QQ Homeland Limited v Orewa Corporation Limited

[2024] NZHC 788

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2310

[2024] NZHC 788

UNDER

the Companies Act 1993

BETWEEN

QQ HOMELAND LIMITED

Plaintiff

AND

OREWA CORPORATION LIMITED

Defendant

Hearing:

9 April 2024

Appearances:

K Sun for Plaintiff

P J Stevenson (as agent) for Defendant

Judgment:

12 April 2024

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 12 April 2024 at 2:00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

……

QQ HOMELAND LIMITED v OREWA CORPORATION LIMITED [2024] NZHC 788 [12 April 2024]

[1]    QQ Homeland  Limited  (QQ)  has  applied  to  liquidate  Orewa  Corporation Limited (OCL).

[2]    OCL has filed a statement of defence and applied to restrain advertising. Associate Judge Gardiner directed that both applications be determined at the one hearing.

[3]    QQ is a landscape contractor. OCL is a property developer that was carrying out a four townhouse development in New Lynn, Auckland. QQ provided a quote for landscaping work including the provision of wooden fencing.

[4]    QQ’s written quote included the ability to charge interest in the following terms:

The invoice amount shall be paid in full within 7 days after the invoice date, interest will be charged at the rate of 18% annually on all overdue monies.

[5]    QQ issued two invoices to OCL.  The first is dated  13 April 2023 and is for  a net of $26,181.83 including GST and records credits for two payments by OCL. One of the credits is described as a deposit of $10,000.00.

[6]    The second invoice is dated 28 April 2023 and is for a net of $7,318.17 after a credit of $5,000.00.

[7]    Accordingly, the amount outstanding under both invoices produced in evidence by OCL totalled $33,500.00 including GST. Both invoices recorded that interest would be charged at 18 per cent annually if the invoices were not paid. The first invoice was due for payment on 20 April 2023 and the second on 5 May 2023.

[8]Evidence for OCL comes from its project manager, Mr Ni says:

In around May, OCL was having cash flow issues and we asked Jason at QQ if we could make payments on account and for more time to pay. He agreed. He did not say QQ would be demanding interest when he was giving us more time to pay. OCL relied on him.

[9]    On 24 August 2023, QQ issued a statutory demand for $48,220.62. That demand seems to have been made up as follows:

(a)$45,000.00 said in the demand to be what was unpaid under the invoices noted above;

(b)$3,220.62 being interest (the demand had an interest calculation attached).

How much does OCL owe under the invoices?

[10]   Taken at its face, the statutory demand contains an error as it claims $45,000.00 was due from OCL to QQ under the invoices described in [9] above. The correctness of the invoices produced by Mr Ni is not challenged by QQ and they total $33,500.00. The difference arises from QQ’s treatment of the $10,000.00 deposit recorded on QQ’s invoice dated 13 April 2023.

[11]   In a late affidavit filed by Mr Ni, he explains the deposit was in fact $10,000.00 plus GST. $45,000.00 as claimed in the statutory demand, less the correct amount for the deposit ($11,500.00), reconciles with the amount due under the two invoices of

$33,500.00. No opposition to the late affidavit being read was raised.

[12]   Mr Sun, counsel QQ, did not specifically address the discrepancy in respect of the treatment of the deposit, his submissions were at a more general level, as I refer to below. However, at the commencement of the hearing on 9 April 2024, I raised with Mr Sun how the total of the two invoices could be reconciled with the amount in the statutory demand.

[13]Mr Sun referred me to the following passage from QQ’s quote:

r given], and please include the site address as the

 

-     Please deposit $  to QQ HOMELAND LIMITED ANZ [account numbe

reference. After receiving the deposit, we will confirm the start date with you according to the site condition. The deposit will not be refunded if the customer breaches the contract unilaterally.

[14] The above passage appears in QQ’s quote immediately above the provision relating to default interest, set out at [4] above.

[15]   Mr Sun submits that because OCL was in default under the contract by not paying the invoices due, QQ was in effect entitled to forfeit the deposit pursuant to the deposit provision.

[16]   I am satisfied Mr Sun’s submission is wrong. First, QQ’s remedy for late payment of its invoices is pursuant to its ability to charge interest at 18 per cent. Second, the deposit was paid for the purpose of being applied to the particular job. That is what QQ did as it showed the deposit as a credit to OCL on its first invoice. Having allocated the deposit to the amount due on the first invoice, QQ cannot now seek to unravel or reverse that credit.1 In any event, the idea that QQ could reverse the credit, forfeit the deposit paid by OCL and make OCL pay the $10,000.00 plus GST a second time, would be a pure penalty, particularly when QQ is also claiming interest for late payment. QQ applied the deposit to the first invoice as would have been contemplated by the parties. I dismiss the submission as untenable.

[17] OCL’s position starts with QQ’s original invoices which, as mentioned at [7] above, shows QQ owed OCL $33,500.00. QQ has calculated that to rectify a claim it has against QQ in relation to the incorrect height of a fence built by OCL (described below) will cost $950.00 together with a further minor claim of $50.00 for the removal of rubbish left by QQ on the site. OCL has deducted $1,000.00 from what it accepts it owed to QQ and has now paid QQ $32,500.00. As OCL disputes it is liable for interest, its position immediately prior to the hearing was it does not owe anything to QQ or that there is a genuine factual dispute as to what is owed for interest.

Interest

[18]   How interest was calculated by QQ is not easy to follow. There are discrepancies around invoice dates and payment dates. For example, the invoice dated

1      A creditor has a right to appropriate payments to any debt they are owed by the debtor. Assuming that is the case (which I doubt given the deposit was paid in relation to a particular contract), then once QQ made the appropriation and communicated that to OCL by showing the deposit as      a credit, QQ was irrevocably bound by that decision and cannot afterwards, vary that appropriation. See the Laws of New Zealand Payment (online ed) at [3.13].

28 April 2023 with a due date of 5 May 2023, shows a payment of $5,000.00. However, the interest calculation records a $5,000.00 payment as having been made on 5 July 2023.

[19]Similarly, in respect of the first invoice dated 13 April 2023, a payment of

$12,395.23 is recorded. The interest calculation shows that amount was paid in two instalments; $5,000.00 on 22 June 2023 and the second instalment of $7,395.23 on 27 June 2023.

[20]   OCL submits as it had been granted further time to pay without any mention of interest, it is not open to QQ to charge interest. Further, OCL alleges part of QQ’s work was carried out contrary to the plans, specifications and resource consent supplied to QQ prior to it giving its quotation — being that a section of paling fence built by QQ was higher than specified.

OCL’s other grounds for challenging the debt

[21]   OCL claims the contract contained no provision for progress payments. Mr Ni says:

QQ has not finished the work because it constructed around 45 metres of fencing over height and has refused to complete and remedy that work despite being given an opportunity to do so.

[22]   This is not so much an argument about the ability to raise progress payments but of defective workmanship. Recall that QQ’s invoicing was late April 2023 and in May 2023 OCL asked for further time to pay. OCL would not have asked for further time to pay if the debt was not payable at that time which, on its case, it was not, as it says the work was incomplete. The evidence is that no complaint about the height of the fence was raised until 19 September 2023, when QQ emailed:

These invoices were sent to you in April 2023. During this half year, we have sent statements every two weeks or so to remind you of the payment, but we have never received any reply. During this period, you paid part of the payment one after another and never raised the issue of fence, which fully shows that you recognized this work,…

[23]   Accordingly, I am satisfied the issue of whether this was a contract that permitted progress payments or, was one where QQ could only invoice on completion of the work, is not relevant. It appears the work was in fact complete, subject to the claimed issue around the fence height. OCL does not assert any other work was incomplete.

The fence height issue

[24]   It is common ground that the resource consent and other planning documents required the 45 metres of fencing in question to be 1.4 metres high, whereas it was built at 1.8 metres. I say that is common ground because QQ in the same email referred to in [22] above said:

Your site manager Leo informed us to change the fence from 1.4m to 1.8m on site in consideration of security, privacy, and noise issues.

[25]I note, however, there is no sworn evidence from QQ to that effect.

[26]Mr Ni denies in his evidence that he orally authorised the fence to be built to

1.8 metres on the street boundaries. Mr Ni breaks down his calculation of $950.00 for the rectification of the fence height issue and says a further $50.00 is claimed for the removal of a quantity of fencing timber offcuts left on site by QQ.

[27]   I am satisfied there is a reasonably arguable issue in respect of the fence height by way of a possible set-off or counterclaim. The short point is, QQ has not filed any affidavit evidence in respect of this issue or any reply to Mr Ni’s evidence. The starting position is that QQ’s quote was based on Council documents which showed a fence height of 1.4 metres. It built the fence to 1.8 metres. It has not given sworn evidence of the oral variation and even if it had, that conflict with Mr Ni’s evidence could not be resolved in this context.

[28]I am satisfied there is a reasonably arguable issue in respect of $1,000.00.

[29]That leaves the issue of interest.

[30]   OCL sought more time to pay against a background of there having been previous business dealings between the parties, or at least between OCL and QQ’s director. There is reference to QQ’s director having a different company that carries out tiling work. In total, entities associated with the director of QQ provided three different quotes for the New Lynn townhouse development. Of the three quotes, two were from another of the director’s companies for tiling and other work.

[31]   Mr Ni’s evidence does not go so far as to say QQ agreed not to demand interest but that he took it that the grant of more time to pay meant interest would not be payable.

[32]   The quote provides that interest is payable on overdue invoices. If QQ granted OCL more time to pay, then the invoices were not overdue, that is, the time for payment had not expired and interest was not payable.

[33]   On one view of it, this left the time for payment of the invoices open as OCL does not say the extension was to a date certain. In those circumstances, QQ would need to have advised OCL that the extension of time for payment was coming to an end.2 Arguably, that occurred when the statutory demand was issued which refers to the payment of interest. It is noteworthy that in the September 2023 email exchange, Mr Ni does not refer to the extension of time for payment being granted by QQ but again, I come back to there being no reply to Mr Ni’s evidence that an extension was granted.

[34]   Given there was a history of dealing between the parties or entities associated with them, the grant of an extension of time to pay is not inherently unlikely, particularly  given  the  amount  in  issue  was  not  large.    I  am  satisfied  there  is  a reasonably arguable issue as to whether an extension of time to pay was granted.

[35]   However, as noted, Mr Ni on behalf of OCL, does not assert the extension of time was for a specific time. QQ was entitled to give notice, bringing the grace period to an end.

2      See Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at [4.6] re High Trees estoppel.

[36]   Ms Stevenson, as agent appearing for OCL, accepted that for the purposes of dealing with this application, interest can be taken to run from the date of the statutory demand (24 August 2023) on $33,500.00 to the date of payment 2 November 2023. Ms Stevenson calculated the interest would be 70 days at $16.52 per day for a total of

$1,156.40.

The approach of QQ to this proceeding

[37]   Recall that the statutory demand was for $48,220.62, as already addressed, that sum was overstated.

[38]OCL took no steps to challenge the statutory demand.

[39]Mr Piggin, in his written submissions for OCL, submitted:

The plaintiff wrongly asserts that failure to pay a statutory demand (and without an application having been made to set aside), is determinative in all respects, and therefore a defendant “must be placed into liquidation”.

[40]   I agree with Mr Piggin’s characterisation of Mr Sun’s submissions. Mr Sun seems to submit that because the statutory demand was appropriately served and there was no application to set it aside, OCL is precluded from raising any further challenge. That is not the legal position.

[41]   OCL is still entitled to dispute the debt in the context of an opposed liquidation application. In Heron’s Flight Ltd v NZ Properties International Ltd, this Court held:3

[22]      The Companies Act states the consequence of not applying to set aside a statutory demand under s 290. Under s 287, that consequence is that a presumption of insolvency arises if the company does not comply with the statutory demand. The Companies Act does not provide any further consequences. If Parliament had intended further consequences to arise, they would be set out in the statute.     I see no reason to add a gloss to the words of the statute.

[23]      The approach I prefer is that a company faced with a statutory demand has a number of lines of defence open to it. Which line is taken may turn on tactical or practical considerations (such as whether the company instructed its lawyers in time to make an application under s 290). If it is served with a statutory demand, it may apply under s 290 to set the demand aside. If it does not apply or if its

3      Heron’s Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424 (HC).

application is unsuccessful and it does not comply with the statutory demand, the rebuttable presumption of insolvency will arise. But it may take other steps as the proceeding develops. It might apply for an injunction to restrain the issue of a proceeding, as in Exchange Finance Co Ltd v Lemmington Holdings Ltd [1984] 2 NZLR (CA)

242. Or once the proceeding has issued, it might apply for a stay and restraint of advertising under r 31.11. Or again, it might elect simply to defend the proceeding on the merits. The fact that it has not applied to set aside a statutory demand does not stand in the way of it taking those other steps, save for this, it may be subject to the presumption of insolvency which it may have to rebut.

[42]   In Yan v Mainzeal Property and Construction Ltd (in rec & liq), the Court of Appeal found:4

[61]      It has long been established  that, as a general rule,  an  order to put  a company into liquidation will not be made where the application is founded upon a debt that is genuinely disputed. To apply to wind up a company in such circumstances is regarded as an abuse of the court’s process: Bateman Telephone Ltd (in liq) v Coleridge Finance Co Ltd. In such cases, the court has an inherent jurisdiction to prevent such an abuse of process. But the court also has power to consider disputed debts in the context of an opposed application for liquidation or upon applications for orders restraining advertising and staying proceedings. The relevant principles were recently summarised by Associate Judge Faire (now Faire J) in South Waikato Precision Engineering Ltd v Ahu Developments Ltd in these terms:

(a)A winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up;

(b)In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court;

(c)The assessment of whether there is a genuine and substantial dispute is made on the material before the Court at the time and not on the hypothesis that some other material, which has not been produced might, nonetheless be available;

(d)The governing consideration is whether proceeding with an application savours of unfairness or undue pressure.

[62]      Similar views were expressed by  this  Court  in  Link  Electrosystems Ltd v GPC Electronics (NZ) Ltd. We endorse the principals summarised in the South Waikato Precision Engineering Ltd case.

(footnotes omitted).

4      Yan v Mainzeal Property and Construction Ltd (in rec & liq) [2014] NZCA 190.

[43]   The starting point is that the statutory demand contained an as the amount due was overstated.   The statutory demand refers to the invoices issued by QQ and, as    I have said, the invoices on their face record that $33,500.00 was payable. By making an error in its own demand, QQ cannot make payable that which is not due. That is true, whether or not an application to set aside the demand was made. Had an application to set aside the demand been made, it plainly would have succeeded to the extent of the overstatement.

[44]   Mr Sun’s incorrect assumption has led him to focus in his written submissions solely on the fact that OCL did not challenge the statutory demand when QQ needed to address the substance of OCL’s defence. I have already addressed Mr Sun’s oral submissions in relation to the forfeiture of the deposit.

Decision

[45]   The application to liquidate OCL is dismissed as the core debt of $32,500.00 has been paid and OCL has an arguable counterclaim or set-off arising from the fence issue for the remaining $1,000.00. That order is on the condition set out below.

[46] I have concluded OCL has an arguable defence in respect of interest based on Mr Ni’s uncontradicted evidence set out at [8] above. I have also concluded that the grace period that was arguably given by QQ in respect of the due date for the invoices came to an end in August/September 2023.

[47] Ms Stevenson advised the Court there are funds sitting in her instructing solicitor’s trust account to pay the interest amount she has calculated, set out at [36] above.

[48]   The application to liquidate OCL is dismissed on the condition that OCL pays to QQ the sum of $1,156.40 within five working days of the release of this decision.

Costs

[49]   OCL are to file any submissions in respect of costs within 15 working days. QQ are to reply within 10 working days. In both cases, submissions are not to be more than five pages.

Associate Judge Lester

Solicitors:
Capstone Law Limited (for Plaintiff)

Copy to counsel:

S WM Piggin, Barrister, Auckland (for Defendant)

P J Stevenson, Barrister, Auckland (agent for Defendant)