because of the risk that the payee will not be able to repay, it needs to establish:44

(a)That there is a high degree of likelihood that the payee will not be able to repay if a determination after a dispute resolution procedure goes in the payer's favour; and

(b)That it has a good arguable case that it will succeed under the dispute resolution procedure.

[252]   In this case, I do not think there is sufficient evidence of ESSL's financial position to satisfy the "high degree of likelihood" threshold applied in Kariiti, and if ESSL's position has been worsened by OFC's failure to pay the moneys which I consider should have been paid to ESSL, that is not something on which OFC is entitled to rely.

[253]   Clearly each case will be considered on its own facts, and as the Associate Judge noted in Kariiti if it is "blindingly obvious" that the payer must succeed in the dispute resolution procedure there will be less need to prove the risk of non-payment by the payee.45 But when a payer does not adequately address both the risk of non-payment and the strength of its case, then it is hardly likely to get interim relief against non-payment under ss 23, 24 and 59.46 In this case, I am of the view that OFC has not sufficiently addressed either the risk of non-payment, or the strength of its case when the issues are ultimately determined, to justify me directing that the amount for which OFC is liable should be paid into Court, or held in trust pending resolution of the substantial disputes. As to the strength of its case, OFC acknowledges that ESSL

43 At [13].

44 At [17].

45 At [19].

46 At [21].

has carried out some valuable work on the site, and it appears that it has attended to remedial work valued by the parties at not less than $157,000. And OFC's case on the s 290(4)(c) issue does not go beyond conjecture at this point. I note also that if it is eventually established that ESSL was a party to a fraud on OFC, it seems likely that Mr Singh, as the prime mover in ESSL, would also be liable. If that were the case, OFC would not be left with an empty claim against the company alone.

[254]   For those reasons, I make no orders based on the solvency or insolvency of either party.

ESSL's request for an order under s 291 of the Act

[255]   In its notice of opposition, ESSL asked for an order under s 291 of the Act that OFC pay the debt within five working days, in default of which ESSL may make an application to put OFC into liquidation. I accept that an order under s 291 is appropriate, but in my view the appropriate period is 10 working days, not five. I order under s 291(1) of the Act that if OFC does not pay the sum of $411,918.50 (the total of payment claims 1 and 3) to ESSL within 10 working days of the date of this judgment, ESSL may make an application to put OFC into liquidation.

Result

[256]I make the following orders:

(1)The statutory demand is upheld in the sum of $411,918.50, and set aside as to the balance demanded.

(2)If OFC  does  not  pay  the  sum  of  $411,918.50  to  ESSL  within  10 working days of the date of this judgment, ESSL may make an application to put OFC into liquidation.

(3)If the parties are unable to agree on costs, ESSL may file a memorandum setting out any costs claim within 15 working days. OFC may file any memorandum in response within 10 working days after

service of ESSL's memorandum. I will deal with costs on the papers on receipt of counsel's memoranda.

Associate Judge Smith