Pinnacle Steele Limited v Design engineering (Si) Limited - [2016] NZHC 388

IN THE HIGH COURT OF NEW ZEALAND

DUNEDIN REGISTRY

CIV-2015-412-000140

[2016] NZHC 388

UNDER the Companies Act 1993

IN THE MATTER

of an application under s 290 Companies Act 1993 to set aside a statutory demand

BETWEEN

PINNACLE STEEL LIMITED

Applicant

AND

DESIGN ENGINEERING (S.I.) LIMITED

Respondent

Hearing: 3 March 2016

Appearances:

L A Andersen for Applicant C O'Connor for Respondent

Judgment:

9 March 2016

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1] Pinnacle Steel Limited (Pinnacle) is a steel fabricator. Design Engineering (S.I.) Limited (Design Engineering) prepares designs and shop drawings for steel structures, and undertakes weld testing. In 2015 Pinnacle engaged Design Engineering to prepare drawings for steel structures it was to supply under a contract with Naylor Love and a separate contract with Calder Stewart. It also engaged Design Engineering to undertake weld testing in relation to the same contracts. Pinnacle says that drawings provided by Design Engineering were both late and inaccurate, resulting in Pinnacle having to remake various assemblies it was to provide to the head contractors. As a result it has not paid Design Engineering in full. On 24 November 2015, Design Engineering issued a notice to Pinnacle under s 289 of the Companies Act 1993 demanding payment of $87,145.97. Pinnacle now applies under s 290 to set

PINNACLE STEEL LTD v DESIGN ENGINEERING (S.I.) LIMITD [2016] NZHC 388 [9 March 2016]

that demand aside. It says there is a substantial dispute on whether the sum claimed is owing, and that this dispute was identified prior to the demand being issued.

[2] Design Engineering denies that there is a dispute. It says that an earlier dispute was settled and the sum now claimed is the sum which Pinnacle agreed to pay pursuant to that settlement.

Legal principles

[3]Section 289 of the Companies Act provides:

289 Statutory demand

(1) A statutory demand is a demand by a creditor in respect of a debt owing by a company made in accordance with this section.

(2) A statutory demand must—
(a)be in respect of a debt that is due and is not less than the prescribed amount; and
(b)be in writing; and
(c)be served on the company; and
(d)require the company to pay the debt, or enter into a compromise under Part 14, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within 15 working days of the date of service, or such longer period as the Court may order.

[4] The statutory purpose of a demand under s 289 is to lay an evidentiary foundation for an application to the Court to appoint a liquidator under s 241. One of the grounds for an appointment is that the company in question is unable to pay its debts. Under s 287 a company is presumed to be unable to pay its debts if it fails to comply with a demand under s 289. Thus, whilst demands under s 289 are commonly issued…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2016] NZHC 388
Decision Date: 9 March 2016

CaseChat Overview and Summary

Pinnacle Steel Limited (Pinnacle) is a steel fabricator and Design Engineering (S.I.) Limited (Design Engineering) is a design and weld testing company. Pinnacle engaged Design Engineering to prepare drawings and undertake weld testing for steel structures it was supplying to Naylor Love and Calder Stewart. Pinnacle claims that Design Engineering provided inaccurate drawings and late services, resulting in Pinnacle having to remake various assemblies. It also claims that Design Engineering is liable to it for the new claim by Naylor Love for additional costs for scaffolding and propping. Design Engineering denies that there is a dispute and asserts that the sum owed is pursuant to a settlement agreement. Pinnacle applied to set aside the statutory demand issued by Design Engineering under s 290 of the Companies Act 1993, on the basis that there is a substantial dispute over whether the sum claimed is owing.

The Court was required to determine whether there was a substantial dispute on whether the sum claimed is owing, and if so, whether this dispute was identified prior to the demand being issued. The Court also had to decide whether Design Engineering acted improperly in issuing the statutory demand. The Court noted that statutory demands are not to be issued unless there are sound grounds for believing that there is no dispute of substance, and no qualifying claim or set-off available to the alleged debtor. The Court also noted that it is not the task of the Court to resolve the dispute, but rather to determine whether there is a genuine and substantial dispute.

The Court found that there was a substantial dispute on whether the sum claimed is owing. While Pinnacle is liable to pay Design Engineering under the settlement agreement, Design Engineering may be liable to Pinnacle under its original contract for further damages resulting from non-performance in relation to the Naylor Love contract. The Court also found that Design Engineering did not act improperly in issuing the statutory demand, as its error arose from a failure to recognise that in invoking s 290 of the Companies Act, it was also subject to s 290 of the Act.

The statutory demand issued by Design Engineering on 24 November 2015 is set aside. Design Engineering is ordered to pay costs to Pinnacle on a 2B basis together with disbursements fixed by the Registrar.

Orders