Simple Engineering Limited v Ingenious 1 Limited

[2024] NZHC 1186

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2787

[2024] NZHC 1186

BETWEEN

SIMPLE ENGINEERING LIMITED

Applicant

AND

INGENIOUS 1 LIMITED

Respondent

CIV-2023-404-2788

BETWEEN

GORDON & RYAN (2022) LIMITED
Applicant

AND

INGENIOUS 1 LIMITED

Respondent

Hearing:

7 May 2024

Appearances:

G Jindal for Respondent

D M Connor and H S Sakairi for Applicants

Judgment:

13 May 2024

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 13 May 2024 at 4:00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

………………………………….

SIMPLE ENGINEERING LIMITED v INGENIOUS 1 LIMITED [2024] NZHC 1186 [13 May 2024]

[1]    This judgment concerns an application by Simple Engineering Limited (Simple) and Gordon & Ryan (2002) Limited (G&R) to set aside statutory demands issued to each company by Ingenious 1 Limited (Ingenious). While separate demands were issued and separate applications to set aside filed, both applications were dealt with in the one hearing on 7 May 2025 given the overlap in issues between the two proceedings.

[2]    In this judgment, I intend to refer to the demand issued to Simple and not the demand issued to G&R, unless G&R’s demand warrants separate treatment. Accordingly, the comments and observations concerning Simple apply to G&R unless I state otherwise.

[3]    Ingenious was incorporated on 27 September 2023.  On 28 September 2023, a company called Best Air Conditioning Limited (Best), purported to assign to Ingenious debts that Best says it is owed by Simple and G&R. The assignment is not before the Court but given the date of incorporation, the assignment must have occurred on 27 or 28 September 2023. Ingenious gave notice of the assignment to Simple and G&R on 28 September 2023 and immediately issued statutory demands for the assigned debts.

[4]    On 18 October 2023, Ingenious issued what purported to be payment claims under s 20 of the Construction Contracts Act 2002 (the CCA) in respect of the assigned debts.

[5]    Payment schedules were issued in response to the payment claims. Ingenious asserts those payment schedules are invalid.

[6]    On 6 November 2023, Ingenious withdrew the 28 September 2023 statutory demands and immediately issued new demands that relied on the purported payment

claims. The November 2023 statutory demand, while directed to Simple, gave as the address at which was being served as:

By email to David Connor (Barrister) at [email protected]

The demand, in relation to G&R, was addressed in the same way.

[7]    Mr Jindal, counsel for Ingenious, confirms that the statutory demands were served by email to Simple’s counsel. Mr Connor, counsel for Simple, says he did not agree to accept service of the statutory demands by email, nor did Mr Jindal suggest such an agreement had been reached.

[8]    While the application to set aside the demands did not refer to the validity of service, it does include what might be called a catch-all ground that the demand ought to be set aside on other grounds. Mr Connor adopted the service issue when raised  by the Court and Mr Jindal responded to that point in his oral submissions. Mr Jindal did not oppose the point being relied on by Simple. A further point raised by the Court was whether Ingenious as an assignee of a debt has standing to issue a payment claim in respect of that alleged debt. Again, Mr Connor adopted that as a point to be addressed — Mr Jindal did not oppose that point being considered, but did not address it in his oral submissions.

[9]    Mr Connor submitted that the payment claims issued by Ingenious did not in any event comply with s 20 of the CCA. Mr Jindal submitted that it was the payment schedules issued by Simple that were invalid.

[10]Accordingly, it is necessary to consider the following issues:

(a)the validity of service of the statutory demands;

(b)whether Ingenious has standing as assignee of a debt to issue a payment claim under the CCA;

(c)do Ingenious’ payment claims comply with s 20 of the CCA; and

(d)if they do comply with s 20 of the CCA, were valid payment schedules issued.

Service

[11]   Service of statutory demands is governed by s 388 of the Companies Act 1993 (the Act).1 Section 388 provides:

388     Service of other documents on companies

(1)A document, other than a document in any legal proceedings, may be served on a company as follows:

(a)by any of the methods set out in paragraph (a) or paragraph

(b)    or paragraph (c) or paragraph (e) of subsection (1) of section 387; or

(b)by posting it to the company’s registered office or address for service or delivering it to a box at a document exchange which the company is using at the time; or

(c)by sending it by facsimile machine to a telephone number used for the transmission of documents by facsimile at the company’s registered office or address for service or its head office or principal place of business; or

(d)by emailing it to the company at an email address that is used by the company.

…

[12]   The sections referred to in 388(2) of the Act have no application to the present situation.

[13]   Section 388(1)(d) of the Act refers to a document being served by emailing it to the company at an email address that is used by the company.

[14]   Here, the statutory demands were emailed to the email address used by counsel for Simple. Counsel’s email address is not an email address used by Simple. Service was therefore invalid in terms of s 388 of the Act.

1      See Upright Scaffolding Ltd v Pinnies Painters & Plasterers Ltd [2019] NZHC 1485, [2019] NZAR 1084.

[15]   Mr Jindal submitted there was no doubt that the statutory demands had come to the attention of Simple. So much must be the case given Simple has applied to set aside the statutory  demands,  but  that  is  not  the  point.  Maple  Land  International Ltd v Ping is on all fours with the present situation.2 That case concerned an application to set aside a statutory demand. The statutory demand in that case was emailed to the alleged debtor’s solicitor. It was also delivered to the solicitor’s office by courier.

[16]   Associate Judge Paulsen applying Upright Scaffolding Ltd and others authorities, concluded that a statutory demand is not a notice in a legal proceeding for the purposes of s 387 of the Act and therefore must be served in accordance with s 388 of the Act.3 The applicant in Maple Land International Ltd submitted there was nothing in ss 387 or 388 of the Act permitting service of a statutory demand at the offices of a company’s solicitor so that the act of delivering the statutory demand to the solicitor’s office was of no effect and it made no difference that Maple’s director received a copy of the statutory demand by email from their solicitor. Associate Judge Paulsen said:4

[31]  … there is authority that where there has been irregular service it is   not sufficient that the document in question has subsequently come to the attention of the person to be served.5 I agree with that approach. The fact that [the director] accepts the statutory demand was sent by email to him (albeit some days after it was received by his solicitors) does not change the fact that it was never validly served.

[17]   It follows that the statutory demands in this case were not validly served and are a nullity. That conclusion is sufficient to deal with the applications before the Court but given the other arguments raised by counsel and to avoid the possibility that the demands would simply be re-issued and properly served, I make further comments in respect of the issues outlined.

2      Maple Land International Ltd v Ping [2022] NZHC 248.

3      Maple Land International Ltd v Ping, above n 2, at [17].

4      Maple Land International Ltd v Ping, above n 2, at [31].

5      Kristensen v Global Flats Ltd (in liq) (2001) 15 PRNZ 581 (HC) at [20]; and Towers v Morley

[1992] 2 All ER 762; [1992] 1 WLR 511 (CA).

[18]   Again, I confirm that while the service point was not expressly raised in the application, it was raised at the beginning of the hearing by the Court, adopted by  Mr Connor and without objection being taken by Mr Jindal.

Does Ingenious have standing to issue a payment claim?

[19]   The payment claims in this case are issued by Ingenious, not Best. They were issued well after Ingenious took assignment of the debt alleged to be owed by Simple to Best. The payment claims name Ingenious as payee.

[20]   Section 20 of the CCA provides that a payee may serve a payment claim. ‘Payee’ is defined in s 5 of the CCA as having the meaning in s 19 of the CCA. Section 19 provides that:

Sub-part 3 — Procedure for making and responding to payment claims

…

payee means the party to a construction contract who is entitled to a payment.

[21]   It is common ground that Ingenious is not a party to whatever the contractual arrangements were between Simple and Best. The terms of the assignment between Best and Simple are not before the Court but are described in evidence filed on behalf of Ingenious, as follows:

[68] Best Air has assigned all its rights and remedies, under  the  construction contracts for HVAC installation with Simple Engineering Limited and Gordon & Ryan (2022) Limited, to Ingenious 1 Limited.

[22]   This records Best being entitled to the rights and remedies under construction contracts. It does not record that the construction contracts themselves have been assigned to Ingenious so as to mean Ingenious is “the party to a construction contract who is entitled to a payment”.

[23]   Ingenious’ entitlement to a payment (assuming all other matters are determined in its favour) arises by virtue of an assignment to it of debts alleged to be owed pursuant to invoices issued by Best. Best did not issue payment claims in respect of the debts and it was not, in my view, open to Ingenious to do so after the assignment because it is not a payee as defined in the CCA.

[24]   As Ingenious’ opposition to the application to set aside the statutory demands was dependent on its payment claims being valid, this would have been an alternative basis to set aside the demands.

[25]   I again record this issue was raised by the Court and adopted by Mr Connor. While Mr Jindal did not make submissions on this point, he did not seek time to file further submissions or otherwise object to the point being considered.

Are the payment claims otherwise valid?

[26]   Section 20(2) of the CCA specifies what a payment claim must cover. Section 20(2) provides:

1. A payment claim must—

(a)be in writing; and

(b)contain sufficient details to identify the construction contract to which the payment relates; and

(c)identify the construction work and the relevant period to which the payment relates; and

(d)state a claimed amount and the due date for payment; and

(e)indicate the manner in which the payee calculated the claimed amount; and

(f)state that it is made under this Act.

[27]   The  payment  claim  purports  to  cover  the   period  1 February  2021  to   31 August 2021. The payment claim next to the box headed “Project” states: “various overdue invoices”. In relation to Site Location it states: “various sites/locations as noted in attached invoices”.

[28]Under the heading “Description”, there appears:

Refer to attached statement of account

The underlying invoices have been sent to your over email and are overdue for payment. All invoices attached here for reference. We have also attached a statement of account to show how the amount has been calculated.

Any part payment made by you has been credited against those particular invoices

[29]   The payment claim was accompanied by the necessary notices. Twenty invoices were attached to the payment claim summarised in a document headed “Statement”.

[30]   While the dates of the invoices for the G&R payment claim are different, it is otherwise in the same terms as the one sent to Simple, but with 27 invoices attached.

[31]   Mr Connor submitted the payment claim is invalid as it does not contain sufficient details to identify the construction contract to which the payment claim relates.

[32]   Mr Jindal highlighted passages in the evidence which he submitted confirmed there was an oral contract between Best and Simple and then between Best and G&R. The tenor of Mr Jindal’s submissions and of the evidence he referred to was of what might be called an over-arching oral arrangement between the parties. For example, in the affidavit of Mr Syed of Best, he says:

[13]We all orally agreed that it would make sense to do all the sheet metal fabrication in Gordon & Ryan (2022) Limited and have Best Air do all the installation work. It was orally agreed that Gordon & Ryan (2022) Ltd will subcontract installation work to Best Air and any out- of-pocket expenses like parking, fasteners, brackets and consumables will be invoiced to Gordon & Ryan (2022) Limited.

[33]   There is no mention in the payment claims of any such oral agreement or its alleged terms.

[34]   However, as noted in the evidence as to the scope of the assignment, it is said that what has been assigned are rights under construction contracts (plural). Mr Syed of Best refers to the assignment being of contracts (plural) in his two affidavits.

[35]   I would have determined that the payment claims did not contain sufficient details to identify the construction contracts to which they relate. Mr Jindal developed a submission that there was one oral agreement, which I took to mean an over-arching or umbrella contract, covering a number of different jobs. Mr Syed of Best refers to contracts (plural). It might be said that Mr Syed’s use of plural was because he was

referring to the agreements with Simple and G&R but the point is, there is no way of knowing that on the face of the payment claims.

[36]   In Simple’s payment schedule of 26 October 2023, it took the position there was no construction contract as that term is defined in the CCA. At the hearing that argument was not developed. Contracts for the installation of air conditioning and ventilation systems (that being the business of Best) would be within the definition of construction work pursuant to s 6(c) of the CCA.

[37]   However, the payment schedules began with the following “Important note and reservation” which was in red:

Ingenious 1  Limited (“Alleged  Claimant”) has claimed that  it  has served   a document, described below and referred to as “Alleged Claim”, on Simple Engineering Ltd (“Simple”) and that that document amounts to a Payment Claim under the Construction Contracts Act 2002 (“CCA 02”). Simple contents that the Alleged Claim is not a valid Payment Claim. All aspects of this response are provided subject to that contention.

[38]   Accordingly, Ingenious was on notice that Simple contended that the payment claim was invalid. This would have been an independent ground for granting the application to set aside the demands.

If there was a valid payment claim, is there a valid payment schedule?

[39]   I comment on this only briefly. As I have said, the payment schedule reserved Simple’s position that the payment claim was invalid. However, to the extent that it asserted the payment claim was invalid because there was no construction contract as defined in the CCA, had the payment claim been valid, I doubt this ground would have been a valid challenge to the payment claim. This is because, as I have said, the subject matter of the contracts is within the meaning of the work in s 6(c) of the CCA.

Observation

[40]   Many volumes of material were filed for the hearing. Much of that material was not subject to submissions because counsel understandably focused on the significance of the payment claims. Simple and G&R claim to have counterclaims or set-offs against Best. There are wider issues as to the nature of the arrangements

between the principals of the companies. As Mr Jindal recorded in his submissions: “Three friends went into business together and operated three companies”. (Best, Simple and G&R). Mr Connor described the individuals as being “co-venturers”. He submitted it cannot have been intended that as co-venturers the three friends would have intended alleged claims by one entity against another to be considered in isolation. He submitted that as co-venturers the parties would have expected there to have been a netting off of respective claims to arrive at a final amount owed one way or another. The effect of Mr Connor’s submission was that it was only after the taking of that account that any residual credit could be assigned. Therefore, he submitted that Ingenious took subject to that underlying understanding arising from the parties being co-venturers.

[41]   The short point is that because of the oral nature of the arrangements between the parties, which were extremely lose, and the complexities of the relationships, absent a valid payment claim and an invalid payment schedule, the circumstances of this case are unsuitable for resolution in a summary context.

Orders

[42]   There is an order setting aside the statutory demand issued by Ingenious 1 Ltd to Simple Engineering Ltd dated 6 November 2023 and an order setting aside the statutory demand issued by Ingenious 1 Ltd  to  Gordon &  Ryan  (2022)  Ltd  dated 6 November 2023.

Costs

[43]   The applicants (both Simple and G&R) are entitled to costs. There is one award of costs to cover both applications. Unless costs memoranda are filed, the order of the court as to costs shall be that Ingenious 1 Ltd is liable to pay costs on a 2B basis plus 25 per cent. That uplift is designed to reflect that while the two matters were argued as one, separate applications were required for both Simple and G&R albeit they were in the same terms.

[44]   That shall be the order of the Court as to costs unless either  party files          a memorandum as to costs within 10 working days, to be not more than five pages in length. If costs memoranda are filed, costs will be determined on the papers.

Associate Judge Lester

Solicitors:

DB Law, Auckland (for Applicants)

Ormiston Legal, Auckland (for Respondent)

Copy to counsel:
D Connor, Barrister, Auckland (for Applicants)