South Pacific Fire Protection South Island Alarms Limited v Safe NZ Limited
[2016] NZHC 1810
•5 August 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-000119 [2016] NZHC 1810
IN THE MATTER of the Companies Act 1993 BETWEEN
SOUTH PACIFIC FIRE PROTECTION SOUTH ISLAND ALARMS LIMITED Plaintiff
AND
SAFE NZ LIMITED (UNTIL 17
FEBRUARY 2016 KNOWN AS SOUTH PACIFIC FIRE PROTECTION CHRISTCHURCH (2014) LIMITED Defendant
Hearing: 25 July 2016 Appearances:
N Tabb for Plaintiff
G K Riach for DefendantJudgment:
5 August 2016
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] In this proceeding the plaintiff, South Pacific Fire Protection South Island Alarms Limited (South Pacific), seeks an order placing the defendant Safe NZ Limited (Safe) into liquidation. It pleads that Safe is insolvent and unable to pay its debts. On 22 December 2015 it issued to Safe a notice under s 289 of the Companies Act 1993 in respect of a claimed debt of $52,527.61. Safe neither met the debt, complied with the notice in any other respect, nor applied to set it aside. As a result it is now presumed to be unable to pay its debts. Therefore a ground for placing Safe into liquidation has been established.
[2] Safe, however, challenges the debt which was the subject of the notice. It applies for an order staying South Pacific’s proceeding, and restraining advertising of the application under r 31.9 of the High Court Rules. The orders sought are
interrelated; if the proceeding is stayed, the application would not be advertised.
SOUTH PACIFIC FIRE PROTECTION SOUTH ISLAND ALARMS LTD v SAFE NZ LTD [2016] NZHC 1810 [5 August 2016]
Conversely, advertising is a necessary procedural step on an application for liquidation so it is unlikely that advertising would be restrained unless the proceeding itself was stayed. I therefore consider both aspects of the application together.
[3] In Nemisis Holdings Limited v North Harbour Industrial Holdings Limited, Wallace J summarised the principles to be applied by the Court on applications for a stay:1
(a) The Court has an inherent jurisdiction to stay winding-up proceedings where the debt upon which such proceedings are founded is the subject of genuine dispute. In those circumstances the plaintiff cannot show it has the status of a creditor or that there has been neglect by the company to pay.
(b)The jurisdiction is an inherent one to prevent abuse of process. There is no inflexible rule.
(c) The governing consideration is whether the proceedings suggest unfairness or undue pressure.
(d)It is a serious matter to stay winding-up proceedings, so the decision to do so is never made lightly. The onus is on the applicant and it is normally necessary to demonstrate “something more” than the balance of convenience considerations which are usually considered on an application for interim injunction. If the defendant company has had an opportunity to file appropriate affidavits, such defendant is required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds, or show that there are clear and persuasive grounds for a stay.
[4] Safe says that there is a genuine dispute in relation to whether or not all or any part of the sum claimed is owing. It also says that it has a substantial claim
against South Pacific, well exceeding the sum South Pacific says is owing.
1 Nemisis Holdings Limited v North Harbour Industrial Holdings Limited (1989) 1 PRNZ 379 (HC) at 385.
[5] Rule 31.11 provides that the Court must treat this application as though it were an application for an interim injunction. Accordingly it is necessary for the Court to consider first whether there is a serious question to be tried and secondly, if there is, to determine whether an order staying the proceeding should be made, after considering the balance of convenience. These are the established principles on
which applications for interim injunctions are to be considered.2
[6] Because of the context in which this demand has been made, including a significant amount of correspondence between the directors of South Pacific and Safe, it is salient to record that the statutory purpose of a demand under s 289 of the Companies Act is to lay an evidentiary foundation for an application to the Court to appoint a liquidator under s 241. One of the grounds for an appointment is that the company in question is unable to pay its debts. Under s 287 a company is presumed to be unable to pay its debts if it fails to comply with a demand under s 289. Thus, whilst demands under s 289 are commonly issued as a means of recovering debts,
their purpose is specific. In a recent case I noted:3
[6] … I cannot stress too highly the fundamental need for parties who seek to rely on notices under s 289, and those who are placed in a position of dealing with them, to focus on the fundamental purpose of a notice under that section and long-established case law which makes it crystal clear that notices are not to be utilised unless there are sound grounds for believing, at the time of their issue, that there is no dispute of substance, and no qualifying claim or set-off available to the alleged debtor.
[7] The Court of Appeal has laid down the way in which the Court is to approach an application under s 290:4
[24] We note that the statutory scheme is for applications to set aside statutory demands to be a summary proceeding. ... The section calls for a prompt judgment as to whether there is a genuine and substantial dispute. It is not the task of the Court to resolve the dispute. The test may be compared with the principles developed in cognate fields such as applications to remove caveats, leave to appeal an arbitrator’s award and opposition to summary judgment.
[25] … The tight time constraints distinguish the s 290 discretion from that to be exercised on, say, a summary judgment application, where the presence
2 See discussion of these principles in Andrew Beck & Ors (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR7.53].
3 Bernard Street Properties (2007) Ltd v Rebuild and Repair Canterbury Ltd [2015] NZHC 2096.
4 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) PRNZ 413 (citations omitted).
of complex legal issues is not necessarily a bar to a remedy. As with leave to appeal an arbitrator’s award, the hearing should, in the normal course, be short and to the point, and the judgment likewise.
[8] This case was applied by the Court of Appeal in AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq), where the Court discussed the meaning of the phrase “substantial dispute”.5 After citing the above excerpts from Industrial Group Ltd v Bakker, the Court said:
[22] It is important to keep in mind the words of the statute. What the applicant must show is that the dispute it raises has substance; the applicant must explain to the Court what the dispute is; and the dispute so shown must be a real and not a fanciful or insubstantial dispute.6 The Court must bear in mind that it is operating in the summary jurisdiction, with the accompanying disadvantages that brings for any applicant. The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.
Facts
[9] Safe is engaged in the business of providing fire protection and fire alarm systems, predominantly for commercial buildings. It owns 30 per cent of the shares in South Pacific. At the time it rendered invoices to Safe, which are now the subject of the notice under s 289, South Pacific installed fire alarms under contract to Safe. It says that between January and August 2015 it rendered 15 invoices to Safe and, through its accounting system Xero, it forwarded these invoices by email to Safe. At that time Safe was owned by Mr and Mrs Te Kawa. Mrs Te Kawa says that she received these invoices in her then capacity as a director and financial controller of Safe. Neither she nor any other witness produced the original invoices.
[10] Mr J F Bates, a director of South Pacific, produced copies of the invoices he says his company issued but it is accepted that these are not copies of the invoices originally sent. Each contains a reference, in the address section, to it being for the attention of Mr Craig McCoy but he was not involved with Safe at the time the original invoices were said to have been issued. The reference to him on the copies produced to the Court is explained as being the result of this reference being entered
on the Xero accounting system, and then being placed by the accounting system onto
55 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, (2015) 23 PRNZ 52.
6 Re A Company [1991] BCLC 727 (Ch) at 740 per Harman J.
invoices printed out at a later date. As well, 11 of the invoices make reference to progress payments. The records of South Pacific for the jobs referred to on the invoices show these were made after the invoices were originally issued. The same applies to one entry on one invoice of a credit being passed.
[11] Mr A G Stubbings bought a shareholding in Safe on 20 November 2015. Records produced for the purposes of negotiation of the sale showed a sum owing by Safe to South Pacific. A document produced by Mrs Te Kawa titled “CHCH Unpaid Bills as at 19.11.15”, shows $52,010.11 outstanding to South Pacific. In a document also produced by her, described as “A/P Ageing Summary” at the same date, the same sum is shown as owing, but broken down into two parts, $34,764.31 being owing in excess of 90 days, and $17,245.80 being current. None of the invoices though, that South Pacific says are owing, was current at November 2015. Mr Stubbings produced an Ageing Summary for Safe as at August 31, 2015 showing the sum of $13,665.36 as owing, in total, all of which is described as current. No explanation is given by any witness on how this sum is made up, nor why it is shown as current. These documents raise three questions. The entries on the August summary make no reference to the invoices which were not, by then, current and which now form the bulk of the sum in South Pacific’s notice. The sum shown as current in August does not represent the amount of the July invoices in the sum which total $36,065.45, not $13,665.36 (see the summary of the invoices at [30]). The sum shown as current in the November summary is inconsistent with all the invoices said to be owing which are dated between three and 10 months earlier.
[12] Mr Stubbings’ evidence for Safe is that Safe has genuine reasons to be concerned about the services and workmanship provided by South Pacific. In support of his own views, he produced a client satisfaction survey from Armitage Williams Construction, the head contractor on a project described as “Wesley Care Stage One”, to which at least two of the invoices relate. The survey records a number of apparently significant complaints with the quality of the workmanship on the cable and alarm installation. These include such comments as “very poor fit- out”, “cables just thrown into ceiling spaces and wall cavities with pretty much no regard for the final position,” and poor workmanship causing delays which made it difficult to meet the required handover dates.
[13] Mr Stubbings also produced a series of emails between representatives of the two companies raising issues in relation to the work and services provided by South Pacific. These emails bear dates between May and July 2015. It is unnecessary to set out the complaints in detail. It is sufficient to record that Safe maintains that it was required to spend $25,184.76 putting right South Pacific’s work on the five contracts which are the subject of the invoices, and that it maintains that it has a further claim against South Pacific for lost profits arising from the failure of the latter to complete work which it had priced but which Safe has had to complete itself at higher cost. It says this claim is $131,352.72.
[14] Mr Bates, the director of South Pacific, denies that South Pacific did not complete all work to a good standard and says that assertions of poor workmanship are incorrect. He says that South Pacific refused to carry on doing any work for Safe because its invoices were not paid and that Safe does not have any claim against South Pacific as a result.
[15] The print-outs of invoices produced in evidence all contain the phrase
“Construction Contracts Act 2002 applies”.
Issues
[16] There are three issues for determination by the Court on this application:
(a) Has Safe established that it has a seriously arguable case that there is a genuine dispute in relation to whether or not the sum claimed, or any part of it, is owing?
(b)Are the 15 invoices making up the sum claimed payment claims in terms of the Construction Contracts Act?
(c) If the answer to the first issue is yes, but to the second issue is no, does the balance of convenience favour the making of the orders sought?
First issue: Has Safe established that it has a seriously arguable case that there is a genuine dispute in relation to whether or not the sum claimed, or any part of it, is owing?
[17] In my view Safe has established that there is a significant dispute between South Pacific and Safe over whether the sum claimed in the notice issued under s 289 is owing. First, issues in relation to South Pacific’s workmanship were raised over a period of some months around the middle of 2015 as the emails exchanged at that time show. Telling among these is an email relating to a contract described as Alpine, dated 10 May, in which no fewer than 21 faults are noted. Whether these defects were remedied, and if so by whom, is unclear. Equally, I cannot discern from the information before me whether, if Safe carried out remedial work in relation to all these points, that is reflected in the sum it says it is entitled to set-off against the charges made by South Pacific for this job. It is not the function of the Court on this application to endeavour to decide whether the listed defects did in fact exist, or whether they were remedied, or if so who by and at whose expense. It is sufficient to note that there is a body of correspondence, as well as the report from Armitage Williams, indicating that there is a dispute in relation to the workmanship of South Pacific for which it has invoiced Safe.
[18] Secondly, there is contradictory evidence on the point by Mr Stubbings and Mr Bates. Thirdly, there is conflicting evidence about the quantum of debts to South Pacific, as I have summarised at [11]. As a result liability for payment of the invoiced amounts which make up the sum claimed under South Pacific’s notice is arguably in dispute, and seriously so.
[19] In forming this view I have not overlooked emails produced by Mrs Te Kawa sent in April 2015 which refer to slow payments being made by Safe to South Pacific, and giving as the reason late receipt of payments from head contractors. Nor have I overlooked the summaries of the debits and credits for each of the jobs in question which show a significant number of reversed payments in the period of April to August 2015, particularly in the latter part of that period. Counsel referred to this material as indicating that the issues now raised and said to be disputes over liability are not valid disputes and that the real reason that the invoices have not been paid is that Safe is not in a financial position to do so. Whilst that is an inference
which might, at trial, be able to be drawn on the totality of the evidence, it is only one aspect of that evidence. Even if that inference were to be drawn now, it does not outweigh the evidence on the dispute about workmanship.
[20] Finally, Mr Stubbings for Safe says that he did not have the invoices relied on by South Pacific until February of this year. That may well be so, as the invoices would have been sent to Safe and not to Mr Stubbings personally. There is no reason to doubt the evidence of Mrs Te Kawa that she received each invoice by email when it was issued, in her then capacity as financial controller of Safe. She says that when Mr McCoy was engaged by Safe as its financial adviser she sent all the relevant accounting records including these invoices to him. What became of this material after that is unclear. I think it more likely than not that the invoices were sent to Safe at or around the time that they were issued because the accounting records produced to the Court clearly show that partial payments were made and, as I have said, in some cases reversed. This is unlikely to have occurred if the invoices had not been received.
[21] I am not assisted, however, in deciding the first issue before the Court, by being satisfied that the invoices were received. There is sufficient evidence to show that there is a dispute of substance in relation to liability to pay the balances of those invoices.
Second issue: Are the 15 invoices making up the sum claimed payment claims in terms of the Construction Contracts Act?
[22] It is common ground that each contract in respect of which invoices were issued is a construction contract in terms of the Construction Contracts Act.
[23] Ms Tabb for South Pacific argues that each of the invoices on which the notice is based is a payment claim in terms of s 20 of the Construction Contracts Act. She says that Safe has not issued a payment schedule in respect of any of the invoices under s 22 and as a consequence Safe is required to pay each invoiced sum irrespective of any dispute, and that under s 79 of the Construction Contracts Act South Pacific may recover the sum claimed, as the issue of a statutory demand and
subsequent issue of a proceeding to place a debtor company into liquidation is a proceeding in terms of that section.
[24] Mr Riach did not dispute the principles relied on by Ms Tabb. They are clearly established by SOL Trustees Ltd v Giles Civil Ltd,7 and Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd.8 He argues, however, that none of the invoices is a payment claim in terms of the Construction Contracts Act.
[25] The requirements for a valid payment claim are set out in s 20 which, to the extent presently relevant, provides:
20 Payment claims
(1) A payee may serve a payment claim on the payer for a payment, -
(a) if the contract provides for the matter, at the end of the relevant period that is specified in, or is determined in accordance with the terms of, the contract; or
(b) if the contract does not provide for the matter in the case of a progress payment, at the end of the relevant period referred to in section 17(2); or
(c) if the contract does not provide for the matter in the case of a single payment expressly agreed under section 14(1)(a), following the completion of all of the construction work to which the contract relates.
(2) 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.
7 SOL Trustees Ltd v Giles Civil Ltd [2014] NZCA 539, [2015] 2 NZLR 482.
8 Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd (2005) 2 NZCCLR 370.
[26] The contracts under which South Pacific performed services for Safe were in writing. Each of the contracts provided:
[Safe’s] claims to the main contractors are due on the 25th of the month in which the work takes place. Your claim as set out by the CCA must be received by us by the 20th of the month. Payment for your work for the month will be made by the end of the following month subject to a claim survey undertaken by [South Pacific’s customer] verifying that the claimed work has been completed.
[27] Section 14 of the Construction Contracts Act provides that the parties are free to agree on the date when progress payments become due. Mr Riach says that the above clause is just such an agreement, providing as it does a precondition to invoices becoming due, then a date for payment.
[28] Before examining the 15 invoices issued by South Pacific I record two established principles in relation to the application of the Construction Contracts Act. First, in SOL Trustees Ltd v Giles Civil Ltd, the Court of Appeal approved the following passage from the judgment of Asher J in Marsden Villas Ltd v Wooding
Construction Ltd:9
The Act sets up a procedure whereby requests for payment are to be provided by contractors in a certain form. They must be responded to by the principal within a certain timeframe and in a certain form, failing which the amount claimed by the contractor will become due for payment and can be enforced in the Courts as a debt. At that point, if the principal has failed to provide the response within the necessary timeframe, the payment claimed must be made. The substantive issues relating to the payment can still be argued at a later point and adjustments made later if it is shown that there was a set-off or other basis for reducing the contractor’s claim. When there is a failure to pay the Act gives the contractor the right to give notice of intention to suspend work, and then if no payment is made, to suspend work. There is also a procedure set up for the adjudication of disputes.
The Act therefore has a focus on a payment procedure, the results that arise from the observance or non-observance of those procedures, and the quick resolution of disputes. The processes that it sets up are designed to side-step immediate engagement on the substantive issues such as set-off for poor workmanship which were in the past so often used as tools for unscrupulous principals and head contractors to delay payments. As far as the principal is concerned, the regime set up is “sudden death”. Should the principal not follow the correct procedure, it can be obliged to pay in the interim what is claimed, whatever the merits. In that way if a principal does not act in accordance with the quick procedures of the Act, that principal, rather than
9 SOL Trustees Ltd v Giles Civil Ltd, above n 7, at [24], citing Marsden Villas Ltd v Wooding
Construction Ltd [2007] 1 NZLR 807 (HC) at [16]-[17].
the contractor and sub-contractors, will have to bear the consequences of delay in terms of cashflow.
[29] Secondly, and consistent with this approach, the courts will not allow mere technical issues lacking any substantial basis to defeat the payments regime set up by the Act. One enunciation of this is in the judgment of Associate Judge Faire (as he then was) in CMP Construction Ltd v Aluminium Technology Ltd.10 His Honour said:
[27] … Although s 20(2)(d) of the Construction Contracts Act 2002 requires that a payment claim indicates the due date for payment, [counsel] drew attention to decisions of the court that have held that minor errors in a payment claim, such as an error in the due date, should not be allowed to frustrate a subcontractor’s entitlement to payment under the Construction Contracts Act 2002. Such errors are regarded as mere technical quibbles.
[28] [Counsel] drew attention to the fact that there is no evidence that the applicant has been misled by the error. He referred me to the two decisions where the courts have disregarded an error in the due date for payment as being a ground for holding that the payment claim was invalid.
[29] I conclude that there is nothing in this case that would justify my concluding that an error in the payment date should invalidate the payment claim.
[citations omitted]
[30] The submission that the 15 invoices do not constitute valid payment claims must be considered in light of these principles. Mr Riach says that the invoices do not comply with s 20(2)(c) and (e). I set out the invoices below:
(i)Invoice 0041 dated 26 January 2015 – this invoice refers to Alpine View, which I take to be the construction contract to which it relates, in terms of s 20(2)(b). There are four columns. Under the first, headed “Description”, the invoice states “Main contract claim amount”. Under the second column, headed “Quantity”, the figure 1.00 appears. Under the third column, headed “Unit Price”, the figure 12,000.00 appears. Under the fourth column, headed “Amount NZD”, the same figure appears. There is then a subtotal below that in the fourth column, an addition of GST, and a figure described as “Total NZD”. This is followed by an amount paid, but as I have said it seems that
this cannot have been on the original invoice because from other documents
10 CMP Construction Ltd v Aluminium Technology Ltd [2013] NZHC 2481.
it is clear that payments on account of the invoices in question were made after the invoices were issued.
The invoice states “Due date: 28 February 2015”.
This invoice does not state the period to which the payment relates, and does not give any indication of the method of calculation, so does not comply with either s 20(2)(c) or (e). As well, it is dated 26 January and stipulates that payment is due on 28 February. Payment is only due at the end of a month if an invoice is received by the 20th of the previous month, in accordance with the express term of the contract which I have set out in paragraph [26]. It therefore states the wrong due date.
(ii)Invoice 0042 dated 26 January 2015 – this invoice is in exactly the same form, though it has a reference on it “Naylor Love”, which I take to be the well known construction company. There is no other reference to identify the construction work undertaken. It contains an entry called “Main contract claim amount”, and in this case the sum claimed is $3,000 plus GST. Again, payment is due on 28 February though the invoice is after the January cut-off date specified in the contract. The preceding paragraph applies equally to this invoice.
(iii) Invoice 0043 dated 26 January 2015 – the reference on this is 138 Victoria.
The invoice describes the sum claimed as “Main contract claim amount” as in the previous two invoices. This time the sum claimed is $5,000 plus GST and again payment is said to be due by 28 February which is not the due date under the contract for a claim issued on 26 January. Again, this invoice does not comply with s 20(2)(c) or (e) and it states a wrong date for payment.
(iv)Invoice 0045 dated 24 February 2015 – this invoice also refers to Naylor Love, as does invoice 0042. This one claims a “Main contract claim amount” of $1,312. The due date is stated to be 31 March. There is no indication on how the amount claimed has been calculated or the period it refers to, and it requires payment on an incorrect date.
(v)Invoice 0046 dated 24 February 2015 – the reference on this is Cholmondeley. Again the description is “Main contract claim amount”, this time for $3,000 plus GST. The due date is 31 March. There is no indication of how the amount claimed has been calculated or the period to which it applies, and again the due date is earlier than the contract due date requirement.
(vi)Invoice 0047 dated 24 February 2015 – this refers to Alpine View, as does invoice 0041. This is described as a “Main contract claim amount” as well, this time for $13,000 plus GST. The due date is 31 March. There is no indication of how the sum claimed is calculated or the period to which it applies, and the stated due date is earlier than the contractual obligation.
(vii)Invoice 0048 dated 24 February – the reference on this is 138 Victoria Street which I infer to be the same job as for invoice 0043. It is also for a “Main contract claim amount”, this time $2,815. There is no indication of the manner in which this has been calculated or the period to which it relates. The due date for payment is not in accordance with the contract.
(viii)Invoice 0051 dated 24 February 2015 – the reference on this is RSA. The description is “Main contract claim amount” this time for $9,325 plus GST. There is no indication of the manner in which the required payment has been calculated or the period to which it relates and the due date for payment is not in accordance with the contract.
(ix) Invoice 0052 dated 24 February 2015 - the reference for this is Wesley Care.
The description is “Main contract claim amount”, for $4,000 plus GST. There is no indication of the manner in which the sum claimed has been calculated or the period to which it relates. The due date for payment is not in accordance with the contract.
(x) Invoice 0053 dated 20 April 2015 – the reference on this invoice is Alpine
View. There are two claims. The first is a “Main contract claim amount”, for
$3,685. The second is described as “door magnets”, a quantity of one is
given, with a unit price of $1,100. GST is claimed in respect of both
payments. There is no indication of how the main contract claim amount has been calculated or the period to which it relates.
(xi) Invoice 0057 dated 31 May 2015 – the reference on this is Cholmondeley.
The description is “alarms 40% complete”. A unit price of $2,270 is shown and this sum is claimed with GST in addition. The due date for payment of
20 June 2015 is shown, which is not in accordance with the contract term. There is a description of the way the sum claimed has been calculated, but not of the period to which the claim relates.
(xii) Invoice 0059 dated 31 July 2015 – the reference on this is SIA – Cholmondeley. I take SIA to refer to South Island Alarms. There is an entry in the description column for “Main contract claim amount”, but nothing is claimed. There is then a claim in the following terms:
Contract value - $31,365.00
This claim 100% - $31,365.00
Less previous claims - $14,110.50
Claim 4 - $17,254.50
The invoice is for the last of these sums plus GST. The due date is
31 August. On this invoice there is a clear exposition of the manner in which the sum claimed has been calculated, and the only evident faults with the invoice are that the due date does not comply with the terms of the contract, nor does it state the period to which it relates.
(xiii) Invoice 0060 dated 31 July 2015 – this invoice is for Wesley Care. Under description the following appears:
Main contract claim amount
Contract value $74,995.00
50% of value $37,497.50
Already claimed $25,300.00
This claim #5 $12,197.50
The invoice is for the last sum plus GST. The due date for payment is 31
August 2015. As with the previous contract, there is a clear exposition of the manner in which the required payment has been calculated, though the due date for payment does not comply with the contract. It does not state the period to which it relates.
(xiv) Invoice 0061 dated 31 July 2015 - the reference on this is Alpine. Under the
heading “Description” the invoice says:
Main contract claim amount
Contract value $68,135.00
Already claimed $66,452.75
This claim #8 $1,682.25
The invoice is for this last sum plus GST. The due date for payment is stated to be 31 August. As with the previous two invoices there is a clear indication of the manner in which the amount claimed has been calculated, but the payment date does not comply with the terms of the contract and there is no statement of the period to which it relates.
(xv) Invoice 0062 31 July 2015 - the reference on this invoice is “Goods claimed by CHCH”. Under the heading “Description” there are four items on separate lines: conventional smoke detectors, fire-rated cable, F4 fire panel and door magnets. For each a quantity is given and a unit price, then a total. Due date for payment is 31 August. In this case, there is no identification of the construction work to which the invoice relates, nor of the period to which it relates. The manner in which the invoice has been calculated is clear. The due date for payment does not comply with the contract.
[31] From this information, six conclusions can be drawn. The first and most obvious defect in all these invoices is that the stipulated due dates for payment are (with one exception) outside the express terms of the contract. I think, however, that in the circumstances of these contracts this can properly be regarded as a technical point, given the clear statutory purpose of the Act. The contracts provide for payment to be made on the last day of the month following the invoice, but the
invoices are later than the stipulated period of the 20th of the previous month, so the due dates appear to be one month early. This is not a point, however, taken by any witness for Safe.
[32] The second conclusion relates to the scant reference on 14 of the invoices to the contract to which they relate. Again, this point was not taken on behalf of Safe and it seems a reasonable inference that an entry such as, for example, “138 Victoria” or “Cholmondeley” will have been clear enough to Safe when it received the invoice. I find that in the case of these invoices there is sufficient identification of the construction work to which the payment relates.
[33] I find that neither of these points results in the invoices not being payment claims.
[34] The same cannot be said for invoice 0062 for which the reference is “Goods claimed by CHCH”. This does not give any indication of which contract the four categories of goods, 126 items in all, relate to. Further, there is no indication of the relevant period to which the charges relate, which in this case would presumably be the period during which the items concerned were supplied. It does comply with s
20(2)(e) as it clearly shows the manner in which the sum claimed has been calculated. The invoice does not comply with s 20(2)(c). I do not regard this as a technical breach. The recipient of an invoice with the stated deficiencies could not respond with a payment schedule as it has no way of checking the accuracy of the invoice. I find this invoice is not a valid payment claim.
[35] The fourth point appears from the summaries I have given of the invoices. The first nine listed invoices, 0041 to 0052, describe the invoiced sum as “Main contract claim amount”. They do not give any indication of the manner in which the sums on the invoices have been calculated. They do not give the relevant period to which the payments relate. They do not comply with s 20(2)(c) or (e). These are not technical points. I find these are not valid payment claims.
[36] The same applies to the first entry on invoice 0043 which again, has an entry
of a “Main contract claim amount”. This invoice also applies to door magnets of
which one appears to have been supplied at a cost of $1,100. There is a clear indication on how the sum claimed for this item has been calculated. There is no indication of the period to which the payment relates, that is to say when the door magnet was supplied. In my view, however, as this is just one item for a stated job, this is a technical quibble. The fifth conclusion is that this invoice is not a valid payment claim in relation to the main contract claim, but it is in relation to the door magnet.
[37] Sixthly, invoices 0057 to 0061 all identify the manner in which the payment claimed has been calculated, though none identifies the period to which the sum claimed relates. In my view this may be regarded as a technical fault given the level of detail provided on the manner in which the invoice has been calculated.
[38] In summary, therefore, I find that invoice 0043 is valid as to the debt of the sum of $1,100 plus GST, and that invoices 0057 to 0061 are valid payment claims for the totals given. The sum claimed on invoice 0053 is now $550.28. It is not possible to determine whether the payments on account relate to the main contract claim or the door magnets. The original total of the invoice was $5,502.75 and
$4,952.47 is said to have been paid. In the absence of a breakdown of the application of the progress payments, and in light of the fact that the substance of the dispute relates to the quality of the workmanship rather than parts supplied, I will treat the balance of this invoice as relating to the main contract claim amount.
[39] Invoices 0057 to 0061 total $36,065.45. I find that these are valid payment claims.
[40] The consequence of this finding is that South Pacific was entitled to issue a notice under s 289 of the Companies Act to claim payment of this sum, and in the event of the notice not being complied with, to issue a proceeding seeking the liquidation of Safe. Safe has not applied to set aside the statutory demand and the time limit for such an application has long passed. Rather, the Court is being asked to stay the application to liquidate the company. I am satisfied that in terms of the tests to be applied on the present application Safe has established an arguable case
that it has a defence to all but $36,065.45 of the sum which South Pacific maintains is owing.
[41] In my opinion the balance of convenience and the overall justice of the case require that the proceeding be stayed, and advertising restrained accordingly, for a reasonable period to allow Safe to pay the balance in respect of which I find that it does not have an arguable defence. To proceed otherwise would be unfair and amount to undue pressure on Safe. To date, it would only have been able to prevent this proceeding being advertised if it paid the full amount which South Pacific claims to be owing. It must have an opportunity to pay the lesser amount in respect of which I find that it does not have an arguable defence. Conversely a permanent stay would deprive South Pacific of its right to pursue the part of the claimed debt which is now owing and due.
Outcome
[42] I order that South Pacific is restrained from advertising this application, and that this proceeding is stayed, until 5.00 pm 26 August 2016. If the sum of
$36,065.45 is not paid by then, South Pacific may proceed on the basis of the established presumption of insolvency and an unpaid undisputed debt in that sum.
[43] The proceeding is adjourned to the Insolvency List at 10.00 am on
29 September 2016.
[44] Safe has succeeded to a degree in that it has established an arguable defence in relation to the majority of the invoices which made up the sum claimed in the statutory demand. On the other hand, it has not succeeded in relation to some of those invoices, with the result that it has not obtained the permanent stay that it sought. Each side has therefore enjoyed a measure of success. This might, on its own, be taken as a basis for costs to lie where they fall.
[45] Leaving aside for one moment the application of the Construction Contracts Act, the statutory demand was issued in circumstances where a proper investigation of the factual position would have clearly disclosed that there was a dispute between the parties and that the issuing of a demand under s 289 was inappropriate. Had that
been the only issue, and a stay granted for that reason, it would have resulted in an award of costs in favour of Safe and probably on an increased basis. To compound the inappropriate way South Pacific handled this, it continued to argue that there was no dispute up to and at the fixture on this application. It was clear from the affidavits that there was a dispute; additional evidence had to be prepared and submissions made to deal with a position taken by South Pacific which was, on an application of this kind, all but unarguable.
[46] However, the legal position under the Construction Contracts Act cannot be put to one side altogether. A considerable amount of cost would have been saved if South Pacific had concentrated on application of the Act to the invoices on which it relied, as I have earlier in this judgment. A careful examination of those invoices was not undertaken by South Pacific, it seems, otherwise it would have been clear that there were deficiencies in them, in terms of s 20, as I have analysed. No such analysis was presented to the Court by South Pacific’s counsel. It fell to counsel for Safe to point out the shortcomings in the invoices relevant to s 20. Whilst I do not agree with every point counsel for Safe made, attention was focused on the key issues on which Safe has succeeded.
[47] In his submissions Mr Riach also referred to breach of timetable orders during the preparatory phase of this case which led to increased costs.
[48] Taking into account all factors, I award costs to Safe on a 2B basis notwithstanding that it has only enjoyed a measure of success. South Pacific will
also pay such disbursements as are fixed by the Registrar.
J G Matthews
Associate Judge
Solicitors:
Natalie Tabb, Barrister & Solicitor, Auckland
Harmans Lawyers, Christchurch
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