Poly Wealth Trustee Limited v Van Vlerken
[2020] NZHC 634
•25 March 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-002074
[2020] NZHC 634
UNDER Companies Act 1993, s 290 BETWEEN
POLY WEALTH TRUSTEE LIMITED
Applicant
AND
CARL ANTHONY VAN VLERKEN
Respondent
Hearing: 24 February 2020 Appearances:
R O Parmenter for Applicant
J E McLennan for Respondent
Judgment:
25 March 2020
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 25 March 2020 at 2.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date………………………
POLY WEALTH TRUSTEE LTD v VAN VLERKEN [2020] NZHC 634 [25 March 2020]
Introduction
[1] This is an application to set aside a statutory demand for $100,000 pursuant to s 290 of the Companies Act 1993. The sum of $100,000 was originally a deposit under an agreement for the sale and purchase of land (ASP).
[2] Under the ASP, the applicant (Poly Wealth) agreed to sell to the respondent (Mr van Vlerken) land in Coatesville for the sum of $3,200,000. Mr van Vlerken was a tenant pending settlement. The property suffered water damage and the ASP was terminated with no land being transferred. Mr van Vlerken paid an initial deposit of
$100,000. He also, being a builder by trade, says the parties agreed that his obligation under the ASP to pay the second deposit of $100,000 would be off-set in exchange for him completing repair work to the property (the oral variation).
[3] The statutory demand is based on an invoice Mr van Vlerken rendered to Poly Wealth for $100,000 for that completed repair work in respect of the water damage. Mr van Vlerken says that invoice is a payment claim under the Construction Contracts Act 2002 (the CCA). If that is the case, Mr van Vlerken would be entitled to an enforceable debt in this Court, against Poly Wealth.
[4] Poly Wealth disputes the oral variation and says the parties agreed to terminate the ASP and that all obligations under it were fulfilled.
[5] At issue is the validity of the payment claim under the CCA for $100,000. Is the claim based on a construction contract, or is it, properly construed, a claim for a refund of a deposit under a failed ASP? If it is a construction contract, have the mandatory requirements under s 20(3) of the CCA been met?
Background facts
[6] The sole director of Poly Wealth is Mr Winston Wang, who is also a practicing solicitor and partner at Winston Wang & Associates.
[7] The ASP is dated 3 May 2017. The original is very hard to read. It provided for an initial deposit of $100,000, which Mr van Vlerken paid to the real estate agents.
The second deposit of $100,000 (at issue in these proceedings) was to be paid within six months.1
[8] On or about 31 May 2018 the property sustained substantial water damage, rendering it untenantable. It remained untenantable on the settlement date of 3 November 2018 despite what Mr van Vlerken says were his efforts to repair the weathertight defects.
[9] Mr van Vlerken says he concluded the oral variation with Mr Runzhe Guo (also known as Jason Guo), who was an agent for the property owner, on about 10 August 2018.
[10] Mr van Vlerken says he undertook the remedial repairs between August 2018 and December 2018. The work is said to have included the removal of water-damaged fixtures and chattels (such as the kitchen, carpet and floorboards); removing and rebuilding the deck; and repainting the exterior of the house.
[11] Mr van Vlerken says he also completed additional work between March 2019 and May 2019.
[12] Poly Wealth says the parties reached a settlement in May 2019, the terms of which are recorded in email correspondence between their solicitors. Poly Wealth says the settlement included the following:
(a)That the ASP would be terminated;
(b)that Mr van Vlerken would vacate the property;
(c)that the first deposit of $100,000 (held by the real estate agent) would be forfeited to Poly Wealth;
(d)Poly Wealth would pay in total $9,374 to Mr van Vlerken; and
1 In his affidavit sworn 10 October 2019, Mr van Vlerken states that the deposit was to be split up into three payments. The first of those payments, for $100,000 he paid on entering into the ASP. However, nothing turns on whether there were two or three deposits.
(e)upon cancellation neither party would have any claim against the other (although Mr van Vlerken’s right to bring a claim against the real estate agent was preserved).
[13] On 29 July 2019, Mr van Vlerken issued Poly Wealth an invoice (number 12920) which he says was a payment claim pursuant to the CCA. Under the description of the works the invoice states:
As agreed second deposit of $100,000 including GST was put back into the house, details of works are as below …
[14] The invoice contains a detailed description of the works completed which included removal of water-damaged fixtures and chattels.
[15] Mr van Vlerken says he cancelled the ASP through a letter by his solicitor on 31 July 2019, due to the ongoing issues surrounding the property (it being untenantable by the settlement date of 3 November 2018).
[16] Following cancellation of the ASP, Mr van Vlerken says he became entitled under cl 5.2(1) of the ASP to a refund of the deposit(s) paid. Those being, firstly, the
$100,000 paid as the initial deposit (to the real estate agent); and secondly, the payment of $100,000 for the construction work he completed in lieu of his second deposit payment.
[17] Poly Wealth did not respond to the alleged payment claim within 20 working days.
[18]The statutory demand dated 13 September 2019 records as follows:
Take notice that Carl Anthony van Vlerken hereby requires you to pay to him the sum of $100,000 being the amount owing to Carl Anthony van Vlerken under invoice number 12920 being a payment claim under s 20 of the Construction Contracts Act served on Poly Wealth Trustee Ltd on 31 July 2018, being for works completed at 280 Coatesville-Riverhead Highway, Coatesville, Auckland 0793.
Relevant legal principles
[19] The Court’s jurisdiction to set aside a statutory demand is contained in s 290(4) of the Companies Act 1993. That section reads:
290 Court may set aside statutory demand
…
(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.
[20] The Court of Appeal has recently confirmed the principles the Court should apply in exercising this jurisdiction. Those principles are:2
(a)The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.
(b)The mere assertion the dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved other than by means of proceedings in the Court’s Companies Act jurisdiction.
(d)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[21]The Court of Appeal has also stated:
2 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559 at [18]–[19]. See also
Carroll Civil Ltd v Texco Drilling and Piling Ltd [2019] NZHC 260 at [19].
[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 a 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.
(Footnotes omitted)
Analysis and decision
[22]In the context of s 290, the critical issues I must determine are as follows:
(a)Is there arguably a genuine and substantial dispute;
(i)that the payment claim for $100,000 is not based on a construction contract; and/or
(ii)that the mandatory requirements of s 20(3) of the CCA have not been met?
Issue 1: Is the payment claim based on a construction contract?
[23] Section 5 of the CCA defines “construction contract” as “a contract for carrying out construction work”. Section 6 of the Act lists, extensively, all the activities which fall within the definition of “construction work”. In this case it is uncontentious that the work Mr van Vlerken invoiced Poly Wealth for falls within that list. Furthermore, s 9(c) of the CCA clarifies that a construction contract can be written or oral, or partly written and partly oral.
[24] In these circumstances I find that there was a construction contract and there is no genuinely triable issue that there was not.
[25] Even though the work Mr van Vlerken did was related to settling the ASP, in my view, the arrangement to have the work done can still properly be viewed as a construction contract on its own and in its own right. I note that Poly Wealth, through an email by its solicitor, Mr Wang (dated 31 October) acknowledged that there was an
agreement that Mr van Vlerken would “use some of the money for the second deposit to do the repairs”. The fact that the party providing the labour and materials for construction (i.e. Mr van Vlerken) was also party to the ASP is immaterial.
[26] In Finesse Residential Ltd v Vasanthan, Brewer J held that a construction contract need not be in writing and recognised that an oral agreement can either be seen as an implied variation of a written construction contract or a separate oral construction contract on its own. His Honour held that the distinction did not matter because the outcome was the same either way.3
[27] In my view, it is not open to Poly Wealth to avoid liability for payment by simply treating the arrangement between the parties as an oral variation to the ASP. It can properly be viewed as a stand-alone construction contract, evidenced by the invoice. However, I acknowledge that Mr Parmenter did not focus on that issue and relied more on the second issue, which I now address.
Issue 2: Does the payment claim comply with the mandatory requirements of s 20(3) of the CCA?
[28]Sections 20(3) and 20(4) of the CCA read:
(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 –
(a)be in writing; and
(b)be in the prescribed form (if any).
3 Finesse Residential Ltd v Vasanthan [2013] NZHC 3203 at [23]-[26].
[29] Regulation 4 of the Construction Contracts Regulations 2003 (Regulations) reads:
Information that must accompany payment claim
The information that, in accordance with section 20 of the Act, is required to accompany a payment claim must be in form 1.
[30] Since 2015, all payment claims regardless of the personal entity they are to be served upon must be accompanied by the information required under s 20(3) of the CCA.4 That includes the information in the prescribed form (namely, form 1) of the Regulations.
[31] An analysis of payment claims under the CCA must be undertaken with the purpose of the legislation in mind.5 Those purposes include the facilitation of regular and timely payments between parties to a construction contract through a draconian “sudden death” regime, which applies if the payment procedures are not complied with.6 The scheme of the CCA entitles a payee to prompt payment where the amount claimed is not disputed within the statutory time period and provides resolution procedures for disputed claims.
[32] In C J Parker Construction Ltd (in liq) v Ketan, the Court of Appeal held that the validity of a payment claim will not be impeached due to purely technical deficiencies.7 By keeping in mind the Act’s purpose of facilitating regular and timely payments in the construction industry, a pragmatic, common-sense and contextual approach should be adopted when assessing whether a purported payment claim complies with s 20(2).8 In an earlier decision, namely George Developments Ltd v Canam Construction Ltd, the same Court held, following a reiteration that meritless, technical objections to payment claims will not succeed, that claims and payment schedules which otherwise substantially comply with the requirements of the CCA
4 Prior to 2015, s 20(3) was confined to payment claims served on residential occupiers. Section 20 was amended by the Construction Contracts Amendment Act 2015 to replace the words in s 20(3) “if a payment claim is served on a residential occupier, it” with the words that now appear: “a payment claim”.
5 George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 (CA) at [41].
6 C J Parker Construction Ltd (in liq) v Ketan [2017] NZCA 3 at [16].
7 At [25].
8 At [25].
will be upheld.9 The “substantial compliance” test sanctions the upholding of a payment claim (or payment schedule) which faithfully complies with the statutory requirements in relation to most particulars of claim but fails to do so in isolated instances, provided the fundamental tests of reasonable detail and comprehensibility are met.10
[33] To date, the substantial compliance test has only been applied in relation to challenges to payment claims based on s 20(2) of the CCA. Mr Parmenter thus raised doubt as to whether it applies to s 20(3). However, for the purposes of this decision (where I am merely assessing whether there is a genuine and substantial dispute) I accept that it does. Having regard to the scheme and purpose of the CCA it is difficult to see why a different standard would apply.
[34] The critical issue thus becomes whether there has been substantial compliance with the requirements of s 20(3) and s 20(4), namely, whether the payment claim was accompanied by an outline of the process for responding to that claim that was in the prescribed form, as set out in Schedule 1 of the Regulations. That involves comparing the requirements of the prescribed form with the information in the payment claim in question.
[35] Attached to this judgment as a schedule is a copy of the prescribed form (namely, form 1 of the Regulations). The highlighted parts on the form are those that were included in Mr van Vlerken’s invoice. It demonstrates the parts of the form that are missing.
[36] It is clear from the comparative assessment that much of the requisite information contained in form 1 is missing. Most importantly, Mr van Vlerken’s payment claim here contains no information as to:
(a)The period in which to pay the claimed amount to avoid losing the right to object;
9 George Developments Ltd v Canam Construction Ltd, above n 5, at [43]-[45].
10 Fowler Homes Southern Lakes Ltd v Wood [2017] NZHC 1707 at [26].
(b)the details in responding with a “scheduled amount” if the claimed amount is disputed;
(c)the period within which to pay a “scheduled amount”; and
(d)the importance of consulting a lawyer if anything is unclear.
[37] As the Court of Appeal held in C J Parker Construction Ltd (in liq), each case falls for determination on its particular facts.11 The Court upheld the findings of this Court that the invoice at issue did not meet the requirements for a payment claim under s 20 as it did not properly address the reasonable value of the work and did not enable the payer to respond effectively or in detail to the claim.12 It was held that significant components of the purported claim were either incomprehensible or insufficiently detailed to inform the payer about how it was calculated.13 On that basis this Court’s dismissal of the summary judgment application was upheld.14
[38] I accept that the facts of this case are different and that there was sufficient detail to inform the Poly Wealth as to how the amount was calculated. Reasonable detail had also been provided as to the materials used and the work actually carried out. However, I find that the omissions from the mandatory prescribed form are so fundamental and serious that it is arguable there was no substantial compliance with the requirements of the CCA. The payment claim fails to comply with s 20(3) and 20(4) because it was not accompanied by an adequate outline of the process for responding to the claim (as set out in the prescribed form). The failures to comply here cannot, in my view, be regarded as “trifling” or mere technical quibbles.
[39] The failure also to specify the due date for the payment in question (bearing in mind the important consequences that flow from that) was a particularly serious omission. That omission is inconsistent with Wylie J’s statement in Berg v Franix Construction Ltd:15
11 C J Parker Construction Ltd (in liq) v Ketan, above n 6, at [27].
12 At [26].
13 At [28].
14 At [30].
15 Berg v Franix Construction Ltd HC Auckland CIV-2008-404-003421, 24 September 2008, at [42].
A person served with what purports to be a payment claim should be able to ascertain from the document itself what steps he or she has to take, and what happens if they are not taken.
[40] Parliament expressly contemplated a prescribed form and it is clear where a payment claim is promulgated (as is the case here) the terms of the form must be complied with. It is equally clear that the content of that prescribed form is focused very much on providing clear and comprehensive advice to the payer about the “sudden death” regime if the payment procedures are not complied with. The rights of the payer must be spelt out clearly and comprehensively. The advice is not simply confined to recommending legal consultation.
[41] I accept, as Mr McLennan submitted, that a troubling aspect of this case is that the payer, namely, Mr Wang of Poly Wealth, is a solicitor who claims on his firm’s website to have expertise in construction law. Realistically, it is difficult to see how in these circumstances Poly Wealth has in any way been prejudiced by the omissions I have discussed.
[42] I accept that Mr Wang’s experience is of some relevance in assessing whether there has been substantial compliance, and there is no evidence that he was in any way misled or prejudiced by the absence of recommendation in the payment claim to seek legal advice. In Foggo v Merrifield Ltd, French J held that she had not overlooked the absence of any evidence that the plaintiffs were in fact misled by the errors, but that was not conclusive in determining the issue of substantial compliance.16
[43] However, as Mr Parmenter submitted, the application of a substantial compliance test cannot be answered solely by reference to the particular characteristics of the individual payer. The ultimate issue of substantial compliance must, in my view, be determined on a substantially objective basis. Moreover, in any event, the failure to refer to the need to obtain legal advice is only one of several key omissions.
[44] Mr McLennan relied upon Atac Maintenance Ltd v Fused Enterprises Ltd, which stated the purpose of the CCA is to ensure “lay persons” are not taken by
16 Foggo v Merrifield Ltd HC Christchurch CIV-2009-409-0000605, 21 September 2009 at [28]– [29].
surprise, in arguing there is no justification for extending the requirements of s 20(3) to include directors.17 In my view, this case no longer applies to interpreting the legislation following the 2015 amendment. In enacting that amendment, Parliament surely intended that all parties who are served with payment claims must receive the necessary information to respond and be expressly advised of the consequences of not responding, regardless of their own position or expertise. The whole point of a prescribed form is to provide consistency and clarity and avoid difficulties of the kind encountered here. The legislative policy is to encourage and promote the use of the prescribed form by making it mandatory.
[45] For all these reasons, I find that there is arguably a genuine and substantial dispute as to the existence of a debt. Namely, whether Mr van Vlerken’s invoice is a valid payment claim under the CCA. On this basis, the statutory demand must be set aside.
Result
[46] I grant Poly Wealth’s application to set aside the statutory demand pursuant to s 290 of the Companies Act 1989.
[47] As to costs, I am of the preliminary view that Mr van Vlerken should pay costs to Poly Wealth on a 2B basis, subject to a 25 per cent discount. As noted above, Mr Wang is a practicing solicitor who claims to be an expert in construction law. The applicant clearly did not respond in time to what on its face looked very much like a payment claim under the CCA, and Mr Wang likely knew the claim had to be challenged within 20 working days.
[48] I would also observe that if, as Poly Wealth appears to acknowledge, there were some weathertight defects with the property and the parties agreed to terminate the ASP, then it is difficult to accept (almost implausible) that Mr van Vlerken (who was at the time legally represented) would have agreed to forfeiting the first deposit of
$100,000 (held by the real estate agent) to Poly Wealth. I accept that Mr Wang says the settlement did not preclude Mr van Vlerken bringing a claim against the real estate
17 Atac Maintenance Ltd v Fused Enterprises Ltd DC Auckland, CIV-2008-004-3172, 6 April 2009.
agent, but it is surely Poly Wealth, as vendor and party to the ASP, that is responsible (if any responsibility does exist) for returning the deposit.
Associate Judge P J Andrew
Schedule I
Wliat is Hiis?
Cousii itctioli Coliti'iicts Regu la i ioiis 200J
Sche‹lule 1
r‹»«»s
l ’ol‘l)1 1
Inio1‘malion that rlNist accorripany ali payment c{ai1ns
/wynrtunt notice
ke ›t i ntcrl as at
IJeceinhcr 2U IS
This notice is attached to a elain ro1 a payment (a payiiient cluiin) iiiidei’ the Coi- sti’uction Contracts Act 2002 (the Act).
The person who sent this payment claim (the claimant) is claiming to be entitled to a payment for, or in i’elation to, the constriction worlt canied out to date under a con- struction contract.
Whether that person is entitled to a payment, and how much they are entitled to, will depend on whethet’ you have a construction contract and what you have agi’eed be- tween yourselves about payments. If you haven’t agi’eed on payments, there ai‘e de- fault pi'ovisions in the Act.
What should I do with this payment claim?
You can eithei
•pay the amoimt claimed in the payment claim (in full) on or before the due date foi’ payment; or
•if you dispute the payment claim, send the claimant a written payment schedule that complies with section 21 of the Act (a payment schedule) stating the RmOunt you are prepared to pay instead (which could be nothing).
The due date for a payment is the date ag’eed between you and the claimant. That due date must be set ottt in the payment claim. If you haven’t agi’eed on a due date, then the Act says that a payment is due within 20 working days after the payment claim is served on you. (For the purposes of the Act, a working day is any day other than a Saturday, a Sunday, a public holiday, or any dny fi’om 24 December to 5 Janu- ary,)
When do I liave to act?
You should act promptly. Otherwise, yott may lose the right to object,
What if I do nothing?
If you don't pay the amount claimed by the due date for payment or‘ send a payment schedule indicating what you will pay instead, the claimant can go to court to i‘eeover
6
2
5
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