Sharma v Craft Construction Limited (in liquidation)
[2022] NZHC 3600
•22 December 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-118
[2022] NZHC 3600
BETWEEN SUJENDRA SHARMA
Plaintiff
AND
CRAFT CONSTRUCTION LIMITED (IN LIQUIDATION)
First Defendant
AND
BEN HOLDICH
Second Defendant
Hearing: 20 June 2022 Appearances:
F B Q Collins for Plaintiff K K Kommu for Defendants
Judgment:
22 December 2022
JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 22 December 2022 at 11am pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Gibson Sheat, Wellington Glaister Ennor, Auckland
SHARMA v CRAFT CONSTRUCTION LTD (IN LIQ) [2022] NZHC 3600 [22 December 2022]
Introduction
[1] Sujendra Sharma (the plaintiff), applies pursuant to s 248(1)(c) of the Companies Act 1993 for leave to commence proceedings against Craft Construction Limited (In Liquidation) (CCL),1 in which it seeks relief by way of an order for an inquiry into the value of the construction work and services provided pursuant to a construction contract.
[2] CCL opposes the application. The liquidators allege that in accordance with an adjudicator’s determination dated 12 October 2021, the plaintiff owes CCL
$140,023.38 together with interest and costs.2 They say that the plaintiff’s proposed
proceeding and claim is not sustainable and the Court should not grant leave.
Background
[3] The plaintiff is the owner of a residential property in Auckland. In December 2019 he obtained a building consent for the construction of a planned extension to the house which would comprise a three bay car garage, a dining room, a prayer room, two bathrooms and a sleep-out (the extension project).
[4] In early 2020 the plaintiff engaged a construction company, Dynamic Renovations Limited (Dynamic) to build the planned extension. However, having commenced the work Dynamic left the site at a point where the foundations were incomplete. The plaintiff then entered into negotiations with CCL to take over the construction and complete the project. The negotiations on behalf of CCL were undertaken by it director and manager, Mr Ben Holdich (the second defendant).
[5] On 11 April 2020 the plaintiff and CCL entered into a written building contract in respect of the extension project. The written contract was a “Cost and Margin Building Contract” in the standard form of the New Zealand Certified Builders Association (the contract). The contract provided for an estimated commencement date for the building work of 1 May 2020, and an expected completion date of
1 CCL was placed into liquidation on 19 July 2021, pursuant to a shareholders special resolution passed by the second defendant, Mr Ben Holdich.
2 As at 4 April 2022 interest totalled $58,849.56.
1 December 2020. The contract also stated that the builder had provided an estimate of the “Final Contract Price” of $362,000. The contract further stated that the estimated cost was not intended to be a guaranteed fixed price for the building work.
[6] The plaintiff says that CCL commenced construction of the extension project on or about 12 May 2020. In late May and early June 2020 heavy rainfall caused some of the trenches dug for the foundations to collapse and become unstable. As a result CCL carried out additional work to rectify the damage caused by the heavy rainfall, and the plaintiff made an insurance claim resulting in approximately $52,000 being paid to CCL and $84,000 being paid to the plaintiff to reimburse him for the cost he incurred in getting another contractor to undertake some of the repair work required. The plaintiff alleges that on or about 2 July 2020 CCL suspended work at the site on the grounds that its invoice number 1483 remained unpaid. A year later on 19 July 2021 CCL was placed into liquidation.
[7] The plaintiff alleges that between 10 May 2020 and 11 August 2020 he paid CCL the sum of $389,310. The plaintiff says that as well as those invoices, CCL also issued invoices seeking payment of a further sum of $571,415.99, which he did not pay. The plaintiff alleges that a reasonable price for the building work undertaken by CCL is approximately $91,400. He accordingly alleges that CCL claimed for more than it was entitled to and that as a result he has overpaid CCL approximately
$297,900.
[8] On 31 August 2020 the plaintiff unsuccessfully applied to the Building Disputes Tribunal for an adjudication upholding his claim to have overpaid CCL the sum of $204,622, and he sought a direction that CCL be required to return to complete the contracted works. On 11 December 2020 the Building Disputes Tribunal issued a determination finding that all of the plaintiff’s claims were dismissed, and awarded costs to CCL (the first adjudication). In the course of the first adjudication CCL reduced its claim for unpaid invoices by approximately $126,000.
[9]On 16 August 2021 CCL issued a Notice of Adjudication in which it claimed
$571,415.99 (including GST).
[10] The plaintiff did not participate in this second adjudication which proceeded on a formal proof basis (the second adjudication). Prior to the second adjudication proceeding, the plaintiff’s solicitors advised CCL’s solicitors that he would not take any steps in the adjudication because he considered it would be futile to incur costs on what was an interim procedure in circumstances where CCL as the adjudication claimant was in liquidation. The plaintiff’s solicitors said:
The company is in liquidation. As a result, it is futile to be engaging in a process primarily meant for temporary relief of cashflow in circumstances where any decision made will not be final and where there is a cross claim that has to be resolved.
[11] He says that he also had a jurisdictional difficulty by reason of his earlier claim which had resulted in the first adjudication, and in which his claims had failed because he had not known what evidence he was required to produce to show that he had been overcharged, and because having claimed and failed he understood that it was not possible to re-adjudicate those same matters.
[12] On 12 October 2021 CCL obtained an Adjudicator’s Determination which found the plaintiff liable to pay CCL the sum of $140,023.38 inclusive of GST together with costs and interest. The Adjudicator noted that at the time when the plaintiff commenced the first adjudication in late August 2020, CCL was claiming $766,343 including GST compared to the contract estimate of $362,000 of which $389,969 was outstanding.
[13] The plaintiff says that the second determination was undertaken based on an assessment of CCL’s invoices taken at face value only. The plaintiff says that there has been no proper independent evaluation of the invoices or the amount claimed made by the liquidators.
The plaintiff signals his claim to the liquidators
[14] As noted above, CCL was placed into liquidation on 19 July 2021. By correspondence dated 31 August 2021 the plaintiff’s solicitors requested the liquidators to consent to the plaintiff commencing proceedings. The request was declined. The plaintiff’s solicitors renewed the request on 29 September 2021. The request was accompanied by a draft statement of claim in which it was alleged that the
value of the construction work undertaken by CCL, as assessed by an independent quantity surveyor was only $77,693. On 5 October 2021 CCL through its solicitors declined, advising that consent to commence the proceeding would not be granted, and proposed that the plaintiff should submit a claim in the liquidation for the liquidators to consider. CCL further proposed that any sum that the adjudicator determined to be payable to CCL by the plaintiff would be “ring fenced” upon receipt by the liquidators pending determination of the plaintiff’s claims. CCL said by the liquidators agreeing to secure any sum paid by the plaintiff in accordance with the second adjudicator’s determination, any application made by the plaintiff for an order to stay enforcement of the adjudicator’s determination would inevitably be unsuccessful. CCL’s solicitors said:
Your client at this stage appears to be wanting to proceed with costly, timely and inefficient Court proceedings in order to determine his alleged claim against the Company and the director. The liquidators respond to this approach as follows:
(i)As foreshadowed in paragraph 10 of Crimson’s Legal’s 1 September letter, the most cost-effective way to determine your client’s alleged claim against the Company would be for him to make a claim in the liquidation.
(ii)We see no reason why this matter cannot be dealt with by the lodgement of a [creditor’s] claim form. The Companies Act 1993 (the “Act”) authorises liquidators to deal with secured, unsecured and claims for an unspecified amount. As independent and experienced liquidators our clients will assess any claim on its merits. This process is subject to the supervision of the High Court (see: sections 284 and 304 of the Act).
(iii)While the date by which creditors were required to submit claims has lapsed, we are instructed that the liquidators are prepared to extend the time for your client to submit a claim until 5pm on Wednesday 13 October 2021.
(iv)The liquidators understand that your client may have concerns regarding enforcement of any adjudication determination that may be obtained against him. In order to mitigate these concerns, the liquidators propose, subject to obtaining confirmation that your client accepts the above offer of security in principle and/or any other adequate protections regarding your client’s diminution of assets, to delay any enforcement steps until his creditor claim has been dealt with.
[15] On 13 October 2021 the plaintiff’s solicitors advised CCL’s solicitors that the plaintiff rejected their proposal that he submit a claim to the liquidators, and explained
the plaintiff’s reasons which included that: the liquidators had not undertaken any genuine or meaningful analysis of what work had actually been done; CCL’s invoicing was inadequate and its record-keeping regarding the work it had performed was very poor; the first adjudicator had also raised concerns regarding CCL’s invoicing practices; and that the plaintiff has a strong and credible misleading conduct claim against CCL and its director under the Fair Trading Act 1986. The plaintiff’s solicitors further advised that the plaintiff had obtained an independent expert assessment from a quantity surveyor (Mr O’Keefe) who had valued the work performed by CCL at the plaintiff’s property at only $91,403.53 (inclusive of GST), while the plaintiff had paid CCL $305,073.57. And they noted that the liquidators were still claiming an additional sum of $571,415.99 (inclusive of GST) in the second adjudication. The plaintiff’s solicitors once again requested the liquidators to consent to the plaintiff commencing a claim against CCL in the High Court, and advised that in the absence of consent, the plaintiff would make an application to the court for leave to do so.
[16] Following the release of the second adjudication determination which had found the plaintiff liable to pay CCL the sum of $140,023.38 (including GST) together with costs and interest, the CCL liquidators took preliminary steps to enforce the adjudication by applying to the District Court for entry of the award as a judgment. Further correspondence was exchanged between the parties’ solicitors in which CCL’s solicitors challenged the validity of Mr O’Keefe’s valuation of the completed work, and the plaintiff’s solicitors suggested that the liquidators should therefore engage their own independent quantity surveyor to prepare a valuation of the work.
[17] In their letter of 22 October 2021 to the liquidators’ solicitors, the plaintiff’s solicitors said:
If the liquidators have any genuine concerns about Mr O’Keefe’s assessment then they should be making their own independent inquiries and then they would be in a position to be specific and accurate about anything that they may assert that Mr O’Keefe has not considered.
…
If the liquidators were to make a site visit they would note that very little work was carried out by [CCL] and that the total amount paid to [CCL] by our client, the insurance proceeds they have received and on top of that the amount sought by the liquidators does not have any sensible correlation at all to what is visible on site even from a layman’s perspective.
[18] In correspondence dated 10 November 2021 the liquidators rejected the plaintiff’s suggestion that they should engage an independent quantity surveyor. The liquidators said that if the plaintiff did apply for leave to commence proceedings and bring a claim against CCL, then they would not consent and would consider bringing a counter-claim for the full amount they had claimed in the second adjudication. And they said that if the plaintiff did not agree to having his claim dealt with by means of a claim made in the liquidation, they reserved the right to commence proceedings to enforce the second adjudication determination without further notice.
[19] The plaintiff in turn rejected the liquidators’ proposal that he make a claim against CCL in the liquidation, and maintained his intention to seek leave of the court to file proceedings against the company in liquidation. The liquidators’ solicitors responded by email on 30 November 2021 advising:
We note your advice that the without prejudice offer is declined and that your client intends to seek leave of the Court to commence proceedings against the company in liquidation.
…
A Court will not grant consent to bring proceedings resulting in the wasteful dissipation of company assets, particularly so, where there is the process of a proof of debt subject to High Court review to determine any claim. In any event, that it a matter solely for your client.
The liquidators will seek their indemnity costs of dealing with any such application.
In the meantime, there is a judgment against your client for $194,340.25 which is now immediately due and payable. This being the adjudication sum of
$140,023.38 inclusive of GST, plus interest as at 10 November 2021 of
$44,609.37 and continuing, plus the adjudicator’s costs of $9,707.50, plus the enforcement costs to be incurred.
To avoid the need for the liquidators to take enforcement action, we require that this sum be paid into our trust account. Enforcement action will be taken and then your client must consider a stay. In respect of a stay application, it would be a condition that the sum be paid and held pending the outcome of the court proceedings. Further, this is the case with clause 21.10 of the contract requiring any sum in excess of $10,000 to be paid in escrow.
[20] On 1 December 2021 the plaintiff’s solicitors responded. They repeated the plaintiff’s claim that CCL had left the site with the work incomplete and were requiring further payment after the plaintiff had already paid it significantly in excess of the
value of the work. The plaintiff’s solicitors said that they considered that CCL’s conduct and the manner in which it had invoiced the plaintiff was fraudulent, and that it had drafted a statement of claim with a cause of action alleging that CCL had engaged in misleading and deceptive conduct in breach of the Fair Trading Act. However, as an alternative to commencing court proceedings the plaintiff’s solicitors proposed that the dispute could be cost effectively and efficiently resolved by means of a binding expert determination by an independent registered quantity surveyor who would determine the value of the work undertaken by CCL on the plaintiff’s site.
[21] The liquidators rejected the proposal to have the matter resolved by means of an independent expert’s determination. In a letter dated 17 December 2021 their solicitors advised the plaintiff’s solicitors:
In relation to the unsubstantiated allegation of fraudulent invoices at paragraph 4 of your letter, we require that you provide full substantiation of such an allegation. If you are not able to do so, then this allegation should be withdrawn. …
Accordingly, with no adequate form of security being provided and the further layer of costs that will inevitably follow an alternative expert determination process, the liquidators are left with little choice but to reject the offer of an alternative expert determination process and to proceed with enforcement action. The liquidators do not have an obligation to prove your client’s claim for an alleged overpayment and are entitled to rely on [the second adjudicator’s] adjudication determination in order to take enforcement action to recover the debt due. This would clearly be in the best interests of [CCL’s] creditors.
[22] On 18 January 2022 the liquidators issued a six monthly report in which they estimated a deficit of $352,804 in the CCL liquidation.
[23] On 10 February 2022 the plaintiff filed an application in this Court seeking leave pursuant to s 248(1)(c) of the Companies Act to commence proceedings against CCL alleging breach of contract, and breaches of the Fair Trading Act 1986. The plaintiff says that his claim will allege that he has substantially overpaid CCL for the work it did. Following service the liquidators agreed to withhold service of a bankruptcy notice upon the plaintiff pending determination of the plaintiff’s application.
Law
[24]Section 248(1) of the Companies Act relevantly provides:
248 Effect of commencement of liquidation
(1)With effect from the commencement of the liquidation of a company,—
(a) the liquidator has custody and control of the company’s assets:
(b) the directors remain in office but cease to have powers, functions, or duties other than those required or permitted to be exercised by this Part:
(c) unless the liquidator agrees or the court orders otherwise, a person must not—
(i)commence or continue legal proceedings against the company or in relation to its property; or
(ii)exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company:
…
[25] In Fisher v Isbey, Master Faire noted that s 248(1) set out the factors which have informed the Court’s exercise of its discretion when deciding whether to permit the commencement or continuation of proceedings against a company in liquidation.3 He relevantly said:4
[19] …I extract factors which have weighed with Courts in the exercise of the discretion to allow proceedings to continue. They are as follows:
…
(c) The assets of a company should not be dissipated in wasteful litigation particularly if there is a more convenient method for determining the claim:
…
(e)There is a difference of legal opinion as to the test to be applied. The first position is that the application must show that there is a serious question to be tried. The second position is that the claim should not be clearly unsustainable but the Court will not investigate the merits of the claim;
3 Fisher v Isbey (1999) 13 PRNZ 182 (HC).
4 Citations omitted.
…
[26] Master Faire agreed that the correct approach was that described by Paterson J in Saimei v McKay, namely that “[t]he claim should not be clearly unsustainable but the Court will not investigate the merits of the claim.”5
[27] In relation to the issue of whether the procedure for determining creditors’ claims under the Companies Act is the appropriate mechanism, Master Faire said:
[36] The final matter that I have already partially referred to is whether or not the procedure for determining [creditors’] claims under the Companies Act is appropriate here. Clearly, it is not in relation to the third cause of action6 because the plaintiff does not purport to be a creditor in respect of that. In respect of the balance of the causes of action, the nature of the dispute seems to me to preclude its determination simply utilising the procedures set up under s 302 and the following sections of the Companies Act 1993. A careful accounting is required. There is no provision in s 302 and [the] following sections of the Companies Act 1993 for such exercise to be carried out.
[28] Regarding the issue of whether the liquidators have the funds available to defend the proposed claim or whether the plaintiff has the ability to pay costs in the event of their claim being unsuccessful, Master Faire considered these to be matters best dealt with by means of an application by the defendant liquidators for an order for security for costs.7
Submissions
The plaintiff
[29] For the plaintiff Mr Collins submits that the plaintiff’s proposed claim against CCL and its director, Mr Holdich, is sustainable. He says that at trial the plaintiff will produce evidence from a registered quantity surveyor who has assessed the value of the work performed by CCL on the plaintiff’s property as being only $18,389.65 (excluding GST). That figure does not include the cost of the drainage and plumbing works carried out by CCL’s subcontractor which cost has been paid by the plaintiff. Mr Collins says that the plaintiff will also produce evidence to show that the contract
5 Saimei v McKay (1998) 6 NZBLC 102,611 (HC) at 5.
6 In their third cause of action the plaintiffs claimed a constructive trust entitlement with respect to funds held in a solicitors’ trust account following the sale of a property.
7 At [34].
price of the new builders engaged by the plaintiff to complete the work after CCL had ceased work, was $469,300 (inclusive of GST). That sum being markedly less than the total amount being claimed by CCL, while also being much closer to CCL’s original detailed estimate of $362,000.
[30] Mr Collins says that the amounts claimed in CCL’s invoices will also be challenged in the proposed proceeding. He says that the liquidators have simply proceeded on the basis that the invoices are correct and in each case they validly claim payment for work actually performed by CCL, notwithstanding the information the plaintiff has provided to them showing that an independent quantity surveyor has assessed the work completed by CCL as being valued as markedly less than the total invoiced amount.
[31] The plaintiff further notes that the liquidators did not present any quantity surveyor evidence at either of the adjudications. Mr Collins says that similarly, the affidavit evidence of CCL’s quantity surveyor Mr Patrick Hanlon, who was engaged by CCL to respond to the affidavit of Mr O’Keefe and comment on the second adjudication which found the plaintiff liable to pay CCL $140,023.38 is also challenged on the basis that he too failed to undertake an independent measure of the work actually performed by CCL. Mr Collins says that the accuracy of the CCL invoices were criticised by both adjudicators. He says that the invoices provide only generalised statements regarding the work said to have been done for which payment is claimed and he submits that they have little or no probative value as proof of CCL’s contractual entitlement.
[32] Mr Collins says that the plaintiff has already paid a significant sum to CCL, and there has been no credible explanation or independent assessment undertaken to explain why the sums claimed by CCL were so high when such a limited amount of work was actually carried out. He submits that it should be obvious to experienced liquidators that CCL’s invoices are a “muddle”, lack any proper substantiation, and appear out of all proportion to the work actually performed by the company. Moreover, there is a fundamental conflict between the liquidators objectively assessing the plaintiff’s allegation that he has been overcharged by the company, and their obligations to the general body of creditors which has resulted in their decision
to seek to enforce the second adjudication and insist on payment being made by the plaintiff, which if payment was made, would provide a source of distribution payments to CCL’s creditors.
[33] Mr Collins says that if leave is granted to the plaintiff, he will not obtain an advantage over other creditors and he will simply be an unsecured creditor on the basis of a determination of his claim by the Court. Counsel submits that having regard to the nature of the dispute which will necessarily involve detailed analysis of the value of the work performed by CCL and determination of CCL’s entitlement under the construction contract, the dispute is not suitable for determination by the summary process used by liquidators when deciding whether to accept or reject creditors’ claims. Mr Collins also submits that the proposed proceeding is not wasteful litigation. He says that in circumstances where the plaintiff has not received an adequate explanation of the excessive claims made by CCL, being unable to make a claim and have the merits of the matter determined by means of authoritative determination by the Court would be an injustice. Counsel submits that the liquidators are withholding their consent unreasonably and are doing so in order to oppressively pressure the plaintiff to pay the sum determined by the second adjudication plus interest and costs, despite the evidence presented to them by the plaintiff showing that he has been significantly overcharged for the work actually undertaken by CCL.
The first defendant
[34] Mr Kommu for CCL submits that the plaintiff should not be granted leave under s 248(1)(c) of the Act to commence his proposed claim against the company. He submits that the proceeding would cause the assets of CCL to be dissipated in wasteful litigation. And he says that the plaintiff’s position and liability under the construction contract has already been determined by the two adjudications which have been conducted which have resulted in him being found liable to pay the liquidators the sum of $140,023.38 together with interest and costs. He says that although the liquidators have prepared a bankruptcy notice against the plaintiff in respect of the amount of the judgment entered against him, it has not been served and will not be pursued pending determination of the plaintiff’s application.
[35] As regards the first adjudication, Mr Kommu takes issue with the plaintiff’s explanation that because he did not have legal advice as to what was required, he did not present detailed evidence to the first adjudicator. Mr Kommu says that the plaintiff’s submissions to the first adjudicator had been prepared by a quantity surveyor (Mr Andrew Fawcett) and had been reviewed by two reputable law firms. Counsel submits that despite the plaintiff having expert professional assistance in preparing his claim against CCL in the first adjudication, his claim was dismissed in its entirety, leading the first adjudicator to conclude that the plaintiff owed CCL money.
[36] Mr Kommu further notes that the plaintiff elected not to participate in the second adjudication. He says the first adjudication related to the plaintiff’s claim for alleged overpayment and the second related to the claim made by CCL seeking payment from the plaintiff for the invoiced amounts outstanding. The second adjudication proceeded on a formal proof basis and determined that the plaintiff was liable to pay CCL. Since that determination, CCL has obtained an independent expert report from a quantity surveyor, Mr Hanlon who says that in his opinion the sum determined as owing by the second adjudication is the minimum amount that CCL is entitled to, and that a further sum of approximately $323,000 will likely be justified.
[37] Mr Kommu submits that Mr Hanlon’s evidence therefore shows that the plaintiff’s proposed claim lacks merit, and he says that Mr Hanlon’s opinion and evidence should be preferred over that of Mr O’Keefe. He says that Mr O’Keefe’s assessment and evidence simply relates to the value of the completed concrete work and is based on limited instructions provided to him by the plaintiff. He says that as part of his assessment Mr O’Keefe has not considered the construction contract, and neither has he undertaken a valuation of the contract variations undertaken by CCL. Mr Kommu says that by comparison, Mr Hanlon has undertaken a thorough review of the construction contract, invoices, site photographs and the plaintiff’s proposed claim in reaching his conclusion.
[38] Mr Kommu further submits that the plaintiff’s proposed claim is clearly unsustainable. He notes that in his statement of claim the plaintiff does not claim a specific amount and only seeks an order for an inquiry into the value of the work and
services provided by CCL, despite Mr O’Keefe’s opinion that the value of the work only amounts to $18,389.65 (exclusive of GST). Counsel submits that as the plaintiff has an onus to show that leave should be granted, the lack of specificity as to quantum combined with the other evidential issues he must overcome, show that his claim is clearly unsustainable.
[39] Mr Kommu submits that if leave is granted to the plaintiff he will be advantaged over other creditors, as his claim being determined in the Court will be at the expense of the assets of CCL, and thereby disadvantage the other creditors in the liquidation. He submits that the appropriate process for the plaintiff to follow for determining his claim is for him to make a claim in the liquidation. He submits that the issues in dispute are not complex and the parties have already obtained expert opinions on the key matters in dispute. He notes that discovery is not required as the parties have the relevant documents available to them already, and that the process is subject to the supervision of the High Court, meaning that the plaintiff can seek recourse to the Court if not satisfied by the liquidators’ decision on his claim.
[40] Mr Kommu accordingly submits that the plaintiff’s application should be declined and the issue of costs be determined on the papers following the filing of memoranda.
Discussion
[41] The significant difference between the amount assessed by the plaintiff’s independent expert witness and quantity surveyor Mr O’Keefe, as being the value of the work undertaken by CCL prior to it walking off the site, and the substantial sums claimed by CCL from the plaintiff for the work, clearly demonstrates the extent of the dispute between the parties. In his affidavit Mr O’Keefe states that he has assessed the reasonable value in accordance with current market rates of the concrete works carried out by CCL on the plaintiff’s property, excluding all other trades and works, is
$18,389.65 (exclusive of GST). In the plaintiff’s statement of claim, he alleges that a reasonable price for CCL’s partial performance of the contract works is $77,693 (excluding GST). These sums are in sharp contrast to the sum of the invoices issued by CCL to the plaintiff during the period between 10 May 2020 and 11 August 2020
which total $383,310 and which the plaintiff paid. CCL subsequently issued further invoices totalling $571,415.99.
[42] The plaintiff accordingly claims that he overpaid CCL the sum of $297,906.47 and that he is entitled to repayment of all amounts overpaid together with CCL’s claimed progress payments which have not been paid.
[43]While the cost of the whole of the contract work was estimated by CCL to be
$362,000 (including GST), subsequent contract variations to cover remedial work were required as a result of storm and water damaged foundations and drainage trenches, and the consequent need to re-route drainage and water mains piping. Contract variation notices were issued totalling $212,090.75. Therefore the sum of the contract variations together with the contract estimate of $362,000, is $574,090.75 (including GST).
[44] Although the plaintiff failed to establish his claim in the first adjudication, the adjudicator nevertheless expressed having some sympathy for him and described CCL’s accounting for the plaintiff’s job as being “a confusing muddle”. He said:
[71] One of the features of this adjudication is that there is no narrative evidence or statement of any kind from any of the people who were involved at the time (in fact, there is no direct evidence nor any statements at all). Usually, an adjudication claim is accompanied by a statement that gives some indication as to what happened in relation to the project, and how the parties have come to be in dispute. Similarly, I would normally expect to see a statement of some sort from [CCL] to explain what happened and to give context to the materials and documents. There is nothing of that sort on either side in this case. I am left to discern what happened by reading the contemporaneous documents and the claim/response.
[72] I have gathered that there were problems with ground conditions after work started. I also see that a trench that had been dug collapsed, requiring significant and urgent remediation which the claimant instructed and accepted as a variation. It is, however, difficult to piece together from the records provided exactly what the issues were, when they emerged, and what the discussions between the parties were in relation to them. I have done my best with the information available. However, where there are unexplained gaps or other uncertainties, then — all other things being equal — I have to apply the principle that it is the claimant that has the burden of proof in all of these matters.
…
[147] At the end of this part of the claim, the claimant does not ask me to find that there is a particular sum of money due either to him, or by him to the respondent. He only asks for a determination as to the rights and obligation [sic] of the parties, in particular that [CCL] must:
a.submit a concise and legible claim so that he can assess the basis of entitlements claimed and how the claims are calculated; and
b.provide calculations relating to credits against the original contract scope, so that the costs of variations can be assessed.
[148] Putting aside an issue as to whether an adjudicator has power to make directions of that kind, I do not see it as either being necessary or appropriate to do so here. The reality is that, as long as the claimant refuses to pay, then if the respondent wants to have an enforceable determination that it is owed anything at all, it is going to have to bring its own claim (be that by way of adjudication, arbitration or in the courts). It will need to establish what is owed. It will be for the trier of fact to consider whether and to what extent the information is adequate. I have dealt with the issues as they have been presented to me, but that will not constrain any adjudicator, arbitrator or Judge subsequently appointed, to determine the respondent’s claims.
[149] In this adjudication, and for my purposes, the real significance of the outcome of the analysis of the invoices is the finding that the claimant owes the respondent money, not vice versa.
[45] As I have noted above, the plaintiff elected not to participate in the second adjudication. But while CCL did participate to prosecute its claim, the second adjudicator once again found that the information and evidence he was presented with was incomplete and unsatisfactory, commenting that he found himself in a similar position to that of the first adjudicator, “namely needing to try and work out matters from the documentation where in many instances it is not clear or easy to do”. Referring to the limited nature of the information provided by CCL in support of its claim the second adjudicator said:
[35] In paragraphs 77 to 84 of the first adjudication under the heading substantial invoicing errors the first adjudicator summarised how [CCL] updated its invoices and reconciled them and substantially reduced the amount it contended it was claiming as a result of double ups, miscalculated margins, payment off-set errors, and other issues. He noted that the whole package of information is however very hard to follow. He also noted that no original time records for any of the hours charged were given. He further noted that he had no chronology as to when invoices were issued, when they were amended, how and when payments were received or how and when deductions and credits were given to particular invoices (see paragraph 81).
[36]Perhaps most tellingly the first adjudicator noted under the heading
payment of invoices at paragraph 88 the following:
If this were a claim by the Respondent [CCL] it would not succeed unless the Respondent were able to establish that all work charged for was within scope, that agreed rates and margins had been applied to actual costs incurred and hours worked, and that the accounting (i.e. reconciling payments with receipts) was accurate. It would be for the Respondent to put forward a coherent set of invoices and related source materials. Failure to do so would result in the claim being dismissed in whole or in part for want of proof.
[37] A similar comment was made in footnote 50 to paragraph 96 of [the] first determination when the adjudicator was considering invoice 1483 where, following a comment that a cost was unsupported and there was no reference to contemporaneous time records, he wrote:
Indeed, if this had been a claim by the Respondent, I might well have dismissed this element on the basis that, without contemporaneous records or some better information as to how these hours have been arrived at, the claim is unproved as to quantum (or should be allowed, but at a reduced rate).
[38] Unfortunately despite these comments and warnings, [CCL] has now commenced this adjudication as Claimant and assumed that there have been findings by the first adjudicator in its favour and that these findings that certain amounts were payable in relation to certain invoices, apply in this adjudication. That is not the case. It is unfortunate that [CCL] as Claimant in this adjudication has not properly understood the comments of the adjudicator in the first adjudication and the forewarnings he gave as to the need to substantiate and prove claims. The most sensible way this could have been attended to by [CCL] and the liquidator in this adjudication would have been to engage a quantity surveyor to undertake a comprehensive exercise and prepare a report. At the very least, [CCL] should have fully and properly addressed the issues raised by the first adjudicator with full and complete evidence and substantiation.
[46] The amount claimed by CCL in the second adjudication was $571,415.99 (including GST) of which the second adjudicator found $140,023.38 (including GST) to be payable by the plaintiff. The second adjudicator therefore declined to uphold 12 of CCL’s invoices totalling $431,392.61(including GST).
[47] It is therefore apparent that the second adjudication proceeded not only without any participation by the plaintiff, but also on the basis of the invoices, with only limited supporting evidence and records to substantiate the invoices and the amounts claimed. Furthermore, CCL did not produce any evidence from a quantity surveyor, leaving the second adjudicator to do the best he could with the limited information and documentation he was given.
[48] I consider that when the basis of the first and second adjudications are examined, it is clear that neither of them can be treated as having been determined on the basis of anything approaching complete and reliable evidence. While the second adjudicator issued a determination finding that the plaintiff owed CCL the sum of
$140,023.38 in relation to nine out of the 21 invoices he had been asked to consider, his determination was essentially based on consideration of the invoices themselves, and there was no evidence as to whether the work for which payment was claimed in the invoices had been done or if it had whether it was done to the requisite standard, or whether it was within the scope of the construction contract or contract variations.
[49] I accordingly find that neither of the adjudication decisions provide a complete and reliable basis on which to finally determine the merits of the plaintiff’s claim or dispose of his claim as being clearly unsustainable. Furthermore, I am satisfied that the plaintiff has shown sufficient evidence in support of his claim as set out in his statement of claim regarding the value of the work performed by CCL to show that the merits of his claim should be determined by means of a claim in proceedings brought against CCL and the second defendant. The plaintiff’s claim will necessarily involve the court undertaking a detailed examination of the contractual entitlements and obligations of the parties under the construction contract and variations, and consideration of expert evidence from the quantity surveyors engaged by each of the parties in order to determine whether the plaintiff’s claim is established.
[50] It is also significant that the plaintiff’s statement of claim includes a cause of action alleging a breach or breaches by the defendants of the Fair Trading Act by engaging in misleading and deceptive conduct. Such allegations are likely to require the court to hear detailed evidence regarding representations alleged to have been made by or on behalf of the defendants and possibly to make credibility findings.
[51] The procedure set out in ss 302–304 of the Companies Act for unsecured creditors to make claims against a company in liquidation empower the liquidator to accept or reject the claim, and require the liquidator to give notice of the rejection to a creditor where that is their decision. It is a procedure that is intended to enable liquidators to consider whether a creditor’s claim is substantiated by the documents provided and summarily and inexpensively assess and determine whether or not to
accept the creditor’s claim as an unsecured creditor for the purposes of the liquidation. It is not a process that involves a hearing of evidence or one suitable for detailed evaluation of the merits of a contractual building dispute and the consideration of competing expert opinion evidence as to whether or not the party claiming to be a creditor of the company is indeed a creditor, and if so what the correct amount of the debt owed to them is.
[52] Moreover, it is clear from the position taken by the liquidators in their response to the plaintiff’s application, that should he make a creditor’s claim in the liquidation based on Mr O’Keefe’s report and opinion they will inevitably reject it. That would leave the plaintiff facing enforcement by the liquidators of the second adjudication by service of the bankruptcy notice, and having to apply to the Court pursuant to s 284(1)(b) of the Companies Act for an order reviewing the liquidators’ decision and determining the amount of his claim,8 and a stay of enforcement pending determination of that application. Furthermore, the s 304 procedure to be undertaken by the liquidators in order to determine whether or not to accept the plaintiff as a creditor, does not confer jurisdiction on liquidators to determine his claim alleging breaches of the Fair Trading Act. That is clearly a matter for the Court to determine.9
[53] Turning to the other criteria that will inform the discretion, I find that the plaintiff’s claim will not affect the position as between unsecured creditors. While the interests of the other unsecured creditors are potentially affected by a final determination of whether the plaintiff is or is not also an unsecured creditor, that issue must be determined before the liquidation can proceed and be finalised. There is nothing about the plaintiff’s proposed claim that results in inequality as between the unsecured creditors. To the contrary the objective of the plaintiff’s claim is to establish whether he is an unsecured creditor and therefore to be treated the same as other unsecured creditors, or whether he is a debtor who owes money to CCL.
[54] In my view the plaintiff’s proposed claim against CCL will not cause the assets of the company to be dissipated in wasteful litigation. The issue of whether the plaintiff is a creditor or debtor of the company is a key issue in the liquidation and
8 Companies Act 1993, s 307(2).
9 Fair Trading Act 1986, s 46.
having regard to the nature of the dispute it can only be determined by the Court, and the liquidators can apply for an order for security for costs against the plaintiff. In the somewhat unusual circumstances here where CCL has registered a judgment against the plaintiff founded on an adjudication that was determined on the basis of limited documentary evidence and where the dispute between the parties encompassed a much wider range of issues than those determined by the second adjudicator, I consider it would amount to an injustice were the plaintiff to be prevented from accessing the court in order to determine the merits of his claims.
[55] I am accordingly satisfied that the plaintiff should be granted leave to commence his proposed proceeding against CCL and the second respondent Mr Holdich. Without examining the merits of the plaintiff’s claim in detail, I am satisfied that the plaintiff has shown that his claim has sufficient prima facie substance and credibility such as justifies it being allowed to proceed and be determined. I consider that it is in the interests of justice that the merits of his claims be considered by the court and the question of whether or not he is an unsecured creditor of CCL is finally determined on the basis of evidence including expert opinion evidence regarding the value of the work undertaken by CCL and its entitlements under the construction contract. The Court will also determine the plaintiff’s claim under the Fair Trading Act against CCL and the second respondent.
[56] The order I shall make pursuant to s 248(1)(c) granting the plaintiff leave to commence the proposed legal proceeding as set out in the statement of claim dated 8 February 2022, does not preclude the plaintiff amending the statement of claim to add particulars or specify the sum sought to conform with the plaintiff’s evidence prior to trial.10
Result
[57] The plaintiff’s application dated 8 February 2022 for an order granting him leave to commence the proceeding filed together with the application is granted.
10 By memorandum dated 23 June 2022 and filed following the hearing, the plaintiff’s counsel advised that the revised amount to be sought by the plaintiff in his claim is $174,636.51.
[58] The plaintiff having succeeded in his application is entitled to an award of costs. I direct the parties to file costs memoranda comprising no more than three pages in length, apart from appendices. I direct the plaintiff to file and serve his costs memorandum by 5.00 pm 27 January 2023, and CCL to file and serve its costs memorandum in reply by 5.00 pm on 10 February 2023. Following the filing of the costs memoranda in accordance with this direction I shall determine costs on the papers.
Paul Davison J
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