Oropi Park Limited v Bethlehem Heights Limited HC Tauranga CIV 2010-470-4

[2010] NZHC 279

IN THE HIGH COURT OF NEW ZEALAND

TAURANGA REGISTRY

CIV 2010-470-000004

BETWEEN  OROPI PARK LIMITED

Applicant

ANDBETHLEHEM HEIGHTS LTD Respondent

Hearing:         24 February 2010 (Heard at Rotorua)

Appearances:  G Brittian for the Applicant

J O'Brien for the Respondent

Judgment:      24 February 2010

ORAL JUDGMENT OF

ASSOCIATE JUDGE CHRISTIANSEN

Counsel:

G Brittain, Barrister, Tauranga – [email protected]

J O’Brien, Ronayne Hollister-Jones Lellman, Tauranga – j.o’[email protected]

OROPI PARK LIMITED V BETHLEHEM HEIGHTS LTD HC TAU CIV 2010-470-000004  24 February 2010

[1]      This is an application to  set  aside  a  statutory  demand.  It  is  based  on  a

judgment debt.  Oropi claims a right to pursue claims identified by its counterclaim

in the District Court proceedings file.   Judge Moore and Justice Wylie rejected the right to set-off in the particular circumstances of the case.

[2]      They held the set-off was precluded by the construction contract and by the terms of the settlement agreement.  By the contract because it precluded the right to withhold the final payment and by the settlement agreement because no proper claim was paid from the retention funds and because the process for authorising payments for those funds have not been followed.

[3]      Both Judges said it was not shown, i.e. not proved there were defects which

A & R were responsible for. Respectfully I agree with those findings. Oropi says that beyond the constraints of the contract and the settlement agreement it has got an arguable case  for  its  claims. It appears by Oropi’s application  for  stay  that  the judgment debt is not challenged and Oropi wishes to set aside the statutory demand

in order to avoid liquidation so it can pursue its claim against A & R independently. They say they are not able to do this if they were placed into liquidation.

[4]      I accept the submission from Ms O’Brien it is apparent from the accounts that this  debt  apart,  Oropi  appears  unable  to  pursue  those  claims  without  funding  or assistance from a third party.

[5]      The claims of Oropi are encapsulated in the statement of defence and counterclaim  which was  filed in the Tauranga District Court. That document was not filed however until after Judge Moore had heard the summary judgment claim.

It was filed before the matter was heard by Judge Moore Wylie.  I do not recall any reference in Justice Wylie’s decision to the statement of defence and counterclaim, but it was attached in the bundle of documents filed for the appeal.

[6]      From Oropi’s point of view its counterclaim remains alive. It is that claim which Oropi promises to pursue with all due diligence if the statutory demand is set aside.

[7]      There appears no reason why it should not be able to do so in the context of the proceedings already filed.  A judgment upon a summary judgment claim usually extinguishers the primary proceeding but not necessarily so if the counterclaim is not thereby also substantially dealt with.

[8]      As I earlier noted the counterclaim was ruled out because of the inadequacy

of  proof  offered  in  support  and  because  it  was  otherwise  precluded  for  summary judgment purposes over terms the parties’ contract in their agreement.

[9]      I do not consider any question of issue of astoppel arises from that situation. As Wylie J noted at paragraph 65 of his decision:

“... if the claims Oropi is making amount to a counterclaim, or if they are a set-off but set-off has been excluded by the contract, then A & R is entitled

to summary judgment and Oropi must be  left to pursue its cross-claims in

subsequent proceedings.”

[10]     Plainly  at  this  time  Oropi  wants  the  opportunity  to  advance  its  claims.   I interpolate from Judge Moore’s reference to voluminous files that he must have seen pretty much the best that Oropi was able to offer as evidence of claims of defective workmanship.   As  his  judgment  makes  plain  he  was  very far  from  convinced  that there was sufficient proof of A  & R’s negligence or breach of  contract  and in my view Wylie J supported that view.  In paragraph 46 of his judgment Wylie J states:

“There  is  nothing  in  the  papers  ‘showing’  that  any  of  the  alleged  defects were  caused  by  A  &  R. The  most  Mr  Brittain  could  point  to  was  an engineer’s report prepared at the request of the third party purchaser of two of the lots – lots 6 and 7.  That report simply recorded that the engineers had visited lots 6 and 7 to inspect organic fill which had been uncovered.   The engineers expressed the opinion that the material should have been removed, and  replaced  with  compacted  structural  fill. That  report  does  not  go anywhere near ‘showing’ that such defect as existed was caused by A & R.

Still less does it establish that A & R had breached the construction contract.

Further, it is clear that once the defect was discovered, it was not referred to

A & R.  Nor were defects discovered on other lots.”

[11]     So  what  other  evidence  is  there? Mr  Brittain was at pains  before  me  this morning to explain that it could not have been caused by any other than A & R.  But

it seems to me that the position today is no different than it was when it was dealt with by Judge Moore and Wylie  J  and  their  comments,  made  independent  of

contractual and settlement considerations make clear their assessment of the lack of the quality of any evidence at all to link negligence to A & R.

[12]     So if the claim is allowed to be pursued, and indeed it was quite clear from my  discussions  with  Mr  Brittain,  that  likely  there  will  be  considerable  expense needed to further investigate to determine the extent of the damage which Oropi says has been slowly emerging over time.   There will be delays caused by the need for further investigation and the costs of it are likely to be high because of the need to involve professional advisers.

[13]     The assertion of negligence quite clearly is not as plain as is claimed.   Both

Judges made that clear.   Mr Robinson the overseeing engineer reported as at April

2008 no allegation of negligence had been made by Oropi.  Yet, Oropi asserts that it has had to meanwhile meet significant claims totalling $67,000 by itself or through others to repair negligent work.

[14]     Whilst Oropi wants to pursue those claims it is questionable whether it really has the funds to do this.  Oropi claims it is insolvent but for the debt due to A & R.

I disagree with that claim.

[15]     The financial accounts offered as proof of solvency can rightly be subject to criticism. They do not  appear  to  be  certified  by  a  chartered  accountant. No individual  is  identified  as  being  responsible  for  their  preparation. They  have  not been  audited  or  reviewed,  they  show  no  income  being  received,  and  they  do  not show, where they should, reference to A & R’s debt.  A major asset is a loan from a related  company  but  no  interest  is  being  paid  on  that  loan.   There  is  no  accurate figure of the IRD debt except it is about equal to the amount of the company’s only asset.  No  reference  with  respect  of  the  IRD  debt  identifies  any  component  of penalties or interest content.

[16]     In  the  view  of  Mr  Erskine-Shaw  a  Rotorua  chartered  accountant  albeit  the accountant for A & R, Oropi is insolvent.  That with respect is plainly clear from the accounts that have been produced to this Court.

[17]     The counterclaim details claims for negligent work and has given details of repair costs totalling $67,118.89.  It says that it has paid this to repair defective work. Incidentally that  work  was  carried  out  during  the  period  when  the  retention  funds could have been applied  to meet the claims where it was shown to be proved that A & R were responsible but no such claim was made.   A & R were not alerted to those costs at that time.

[18]     As  I  mentioned  to  counsel  in  cases  when  dealing  with  applications  to  set aside, the Court needs to balance the interest of the parties.  In clear cases where the evidence discloses an arguable case to challenge the claim of a debt due, the Court usually  sets  the  statutory  demand  aside.  Likewise  if  the  debtor  is  solvent  in particular because it is able to pay its debts as they fall due, a Court will usually be hesitant  before  allowing  the  matter  to  proceed  to  a  liquidation  hearing.   There  are other  situations  where  the  Court  will  set  aside  a  statutory  demand  if  the  situation warrants it.

[19]     This is one such of those other situation cases.  My attention has been drawn

by Mr Brittain to the authorities of Edge Computers Limited v Colonial Enterprises Limited (1996) 9 PRNZ 621 and Morph Enterprises Limited v Marple Investments Limited, Wellington High Court, Gendall AJ, 30.11.05, CIV 2005-485-1574. In the first of those cases the Court of Appeal stayed a liquidation application because it considered there were real issues between the parties awaiting resolution in the District Court. The Court of Appeal held that the winding up proceeding should not

be used as a means of preventing that claim from being determined and likewise in Morph  the  High  Court  held  that  liquidation  is  unjust  when  there  were  real  issues between the parties outstanding.

[20]     The existence of real issues is obviously a matter of enquiry in the particular case. In my judgment they are not present in this. As I earlier observed at a time when you would have expected Oropi to give  its  best  shot  namely in  the  District Court and in the High Court, the strength of its case was firmly rejected and not only

by reference to the  contract and  the settlement agreement. It  appears that there is nothing else about which can indicate  that those  views are  wrong and if the counterclaim is to be pursued as I earlier  stated,  considerable  costs  lie  ahead  in

advance of the trial.   The costs of a trial in a case like this would in my assessment exceed  the  amount  of  the  judgment  debt  and  indeed  the  amount  of  the  identified Oropi claims.   Also the preferred evidence is that Oropi is insolvent and could not without borrowing afford to meet the costs ahead.  I earlier referred to the balance in the parties’ claims.   In my judgment the balance clearly favours A & R who ought not any longer be denied access to the process available to it to recover its debt.

[21]     The application is dismissed.   Oropi has until 4:00pm next Friday, 3 March

2010 to comply with the statutory demand.

[22]     The  costs  are  to  be  paid  to  the  respondent  on  a  2B  basis  together  with disbursements as fixed by the Registrar.

Associate Judge Christiansen