Point to Point Holdings v Colslarder Limited

[2016] NZHC 1420

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-000836 [2016] NZHC 1420

BETWEEN

POINT TO POINT HOLDINGS

Plaintiff

AND

COLSLARDER LIMITED Defendant

Hearing:	23 June 2016
Appearances:	S M Thompson for Plaintiff J Schlooz for Defendant
Judgment:	27 June 2016

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

This judgment was delivered by me at 4.00 pm on 27  June 2016 pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Bell Associates, Auckland

Paddy Orr & Co, Auckland

POINT TO POINT HOLDINGS v COLSLARDER LIMITED [2016] NZHC 1420 [27 June 2016]

[1]      The  plaintiff,  Point  to  Point  Holdings  (PPH)  is  a  construction  company operating  in Auckland.    The  defendant,  Colslarder  Limited  trading  as  Cheldan Painters (Cheldan), is a painting company.  On 8 April 2016 Cheldan served on PPH a demand issued under s 289 of the Companies Act 1993 in respect of the sum of

$36,891.20  said  to  be  due  and  owing  by PPH  to  Cheldan  on  four  enumerated invoices.   PPH applies for an order under s 290 setting aside this demand.   The invoices relate to painting carried out on properties under development by PPH. PPH says that the work in respect of which it has been invoiced  has not been completed and is not satisfactory, and therefore the invoices are not due and owing. It also says that as Cheldan has not remedied unsatisfactory work it is now in the process of engaging a different painting contractor to repaint the faulty areas of paintwork and it has a counterclaim against Cheldan for this expense which will exceed the sum claimed on the invoices.

[2]      The statutory purpose of a demand under s 289 of the Companies Act 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.

[3]      Section 290 of the Companies Act provides that the Court may set aside a statutory demand on the application of the company against which it is issued.  The application must be made within 10 working days of service of the demand, and served on the creditor who issued the demand within the same time.  No extension of these time limits can be given.  The application may be granted on certain grounds, the first of which is that there is a substantial dispute over whether or not the debt is owing or is due.  PPH relies on this ground.  It also relies on the second, namely that the demand ought to be set aside as PPH has a counterclaim and set-off.

[4]      The Court of Appeal has laid down the way in which the Court is to approach an application under s 290:1

[24]   We note that the statutory scheme is for applications to set aside statutory demands to be a summary proceeding.  ...  The section calls for a

1      Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413 (citations omitted).

prompt judgment as to whether there is a genuine and substantial dispute.  It is not the task of the Court to resolve the dispute.  The test may be compared with  the  principles  developed  in  cognate  fields  such  as  applications  to remove  caveats, leave to appeal  an  arbitrator’s award  and  opposition to summary judgment.

[25]  ...  The tight time constraints distinguish the s 290 discretion from that to be exercised on, say, a summary judgment application, where the presence of complex legal issues is not necessarily a bar to a remedy. As with leave to appeal an arbitrator’s award, the hearing should, in the normal course, be short and to the point, and the judgment likewise.

[5]      Recently the Court of Appeal observed:2

[22]   It is important to keep in mind the words of the statute.   What the applicant must show is that the dispute it raises has substance; the applicant must explain to the court what the dispute is; and the dispute so shown must be real and not a fanciful or insubstantial dispute.  The Court must bear in mind that it is operating in the summary jurisdiction, with the accompanying disadvantages that brings for any applicant.   The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.

[6]      Evidence in this case is given by affidavit.  As a general rule the Court will not determine genuine conflicts of evidence given in this way.  However, the general rule does not always apply.  In Attorney-General v Rakiura Holdings Ltd, the Court said:3

In a matter such as this it would not be normal for a judge to attempt to resolve any conflicts in evidence contained in affidavits or to assess the credibility or plausibility of averments in them.  On the other hand, in the words Lord Diplock in Eng Mee Yong v Letchumanan [1980] AC 331, at

341 E, the Judge is not bound:

to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with  undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.

[7]      Cheldan did not contend that any of the invoices to which the demand relates was a payment claim in terms of s 20 of the Construction Contracts Act 2002, nor, as an observation made without argument from counsel, do they appear to satisfy the requirements of s 20(2)(e) as they do not set out any information on how Cheldan

calculated the sum claimed in each invoice.

2      AAI  Ltd  v  92  Lichfield  Street  Ltd  (in  receivership  &  liquidation)  [2015] NZCA 559 per

Winkelmann J.

3      Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC) at 14.

Relevant facts

[8]      PPH engaged Cheldan as a painting subcontractor for five properties in 2015. The properties were at an advanced stage of construction, with remaining work being taken over by PPH after the initial developer of the properties went into liquidation. PPH contracted to complete the houses with the owner of each.  Its engagement of Cheldan was  by oral  agreement.   There is  no  written contract  or other written evidence of the terms of their contract, but for present purposes nothing turns on this.

[9]      PPH says remedial work is required on four properties, described as Lot 48

Buccaneer, Lots 27 and 29 Clea View Drive and 111 Voyager.   It initially said it would pay the invoices which are outstanding if and when Cheldan satisfactorily completes remedial work to bring the paintwork up to an acceptable standard.   It says it has the financial means to pay, and its managing director produces a profit and loss statement from 1 April to 25 May 2016 showing a net profit of $43,995 on a cash basis together with a bank statement as at 25 May showing credit balances of

$112,277.26 and $2,575.87 in two call accounts.   It now says it has engaged an alternative contractor to carry out remedial work and estimates the cost at $53,480.

[10]     The thrust of the evidence from Mr C M Gratwick, a director and the general manager of Cheldan is that some necessary remedial work has been done, and that it has received various approving comments on Cheldan’s work from persons on behalf of PPH.   He disagrees with some of the evidence for PPH about defective work, though seems to accept that some remedial work was required and was not done. Partly as  a result  of  rumours  amongst  other  sub-contractors  about  the  financial viability of PPH and partly because he was promised a payment of $20,000 on account which did not eventuate, he decided not to do any more remedial work.

Is there a genuine dispute?

[11]     The four invoices issued by Cheldan which are the subject of the demand relate to painting at three properties, known as 48 Buccaneer, Lot 28 Clea View Drive (interior only), Lot 28 (exterior only) and Lot 27 (interior only).  PPH’s case in relation to the first and last of these, 48 Buccaneer and Lot 27, is that there is a substantial dispute in relation to the standard of the painting on the interiors of these

properties.   It says the work has not been competently completed and therefore

Cheldan was not entitled to invoice PPH as though the work were completed.

[12]     As well, in relation to all four invoices, PPH says that it has assessed the cost of remediation on 48 Buccaneer, Lots 27 and 29 Clea View Drive and another job at

111 Voyager Drive in the sum of $53,589.40 which exceeds the total of the invoices for which the demand was issued, $36,891.20.  Although the demand was issued in part in respect of 28 Clea View Drive, $9,027.50 for the interior and $8,636.50 for the exterior, and PPH has not been able to inspect this property as it is tenanted, it says that even if its refusal to pay these invoices turns out to be unjustified, the sum which would then be owing under these invoices is more than offset by its counterclaim in respect of the other properties.

[13]   Evidence supporting PPH’s contention about the quality of Cheldan’s workmanship is given at length not only by Mr Foley, but also by Mr R J Lynch, the project manager of PPH.  Mr Lynch gives detailed evidence of the condition of each of  the  four  properties  which  PPH  says  have  not  been  painted  to  the  required standard.  He also gives detailed evidence of meetings with Mr Gratwick at which Mr Gratwick agreed that the painting required remediation, of the remedial work undertaken in respect of 48 Buccaneer which in Mr Lynch’s view is still not up to standard or even close to it, and of defects remaining in the other properties which have not been attended to at all.   He supports his evidence by photographs which were produced to the Court.   These relate to the property at 27 Clea View Drive. They show an unpainted piece of wood, a number of areas where one paint colour has been painted over another paint colour at a point where the two should be cut in, various areas of paint on other surfaces which should not be there, unpainted areas, areas of filler on a skirting board, a hole in an architrave which has not been filled and a number of other defects.  There is no evidence that these problems have been attended to.

[14]     Mr Lynch also produces a list, described as a snag list, produced by the owner of Lot 29 Clea View Drive with 21 points relating to his house which he says require remediation.  Of these, two relate to apparently minor electrical issues, but the remainder relate to filling, sanding and painting.

[15]     Mr  Gratwick  does  not  say  that  he  regards  the  workmanship  on  all  the properties about which complaint is made as being satisfactory.  He outlines various conversations he had about the properties.  He is adamant that his firm would carry out the remediation work.   It seems that his reason for not doing so is that he maintains  he  was  promised  a  payment  of  $20,000  and  when  that  was  not forthcoming, and there were rumours passing between subcontractors about the financial strength of PPH, he decided not to do any more work.  Mr Foley agrees that he said he would pay $20,000 on account to Cheldan, but says he told Mr Gratwick this would occur once significant progress had been made on the remedial works on all the properties which has not happened.  It seems this conversation took place on

11 March, but problems with Cheldan’s workmanship had been raised as early as January, remedial work had not been completed, remedial work which had been done was,  according  to  PPH,  unsatisfactory,  and  arguably at  least  there  remained  on Cheldan an obligation to produce finished paintwork without any significant defects.

[16]     Because it is not the role of this Court on an application of this kind to decide disputed facts one way or the other, but rather to decide whether there is a genuine dispute, I refrain from making any findings in relation the quality of the workmanship, beyond noting that I do not infer from Mr Gratwick’s evidence that he takes serious issue with there being a need for further remedial work.  The evidence on the state of the property is contained in numerous paragraphs in the affidavits of Mr Foley, Mr Lynch, Mr Gratwick and his son, Mr Daniel Gratwick, who is also involved  in  the  Cheldan  business.    I  have  no  doubt  whatever  that  there  is  a significant  dispute  over  the  standard  of  Cheldan’s  workmanship  and  thus  over liability to pay the two invoices in respect of 48 Buccaneer and 27 Clea View Drive to which the demand relates in part.

Does PPH have a counterclaim?

[17]     Given that there is a substantial body of evidence including photographic, and a snag list from an independent owner of one of the properties, to the effect that further remedial work is required, I am satisfied that PPH appears to have a valid counterclaim in respect of all four properties to which the demand relates.

[18]     The quantum of the counterclaim has been assessed by Mr R J Lynch at

$53,589.40.  He obtained quotes from a firm called Top Coat for remedial works to

48 Buccaneer, and says  that 27 and 29  Clea View Drive  are virtually identical properties to 48 Buccaneer and the paintwork is in similar condition.  As a result he has applied the quote to all three properties.  Scaffolding costs have been assessed on the basis of two invoices for scaffolding for when the Clea View Drive jobs were originally done,  and  assessed  for  each  of  those  jobs  at  the  median  of  the  two previous costs.   The balance of the assessment is made up of minor charges for cleaning and rubbish removal for the Buccaneer and Clea View Drive properties.

[19]     So far as 111 Voyager is concerned, Mr Lynch says the interior is in far worse condition than the other properties though the exterior does not need remedial work.

[20]     Although the counterclaim is not based on invoiced work, and is therefore unquantified, I am satisfied that for present purposes it is a sufficiently accurate and soundly based assessment for the Court to rely on.  Mr Gratwick has not engaged in an analysis of the quantum, but simply says the figures used by Mr Lynch are “pulled from the sky”.

[21]     For the purposes of s 290, a counterclaim may be for an unliquidated sum though it is for an applicant to point to evidence showing that it has a real basis for the counterclaim and set-off which it asserts.4   I am satisfied on the evidence before me that PPH has established that it has a counterclaim, the quantum of which has been sufficiently assessed by reference in part to a quotation and in part to actual costs incurred for constituent items of the counterclaim when the houses were previously painted.   The counterclaim well exceeds the amount of the notice.   If

established by PPH, it will be entitled to a set-off against the amount demanded.

4      Arrow Matting Systems Ltd v Impala Equities Ltd [2015] NZHC 1479 at [83]-[84]; Beckett Books Ltd v Moving Out 2012 Ltd [2015] NZHC 669 at [12] and [17]; Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA) at [11].

Outcome

[22]     PPH has established that it has a defence to liability in respect of part of the sum claimed in the statutory demand, and a counterclaim which well exceeds the entire sum claimed. The demand is therefore set aside under s 290.

[23]     As discussed with counsel the respondent will pay costs to the applicant on a

2B basis together with disbursements fixed by the Registrar.

J G Matthews

Associate Judge