Senio Holdings Ltd v Evergreen Homes & Construction Ltd

[2023] NZHC 1191

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2022-425-53

[2023] NZHC 1191

UNDER

the Companies Act 1993

IN THE MATTER

of an application to set aside a statutory demand pursuant to section 290 of the Act

BETWEEN

SENIO HOLDINGS LTD

Applicant

AND

EVERGREEN HOMES & CONSTRUCTION LTD

Respondent

Hearing:	2 May 2023
Appearances:	A L Pinnock and M C Ryan for Applicant B B Gresson for Respndent
Judgment:	17 May 2023

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 17 May 2023 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

SENIO HOLDINGS LTD v EVERGREEN HOMES & CONSTRUCTION LTD [2023] NZHC 1191 [17 May 2023]

[1]    The respondent, Evergreen Homes & Construction Ltd (Evergreen), is a builder. It entered into a building contract with Senio Holdings Ltd (Senio) to construct three household units at Cromwell. During the course of the building contract, Evergreen rendered to Senio invoice 20399 for $17,607.62 which it identified as progress claim 11A. Senio disputed the progress claim and did not pay it. In July 2022, Evergreen issued to Senio a statutory demand under s 289 of the Companies Act 1993 in respect of the progress claim and suspended work. Senio now applies to set the statutory demand aside pursuant to s 290(4) of the Companies Act.

[2]    Senio says there is a substantial dispute as to whether the amount claimed in the statutory demand is owing or due because progress claim 11A is not a payment claim under the Construction Contracts Act 2002 (the Act) as required by the building contract, and it has paid the full amount that could be due under the building contract. In addition, Senio says that if progress claim 11A was a payment claim for the purposes of the Act it issued a payment schedule to Evergreen in response to it. It further says that it has set-offs and/or counterclaims against Evergreen which exceed the amount of the demand. Finally, Senio says the issue of the statutory demand was an abuse of process.

[3]    Evergreen takes a commendably simple position in response to Senio’s application. It does not engage with Senio’s evidence concerning the existence of set- offs and counterclaims except in one respect, which is not now relied upon by Senio.1 Senio’s evidence in relation to those matters is effectively uncontested. Evergreen says there is no genuine dispute as to Senio’s liability for the amount claimed in the statutory demand because the building contract, as properly interpreted, did not require it to issue payment claims under the Act and Senio cannot raise set-offs or counterclaims because there is a no set-off clause in the building contract.

[4]    It is not in dispute that progress claim 11A was not a payment claim under the Act. Mr Gresson, appearing for Evergreen, also accepted that if Evergreen was required by the terms of the building contract to issue its progress claims as payment claims under the Act, then it must follow there is a dispute as to whether the sum

1      This concerned an issue as to whether Senio was to retain 5 per cent of total contract price until the issue of Code Compliance Certificates.

claimed is due and owing and the statutory demand must be set aside. On that basis, the primary issue is whether the building contract required Evergreen to issue payment claims under the Act, which is determinative of the application.

Background

[5]Dan Stewart is the director of Evergreen.

[6]Amanda and Godfrey Brosnan are directors of Senio.

[7]    In early 2020, Senio received quotes from Evergreen to build three household units on land at 9 Orient Street, Cromwell.

[8]    There were negotiations between the parties over the terms of a building contract using the NZS3902/2004 standard form contract. The building contract, with variations to the standard terms, was signed on behalf of Senio on 27 July 2020 and Evergreen on 1 August 2020.

[9]Relevantly, the building contract include the following terms:

(a)The building work to be undertaken by Evergreen was as follows:

Construction of 3 residential dwellings identified as Unit A, Unit B and Unit C as more particularly described in the Plans and Specifications annexed to this agreement and including programme management.

(b)There were some exclusions from the work as follows:

1All kitchen joinery and appliances and the installation and fitting of the kitchen joinery and appliances

2The installation and fitting of all sanitary fixtures including toilets, showers, basins and/or vanities, baths, taps and shower heads

3Driveways.

(c)The building contract price was $751,841.98 (incl GST), however there was provision in the contract for variations and allowances, and in cl 2 the term “Contract Price” was defined as

…the total price payable by the Owner for the Building Work, including all Allowances and Variations.

(d)A deposit of $20,000 was payable by Senio, and in respect of further payments cl 13 and Schedule 1A to the building contract applied. They were as follows:

13PAYMENTS

13.1Builder’s Payment Claims

The Builder may (but is not required to)2 give Payment Claims to the Owner only at the times or at the stages stated in Box G.

Each Payment Claim must:

(a)Be in writing and state that it is made under the CC Act;

(b)Contain sufficient details to show the claim is made in respect to this Contract;

(c)Identify the Building Work and the relevant period to which the Payment Claim relates;

(d)State the claimed amount, detail how that amount is calculated and state the due date for payment;

(e)If the claim is in respect of the Final Account state the amount or amounts claimed by the Builder in respect to all outstanding claims and marked “Final Account”; and

(f)Be accompanied by Form 1 from Schedule 1 of the Construction Contracts Regulations, unless the Owner is not a Residential Occupier.

13.2Pay or give Payment Schedule

Within five Working Days of the Owner receiving a Payment Claim, or 15 Working Days in respect of receiving the Final Account, the Owner must either:

(a)        Pay the amount claimed by the Builder in the Payment Claim; or

(b)Provide a Payment Schedule to the Builder which sets out in writing:

(I)The Payment Claim to which the Payment Schedule relates

2      The words “but is not required to” were added to the standard form building contract.

(II)The amount that the Owner considers the Builder is entitled to be paid (the “scheduled amount”)

(III)How the scheduled amount was calculated

(IV)The Owner’s reasons for the difference between the scheduled amount and the amount in the Payment Claim;

and pay the Builder the scheduled amount.

…

13.6Late Payment

13.6.1Interest

The Builder may require the Owner to pay interest at the rate (compounding monthly) set out in Box G on amounts payable and remaining unpaid after the expiry of the time provided for payment.

…

13.6.2Suspension of work

If any amounts payable remain unpaid after the expiry of the time provided for payment, the Builder may give five Working Days’ Notice of Intention to suspend work, and suspend work until paid in full. If work is suspended the Finish Time will be adjusted, and the Owner must pay the Builder as a Variation the reasonable costs incurred in resuming work.

SCHEDULE 1 (CONTINUED) – VARIATIONS AND SPECIAL
 CONDITIONS – UNITS A, B AND C

A.AMENDMENTS

The following table is inserted in Clause 3 Contract Details, Box G. Payments – Option (Claims at regular times):

1.The Builder shall issue Payment Claims monthly with the first payment claim to be issued on the last Working Day of the month in which the Start Date is quantified (for example, if the Builder commences work in July, the first Payment Claim will be issued on the last Working Day of July).

`2.  It is a requirement of the Owner’s bank that each  payment claim is verified by a report generated by a Quantity Surveyor approved by the Owner’s bank and each Payment Claim will be supported by a schedule of works that the Builder has completed during that month.

3.Each Payment Claim will be due for payment no less than 10 Working Days from the date it is received by

the Owner in accordance with the notice provisions of this Contract.

4.The Builder shall give a Payment Claim to the Owner for the Final Account (as recorded in Box G. of this Contract) upon Practical Completion being achieved. For the purposes of this clause the Final Account shall not become payable by the Owner unless and until a code compliance certificate has been issued for Unit A, Unit B and Unit C.

(e)Evergreen was to obtain the Code Compliance Certificates and was to give them to Senio before making application for a certificate of practical completion.

(f)Evergreen was to achieve practical  completion of the  work within  10 months, with adjustments for periods of delay caused by anything beyond Evergreen’s reasonable control, including delays for variations. Senio’s remedy for late completion was delay damages at the rate of

$200 per calendar day which “must” be deducted by Evergreen from the final payment claim.

(g)There were provisions for variations as directed by Senio in writing, and for valuing the cost of such work and the contract price “must then be adjusted by the cost (if any) of the variation.”

(h)There was a definition of the term “Default” and provisions providing for Evergreen’s rights in the event of default by Senio under the building contract. These were:

“Default” means:

(i)Failure by the Owner to:

(a)pay the Contract Price or any part thereof in full without deduction or set off on the date required under this Agreement or in any Payment Claim; or

(b)perform any covenant or obligation on the Owner’s part herein expressed or implied.

(ii)Where the Builder is prevented from carrying out the Building Work by the Owner for any reason whatsoever.

(iii)The Owner making or entering into or endeavouring to make or enter into any scheme of arrangement or composition with its creditors or any other arrangement with or for the benefit of the Owner’s creditors.

(iv)The insolvency, bankruptcy or liquidation of the Owner.

19Builder’s rights on default

19.1Where the Owner is in Default and has failed to remedy that Default within 10 Working Days after receiving notice of the particulars of the Default from the Builder (Default Notice), without prejudice to any other rights remedies available to the Builder at law or in equity, the Builder may:

(c)sue the Owner for specific performance; or

(d)cancel this Contract and pursue either or both of the following remedies;

(i)forfeit and retain for the Builder’s benefit such portions of the Contract Price paid by the Owner; and/or

(ii)sue the Owner for damages and such damages may include (but shall in no way be limited to) costs (including on a solicitor/own client basis) incurred by the Builder arising from the Default of the owner; and or

(e)suspend the Building Work until such time as the Default has been remedied and in so doing the Builder will not be in breach of its obligations under this Contract and the time the Work is suspended pursuant to this clause will be added without penalty to any time limit to be met by the Builder.

19.2Nothing in this clause 19 will prevent the Builder from requiring for specific performance without giving a Default Notice as contemplated by clause 19.1.

19.3The exercise of any of the remedies available to the Builder pursuant to this clause 19 will be without prejudice to the rights and obligations of the parties prior to termination.

[10]   Senio paid the deposit under the building contract on 24 August 2020 and Evergreen began work on 14 December 2020.

[11]   Evergreen issued 12 progress claims in respect of the work between January 2021 and 26 April 2022. The progress claims were not issued at consistent intervals. Senio paid progress claims 1 to 8 in full. Progress claim 9 for $108,995.67 was assessed by Senio’s Quantity Surveyor at $25,879.85 and Senio paid that amount only.

In respect of progress claim 10  for  $56,868.26,  Senio  paid  $65,461.43  because Mr Stewart had been unhappy that full payment had not been made of the previous progress claim. In April 2022, Evergreen issued progress claim 11 in two parts. On 20 April 2022, it issued progress claim 11B for $22,545.77, and on 26 April 2022 it issued progress claim 11A for $17,607.62. I understand it is Evergreen’s position that the second of these progress claims (although referred to as 11A) replaced the earlier progress claim (11B). Senio does not accept that but, in any event, it is progress claim 11A that is now in issue.

[12]   In or around February 2022, a dispute arose between the parties whether certain drain laying, electrical and plumbing work was within the scope of the building contract. Evergreen did not accept responsibility for some of the work in issue. Senio considers that it was forced to engage other contractors to do the work that Evergreen was responsible for under the building contract at a cost to it of at least $44,227.

[13]   On receipt of progress claim 11A, Mr Brosnan sent an email to Mr Stewart and Senio’s Quantity Surveyor disputing the claim and also asserting that under the building contract Senio was entitled to delay damages. He stated:

As there are insufficient funds left in the contract price to even cover delay damages owing to date there are no more progress payments due to Evergreen Homes.

[14]   At this stage, the parties’ lawyers became involved. A series of letters passed between them commencing on 23 May 2022 when Evergreen’s lawyers, Todd & Walker Law, issued a notice of Evergreen’s intention to suspend work on the grounds that Senio had not paid the progress claim. Senio’s position is that, in fact, Evergreen had already abandoned the work before the progress claim had been issued.

[15]   On 9 June 2022, Todd & Walker Law wrote to Senio’s then lawyers proposing mediation but on conditions that were unacceptable to Senio. Senio relies upon this letter as confirmation of the existence of a substantial dispute as to its liability for the sum claimed in the statutory demand. This is because Todd & Walker Law wrote:

It is clear the parties are in dispute over several essential matters. These include the amounts owed under the contract, the scope of the work required

to be carried out under the contract, and the variations carried out under the contract.

[16]   In an email of 29 June 2022, Evergreen’s lawyers advised that due to Senio’s refusal to pay progress claim 11A it was suspending all further work under the contract. It also wrote:

Your clients’ position that they can withhold payment of this invoice on the basis of an alleged set-off is not compatible with the terms of the contract. Indeed, the special conditions of the contract contained in Schedule 1 clearly provide that your clients are required to pay our client’s invoices in full without deduction or set off and are in default by not doing so …

[17]   Further correspondence between the lawyers did not resolve matters.   On   22 July 2022, Evergreen issued the statutory demand and Senio filed this application to set the statutory demand aside on 4 August 2022.

Relevant principles

[18]   The relevant statutory provisions are ss 289 and 290 of the Companies Act 1993 which provide:

289Statutory 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.

290Court may set aside statutory demand

(1)The court may, on the application of the company, set aside a 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.

…

[19]The principles that apply to applications under s 290(4)(a) are as follows:3

(a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to the existence of the debt. The Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.

(b)The mere assertion that a 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 first in ordinary civil proceedings before any statutory demand is issued.

(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.

(e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.

3      Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 and Brookers Insolvency Law & Practice, (online ed, Thomson Reuters) at CA290.02.

(f)Notwithstanding that grounds for setting aside a statutory demand have been made out, the Court retains a residual discretion to refuse to set aside a statutory demand, but it would only be a rare case where such a discretion was exercised.4

Is there a substantial dispute whether the debt is owing or due?

The requirement for payment claims

[20]   Senio relies upon cl 13 and Schedule 1A to the building contract, which it says requires Evergreen to issue payment claims complying with s 20 of the Act. It says that progress claim 11A was not a valid payment claim because of substantial non- compliance with the requirements of s 20(2) and (3) of the Act, and accordingly it did not become liable to pay the claimed amount.

[21]   Further, and it must be as an alternative argument, Senio relies upon s 21 of the Act which provides that “[a] payer may respond to a payment claim by providing a payment schedule to the payee”. Section 22 of the Act provides that a payer becomes liable to pay the claimed amount on the due date for payment to which a payment claim relates if he or she does not serve a payment schedule on the payee within the time limit specified in the Act. Here, Senio says that Mr Brosnan’s email of 26 April 2022 was a valid payment schedule with “nil” as the scheduled amount and that as a result the progress claim is not payable.

[22]   Evergreen accepts that progress claim 11A was not a payment claim and did not comply with the requirements of s 20(2) and (3) of the Act, but it says there was no obligation upon it under the building contract to issue payment claims complying with the Act. It says the progress claim has been issued in accordance with the building contract.

4      Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 at [49].

Principles of interpretation

[23]   Whether the building contract required Evergreen to issue payment claims is a matter of contractual interpretation. The proper approach to contractual interpretation is an objective one, to ascertain the meaning the document would convey to a reasonable person having all the background knowledge reasonably available to the parties at the time of the contract. The contractual language must be interpreted within its overall context broadly viewed. If the language used, construed in the context of the whole contract, has an ordinary and natural meaning it will be a powerful, but not conclusive, indicator of what the parties meant.5

[24]   In Bathurst Resources Ltd v L&M Coal Holdings Ltd the Supreme Court clarified the law as it related to the use of material extrinsic to the written contract as an aid to its interpretation.6 It noted that such material typically falls into three categories: the commercial context and the purpose of the contract, the evidence of prior negotiations, and evidence of subsequent conduct. The Supreme Court concluded the extrinsic evidence is prima facie admissible if it tends to prove or disprove anything of consequence to determining the meaning the contractual document would convey to a reasonable person having all the background knowledge reasonably available to the parties in the situation they were in at the time of the contract.7

[25]In relation to subsequent conduct, the Supreme Court said:8

We agree… that the approach to the admissibility of subsequent conduct should be the same as the approach to the admissibility of prior negotiations. Applying the provisions of the Evidence Act, the court must ask itself whether the subsequent conduct tends to prove anything relevant to the objective approach to interpretation. Subsequent conduct need not necessarily be mutual, but non-mutual conduct is more likely to be relevant to a claim of estoppel. Further, in assessing the relevance of subsequent conduct, it must not be forgotten that the court is interpreting the contract as at the time it was made.

5      Firm PI 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand Ltd [2014] NZSC 147; [2015] 1 NZLR 432 at [60] citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912 per Lord Hoffmann.

6      Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85; [2021] 1 NZLR 696.

7      Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 6, at [40].

8 At [89].

(footnote omitted)

Analysis

[26]   There can be no dispute, and neither party contended otherwise, that the building contract is a construction contract to which the Act applies.9 Section 14 of the Act provides that the parties to a construction contract may agree between themselves a mechanism for matters, such as, the number and interval of progress payments under the contact and the dates when those payments become due.

[27]   Despite the numerous references to “payment claim” in cl 13, Schedule 1A and elsewhere throughout the building contract, Evergreen argues it could choose not to issue payment claims complying with the Act. It relies upon the words “but is not required to” that appear in the opening sentence of cl 13.1 (which is set out in full at para [9(d)] above). Those words were added to the standard form contract. Evergreen contends that when those words are considered in the context of cl 13 as a whole, and in light of the parties’ subsequent conduct, it is a “reasonable interpretation” that:

(a)Evergreen could have issued payment claims under the Act but was not required to (and instead was entitled to simply issue invoices for payment); and

(b)the invoices:

(i)could be issued no more than monthly;

(ii)must have been supported by a schedule of works completed during the month; and

(iii)must have been verified by a Quantity Surveyor approved by Senio’s bank as fairly representing the works stated as having been completed that month.

9      See ss 6 and 9, and the definition of “construction contract” in s 5 of the Act.

[28]   Evergreen says the conduct of the parties supports its interpretation of the building contract. This conduct is said to be that none of its progress claims purported to be payment claims under the Act, none were disputed on the ground that they were not payment claims, there was no suggestion that the progress claims were not supported by schedules of work completed during the relevant month, or that Evergreen had issued progress claims more than monthly.

[29]   I do not accept Evergreen’s submissions and consider it was a requirement of the building contract that Evergreen issue payment claims compliant with the requirements of the Act for several reasons.

[30]   First, the terms payment claim and payment schedule are defined in cl 2 of the building contract. Relevantly, payment claim means:

Payment Claim is a statement issued by the Builder to the Owner in accordance with Section 13 and the [Construction Contracts Act 2002].

[31]   The term payment claim also appears many times throughout the building contract and, most relevantly, repeatedly in cl 13 and Schedule 1A which deal with payments under the building contract. I have set those provisions out earlier in this judgment and do not need do so fully again. It will suffice to note Schedule 1 A1 provides:

1.The Builder shall issue Payment Claims monthly …

2.It is a requirement of the Owner’s bank that each payment claim is verified by a report generated by a Quantity Surveyor approved by the Owner’s bank …

3Each Payment Claim will be due for payment no less than 10 Working Days from the date it is received by the Owner …

4The Builder shall give a Payment Claim to the Owner for the Final Account … upon Practical Completion being achieved…

[32]   It will be noted that the words “The Builder shall issue Payment Claims” are in mandatory terms, and do not suggest Evergreen had any choice about the matter.

[33]   Evergreen’s argument relies significantly upon the words “but is not required to” that appear in cl 13. If those words did not appear in the clause it is hard to see

how there could ever be an issue about Evergreen’s obligation to issue payment claims. I consider that Evergreen’s reliance on those words is misplaced. They do not provide Evergreen with a choice as to whether to issue payment claims; they relate only to the time intervals at which payment claims will be issued. This is because, on a logical reading, the words are intended to qualify the requirement that payment claims will only be issued at the times or at the stages stated in Box G to the building contract.

[34]   I do not consider the conduct of the parties is particularly helpful as supporting Evergreen’s preferred interpretation of the building contract, nor does such conduct support only Evergreen’s position. For instance, the evidence is that Evergreen did not issue progress claims on a strictly monthly basis consistent with the interpretation of cl 13 that Senio advances. To the extent that it is said that Evergreen did not issue valid payment claims and Senio did not object to that, it is often the case that parties may overlook formal requirements in a contract until such time as a dispute arises.

Evergreen’s submissions in this regard also need to be considered in context

[35]   Consistent with the requirements of the Act,10 Schedule 1A.2 of the building contract required Evergreen to submit payment claims with a schedule of the works undertaken. It also contained a requirement that the payment claims be “verified by a report generated by a Quantity Surveyor approved by the Owner’s bank”. There are examples of prior progress claims in evidence which contain full details of the work that was undertaken and would provide a basis for the Quantity Surveyor to assess the value of the work. In contrast, progress claim 11A contains skeletal details of the work.

[36]   It is not surprising that Senio would not object to progress claims that failed to comply strictly with the requirements of the building contract when the relations between the parties were good and there was a sufficient description of the work undertaken so that progress claims could be verified for payment by the Quantity Surveyor. However, in the case of progress claim 11A, relations between the parties had soured, the progress claim does not contain full details of the work, and there were

10     Construction Contracts Act 2002, s 20(c).

substantial disputes as to Evergreen’s performance. It is at such times that parties will fall back upon the strict terms of their contract.

[37]   This leads to another issue as to whether progress claim 11A was ever verified for payment by the Quantity Surveyor. Senio did not deal with this in its evidence, although its counsel did submit the progress claim was not verified. Mr Gresson argued that Senio has the onus to establish the progress claim was not verified by the Quantity Surveyor and had not done so. He relied on the evidence of Mr Stewart who said the Quantity Surveyor had advised the progress claim “could be validly issued”.

[38]   I agree with Mr Gresson that it is Senio that bears the onus on this issue, but whether it has satisfied its onus requires consideration of all the evidence. Mr Stewart has specifically dealt with the matter in his evidence. The extent of his evidence is that the Quantity Surveyor said the progress claim could issue. That falls well short of the building contract’s requirement that the progress claim be “verified” by a “report generated by a Quantity Surveyor”.

[39]   I also consider that it was never going to be enough that Evergreen advance what Mr Gresson describes as a “reasonable interpretation” of the building contract in defence of this application. While it is for Senio to establish there is a substantial dispute as to whether the sum claimed is due or owing, even if I were to accept the submission that Evergreen’s interpretation of the building contract was a reasonable one, it was certainly not the only reasonable interpretation nor, in my view, the obvious and preferred one.

[40]   Senio  directed  much  of  its  submissions   to  the  question  of  whether    Mr Brosnan’s email of 26 April was a valid payment schedule. That is not an issue that needs to be considered in light of Evergreen’s concession that the progress claim was not a payment claim for the purposes of the Act.

[41]   As Evergreen accepts that if it was obliged to issue payment claims the statutory demand must be set aside, there will be an order to that effect. I can deal with the issue of the no set-off provision briefly.

The no set-off clause

[42]   Senio claims that it has arguable set-offs or counterclaims against Evergreen in respect of variations wrongly claimed by Evergreen (some of which were paid), delay damages of $68,000, and costs and expenses totalling at least $44,227 paid by it to complete work within the scope of the contract that Evergreen failed or refused to complete. These claims are described in the affidavit of Senio’s director, Amanda Brosnan.

[43]   Evergreen does not attempt to persuade me that there are not substantial disputes in relation to these matters. However, Evergreen says Senio cannot raise them in support of its application to set aside the statutory demand because of the provision of the building contract (Schedule 1) which defines “default” for the purpose of the contract as including the failure by the owner to pay any part of the contract price in full and without deduction or set-off on the date required under the building contract. Evergreen says that a default in the building contract is synonymous with a breach of the building contract and that a party that breaches its obligation to make a payment under a contract containing a no set-off clause, cannot normally use the existence of the set-off as a basis to set aside a statutory demand.11

[44]   There is no need for me to decide whether Evergreen is correct that the definition of “default” operates as an effective no set-off clause. That is because it could only ever apply in respect of the non-payment of the contract price or any part thereof on the date required under the building contract. As progress claim 11A was not a valid payment claim as required by the building contract it was not an amount that is owing or due for payment.

Abuse of process

[45]   Senio also sought to set aside the statutory demand on “other grounds” as an abuse of process. It appears to me that most of the matters relied upon are founded on the premise that progress claim 11A is genuinely disputed and add nothing to the

11     Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425.

application. The remaining matter relied upon, that Senio is not insolvent, is not of itself generally a basis to set aside a statutory demand.12

Result

[46]   The application to set aside the statutory demand is successful. Evergreen’s statutory demand is set aside under s 290(4)(a) of the Companies Act.

[47]   As Senio is successful, it is entitled to costs on a 2B basis, but not in respect of any steps taken in relation to the application to be represented by its director,     Ms Brosnan. If the parties cannot reach agreement on the quantum of costs they may file memoranda of no longer than five pages within 21 days and I will deal with the issue on the papers.

O G Paulsen Associate Judge

Solicitors:

Solomons, Dunedin

Todd & Walker Law, Queenstown

12     AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389 at [7].