Sarwar Construction Limited v Fluid Engineering Consultancy Limited
[2022] NZHC 482
•16 March 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-001317
[2022] NZHC 482
UNDER the Companies Act 1993 and the High Court Rules 2016 BETWEEN
SARWAR CONSTRUCTION LIMITED
Plaintiff
AND
FLUID ENGINEERING CONSULTANCY LIMITED
Defendant
Hearing: 7 March 2022 Appearances:
D G Collecutt for the Plaintiff
E R Anderson for the Defendant
Judgment:
16 March 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 16 March 2022 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Loga Barristers & Solicitors, Auckland Braun Bond & Lomas Ltd, Hamilton
D G Collecutt, Auckland
SARWAR CONSTRUCTION LTD v FLUID ENGINEERING CONSULTANCY LTD [2022] NZHC 482
[16 March 2022]
Introduction
[1] In July 2020, Fluid Engineering Consultancy Ltd (Fluid) provided engineering design services for a development at Matamata. It issued an invoice on 31 July 2020 to the director of the building company undertaking the project, Sarwar Construction Limited (Sarwar). Sarwar refused to pay the invoice, demanding further information and seeking to renegotiate the arrangement.
[2] Fluid ceased work on the project. In July 2021, it served a statutory demand on Sarwar for payment of the invoice, plus legal fees and interest, amounting to
$19,798.67. Sarwar now applies to set aside that statutory demand.
[3] The application requires me to decide whether the statutory demand should be set aside because:
(a)there was no contract between Fluid and Sarwar;
(b)Fluid was not entitled to progress payments;
(c)Fluid has not provided enough information about the value of the work;
(d)Fluid repudiated the agreement by refusing to negotiate a variation;
(e)the invoice is not a GST invoice addressed to Sarwar.
Background facts
[4] Fluid is a hydraulic, electrical and mechanical engineering consultancy firm that provides building design services. In April 2020, Fluid was approached to provide engineer consultancy services for a development project at 49-51 Firth Street, Matamata (the Project). Sarwar, a building company, was undertaking the Project. Sarwar’s sole director and shareholder is Nasir Sharifi.
[5] Ardern Architectural Limited (Ardern), who was already working on the Project, initially liaised with Fluid through its director, Mark Gibson. Mr Gibson had a phone call with Ardern on 22 April 2020 to discuss the scope of Fluid’s work on the
Project. An email exchange between Ardern and Mr Gibson followed, in which Fluid clarified its pricing proposal.
[6] On 30 April 2020, Fluid provided a short form agreement (the Agreement) to Ardern, signed by Mr Gibson.1 The Agreement, which identified Ardern as “the Client”, specified the services that Fluid would undertake along with a breakdown of costs for each service. The services were hydraulic, civil, mechanical, electrical and fire/sprinkler engineering design (preliminary, developed and detailed) and modelling. The total contract price under the Agreement was $90,792.50 (including GST).
[7] There is a conflict in the evidence between Mr Sharifi and Mr Gibson as to whether Mr Sharifi or Ardern initially contacted Mr Gibson. This difference is immaterial. The contemporaneous documents show that in April 2020 Ardern liaised with Fluid about the scope of Fluid’s work and pricing, that Mr Sharifi was informed (he was copied into an email between Arden and Mr Gibson dated 22 April 2020), and that on 30 April 2020 Fluid provided the Agreement to Ardern, signed by Mr Gibson for Fluid.
[8] On 6 July 2020, there was a meeting on site on between Mr Sharifi, Mr Gibson and another engineer from Fluid and, according to Mr Sharifi, Mr Ardern of Ardern Architecture. Mr Gibson deposes that it was clear to him from the site meeting that Mr Sharifi was the client, not Fluid. Sarwar objects to this evidence as inadmissible. I will return to this point. Mr Gibson deposes that Mr Sharifi instructed Fluid to proceed with haste because he wanted to lodge the building consent application as soon as possible.
[9]On 6 July 2020, Fluid began work on the Project.
[10] On 27 July 2020, Ardern forwarded the Agreement (provided to Ardern by Fluid on 30 April 2020) to Mr Sharifi, asking him to sign it and return it to Mr Gibson “as soon as possible”.
1 Agreement (annexed as “A” to the affirmation of Nasir Ahamad Sharifi dated 15 July 2020.)
[11]On 31 July 2020, Fluid sent an invoice addressed to Mr Sharifi for
$11,229.75 (including GST) for the work done that month (the Invoice). The Invoice outlined that the following work had been completed and was due for payment on 20 August 2020:
(a)30% of the preliminary design for the hydraulic engineering — $1,140;
(b)30% of the preliminary design for the civil engineering — $480;
(c)80% of the preliminary design for the mechanical engineering —
$3,840; and
(d)70% of the preliminary design for the electrical engineering — $4,305.
[12] When payment was not made by the due date, Fluid sent a follow up email to Mr Sharifi on 3 September 2020 requesting the overdue amount. Mr Sharifi says that he only received the Invoice with this follow-up email.
[13] On 23 September 2020, Mr Sharifi signed the Agreement as “the Client Authorised Signatory” and returned it to Fluid.
[14] Between September 2020 through to the end of December 2020, numerous emails were exchanged between Mr Gibson and Mr Sharifi concerning non-payment of the Invoice. Mr Sharifi sought to renegotiate the Agreement to vary the scope of the work, reduce the contract price and set out a schedule for when payments would be made. Mr Gibson insisted that he would not renegotiate until the Invoice was paid.
[15] On 9 December 2020, Mr Sharifi stated he would cancel the Agreement unless Fluid provided detail of the work done on the Project so far. Fluid did so and offered to waive all accrued interest and collection costs if payment was made by 10 December 2020. The Invoice was not paid and on 14 December 2020 Fluid confirmed that it had formally ceased work.
Legal principles
[16] Under the Companies Act 1993, the Court may set aside a statutory demand if it is satisfied that:2
(a)there is a substantial dispute about whether or not the debt is owing or is due;
(b)the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand is less than the amount of the counterclaim, set-off, or cross-demand;
(c)the statutory demand ought to be set aside on other grounds.
[17] The general principles that apply to applications to set aside statutory demands are well-settled and agreed by the parties:3
(a)The applicant must show there is a genuine and substantial dispute as to the existence of the debt. The task of the Court is not to resolve the dispute, but to determine whether there is a substantial dispute as to whether or not the debt is due. The assertion of a dispute is insufficient. Material short of proof is required. If there is material proof, the dispute should normally be resolved by means other than in the Companies Court.
(b)An applicant must establish that any counterclaim or set-off is reasonably arguable in all the circumstances. It does not need to prove the actual claim.
(c)It is not usually possible to resolve questions of fact based on affidavit evidence, especially when issues of credibility arise.
2 Companies Act 1993, s 290(4).
3 See for example Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
(d)The Court's discretion as to whether to set aside a statutory demand is wide, but it will be a rare occasion where an application is refused if one of the grounds in s 290(4) are made out.
Discussion
No contract between Fluid and Sarwar
[18] Sarwar maintains that under the Agreement, Fluid contracted with Ardern to work on the Project, not Sarwar. There is no evidence that Sarwar, or Mr Sharifi, was actively involved in negotiating the Agreement, with the initial negotiations taking place between Mr Gibson and Ardern and the final Agreement forwarded to Mr Sharifi for signing by Ardern. Furthermore, the Agreement identifies the client as Ardern. Sarwar submits that Mr Sharifi’s signature on the Agreement can be interpreted as him approving the work as Ardern’s client or representative, with Ardern as head contractor. Alternatively, Mr Sharifi signed as owner of the land.
[19] Sarwar further submits that Mr Gibson’s evidence as to who he believed Fluid was contracting with is irrelevant and inadmissible.4 The issue of who the contracting parties were should be decided by the Court on the evidence, after hearing cross- examination. Given the contemporaneous contractual and invoice documentation prepared by Fluid, variously referring to Ardern and Mr Sharifi (as opposed to Sarwar) as the contracting party, there is a reasonably arguable dispute as to who the contracting party with Fluid was.
[20] Fluid contends that it was contracted by Sarwar to provide the engineering design services through an oral agreement reached between Mr Gibson and Mr Sharifi at the site meeting on 6 July 2020, confirmed (after the first invoice had been issued) by the (written) Agreement. Mr Gibson says that it was an omission that the Agreement was not amended to record Sarwar as the client after the site meeting when that became clear. Fluid notes that no issue was raised by either party suggesting that the client was anyone other than Sarwar, even when the Invoice was addressed to Mr Sharifi.
4 See the affidavit of Mark Bradley Gibson sworn 14 February 2022 at [8], where he states that “it was clear to me that Mr Sharifi was the client”.
[21] Dealing with the admissibility issue first, I accept Sarwar’s submission that Mr Gibson’s affidavit evidence as to who he intended the counterparty to be, insofar as that intention was undeclared at the time, is not relevant and therefore inadmissible.5
[22] However, in my view there can be no serious doubt that Sarwar was the contracting party, based on an objective assessment of the Agreement and the parties’ conduct prior to and after the Agreement was signed. In making this assessment, I reject the distinction Sarwar seeks to draw between Mr Sharifi and Sarwar. Mr Sharifi is the sole director of Sarwar. Mr Gibson is the sole director of Fluid. It is objectively obvious from the contemporaneous documents that when communicating with each other, they were acting in their capacities as directors and representatives of their companies (as opposed to in their personal capacities). Similarly, when the Invoice was sent to Mr Sharifi, it was in his capacity as director of Sarwar. Any other interpretation defies common sense.
[23] While the early emails between Ardern and Mr Gibson in April 2020, and the short form agreement prepared then, suggest that at that time Mr Gibson anticipated that the counterparty would be Ardern, the evidence plainly indicates that this position changed. This evidence includes Ardern forwarding the Agreement to Mr Sharifi on 27 July 2020 for him to sign and return directly to Mr Gibson; and Mr Sharifi signing the Agreement as the client. There is no plausible explanation for why Ardern would forward the Agreement to Mr Sharifi and ask him to sign it, and why Mr Sharifi would sign it as the client, if Sarwar was not the counterparty. I reject Sarwar’s submission that Mr Sharifi signed as agent for Ardern, or as landowner, as implausible.
[24] There is no evidence of Mr Sharifi suggesting at any stage that Ardern was the correct counterparty, not Sarwar. The Invoice was issued to Mr Sharifi for Sarwar on 4 August 2020. Mr Sharifi deposes that he did not receive it until 3 September 2020 when Fluid sent a reminder. That is contrary to Fluid’s record in Xero through which the Invoice was created and sent, which records that the Invoice was sent on 31 July 2020 and a statement sent to Mr Sharifi at his email address on 4 August 2020.
5 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85 at [67] and [68].
In any case, Mr Sharifi did not object to the Invoice being issued to him and not Ardern.
[25] Not once during the email communication that followed did Mr Sharifi dispute that Sarwar was the contracting party and liable to pay the invoice. Indeed, Mr Sharifi made several statements accepting that the Invoice was payable by Sarwar. For example:
(a)an email dated 14 December 2020 in which Mr Sharifi states that he would pay the Invoice;
(b)an email dated 23 December 2020, in which he confirms “Yes, we have a contract for the completion of the project” and that “Payment is not an issue, I will happily pay the invoice”.
[26] Mr Sharifi also refers to the Project as “my own project” and the Agreement as “our current contract”. This is echoed by other emails in November / December 2020 and January 2021, particularly 18 and 22 January, in which Mr Sharifi repeats that payment is not an issue, gives instructions to Fluid and expresses that he is anxious to “move forward” and complete the Project.
[27] Further, in response to Fluid’s lawyer on 30 May 2021, Mr Sharifi says, “I’m [Fluid]’s client” and “I am willing to pay them…”.
[28] I conclude that, viewing the contemporaneous documents objectively, there is no genuine or substantial dispute as to whether Sarwar is the correct counterparty to the agreement with Fluid and therefore liable for the amount in the statutory demand.
Fluid not entitled to progress payments
[29] Clause 7 of the Agreement states that the client will pay for services “at the times and in the manner set out in the attached documents”. Sarwar submits that as the Agreement does not provide for times or manner for payment, Fluid is not entitled to payment of a deposit or progress payments and is only entitled to payment on completion of the contract works.
[30] Furthermore, Sarwar submits that the Court should not imply a term entitling Fluid to progress payments, because there is no clear basis for implying when progress payments would be payable and how they would be calculated.6 The fact that a dispute has arisen around payment for partially completed work suggests that progress payments were not discussed prior to the signing of the Agreement.
[31] I reject this submission. There is no basis for finding that Fluid is unable, in the absence of express provision in the Agreement, to issue monthly invoices. The Agreement does not say that an invoice cannot be rendered until the Project work is complete. There is no basis for implying such a term. Payment of progressive invoices is provided for in cl 8, which states that “All amounts payable … shall be due on the 20th of the month following the month of issue of each GST invoice, or at such other time unless stated elsewhere in this Agreement”. No other timing is specified in the Agreement.
Fluid has not provided enough information about the value of the work
[32] Sarwar submits that Fluid has not provided enough evidence to verify that the work outlined in the Invoice has been carried out, and the value of that work. Timesheets and/or work product (such as calculations or workings) are required. Thus, even if Fluid is entitled to progress payments (which it denies), discovery and inspection are necessary to confirm the value of the work completed.
[33] The Agreement does not specify any information that is required to support invoices issued. The Invoice is not issued as a payment claim under the Construction Contracts Act 2002, triggering the requirements for payment claims in that legislation.
[34] The fee schedule in the Agreement sets out the fees for each engineering design service provided: hydraulic, civil, mechanical, electrical and fire/sprinkler. Within each service there is a fee specified for preliminary, developed, and detailed design.
[35] The Invoice corresponds with this fee schedule and provides that it is comprised of 30% of the fee for the preliminary hydraulic design; 30% of the fee for
6 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85 at [116] and [94].
the preliminary civil design; 80% of the fee for the preliminary mechanical design; and 70% of the fee for the preliminary electrical design.
[36] I consider this information, in the absence of any agreed requirement for more, to be enough.
[37] Furthermore, when Sarwar requested further explanation on 9 December 2020 (four months after the Invoice was issued), Fluid supplied, on the same day, an additional narrative for the portion of each preliminary design that had been completed. Fluid also provided screenshots of the model that had been completed showing mechanical duct work, electrical distribution boards, and a section of the floor plan.
[38] I conclude that there is no genuine or substantial dispute about whether the work has been completed or its value.
Fluid repudiated the Agreement
[39] In its notice of opposition, Sarwar contended that in breach of the Agreement, Fluid refused to provide a proposal for variations to the Agreement or engage in negotiations. At the hearing, Mr Collecutt indicated that Sarwar did not pursue this ground of opposition. That was a sensible concession, as obviously any negotiations to vary the Agreement have no bearing on liability to pay invoices already due.
Invoice is not a GST invoice addressed to Sarwar
[40] Sarwar submits that pursuant to cl 8, as no other timing or manner of payment is set out in the Agreement, payment by the client is triggered on the issue of a GST invoice. The invoice was not issued to Sarwar but was issued to Mr Sharifi. As such, the invoice is not a valid GST invoice issued to Sarwar and does not trigger an obligation to pay.
[41] As I have already indicated, I consider it objectively clear from the documents that Mr Sharifi and Mr Gibson were dealing with each other as representatives of their respective companies. Plainly, the Invoice was addressed to Mr Sharifi in his capacity
as Sarwar’s representative. There could be no reason for invoicing Mr Sharifi personally. The error is easily addressed by the name on the Invoice being changed to Sarwar.
[42] It is relevant that Sarwar did not raise this issue until the application to set aside the statutory demand was filed.
Result
[43] I do not consider that there exists a genuine, substantial dispute as to whether the debt that is the subject of the statutory demand is due for payment by Sarwar.
[44] I order that the application by Sarwar to set aside the statutory demand is dismissed. This order will take effect in five working days.
[45] Sarwar will pay Fluid’s costs on a 2B basis, with disbursements as fixed by the Registrar.
Associate Judge Gardiner
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