Steelcraft Structural Ltd v A 2 Z NZ Powercom Ltd

[2022] NZHC 2017

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-85

[2022] NZHC 2017

BETWEEN

STEELCRAFT STRUCTURAL LIMITED

Plaintiff

AND

A 2 Z NZ POWERCOM LIMITED

Defendant

Hearing:	11 and 15 August 2022
Appearances:	N Gillies and L Sharpe for Plaintiff N King for Defendant
Judgment:	15 August 2022

JUDGMENT OF LANG J

[on application for order placing defendant in liquidation]

This judgment was delivered by me on15 August 2022 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

Solicitors:
Hesketh Henry, Auckland

STEELCRAFT STRUCTURAL LTD v A 2 Z NZ POWERCOM LTD [2022] NZHC 2017 [15 August 2022]

[1]    The issue to be determined in this proceeding is whether the Court should make an order under s 241 of the Companies Act 1993 (the Act) placing the defendant, A 2 Z NZ Powercom Limited (Powercom) in liquidation. The plaintiff, Steelcraft Structure Limited, (Steelcraft) contends such an order is appropriate because Powercom has failed to pay it the sum of approximately $192,000. It therefore says Powercom is insolvent because it is unable to pay its debts as they fall due. Steelcraft also contends it is just and equitable for such an order to be made.

[2]    Powercom says the Court should not make an order placing it in liquidation. It contends there is a genuine dispute in relation to the debt that Steelcraft claims is owing to it. It also contends it is not insolvent.

Background

[3]    Powercom is the owner of land situated at 443 East Tamaki Road. A building known as the “New Zealand Bandminton Centre” is situated on that land. Powercom’s shareholders and directors are Mr Senthiya Devathasan (also known as Mr Senthiya) and his wife.

[4]    Steelcraft designs, fabricates and installs structural steel. Between March and December 2021 Steelcraft provided structural steel for extensions that were being made to the building situated on Powercom’s land. Steelcraft issued nine monthly payment claims under s 20 of the Construction Contracts Act 2002 (the CCA) for this work. Powercom did not serve a payment schedule challenging any of Steelcraft’s payment claims.

[5]    Steelcraft says it completed its obligations under the contract in or about December 2021. On 19 November 2021 Steelcraft served the ninth and final payment claim seeking payment of the sum of $252,125.88. This sum was due to be paid by 20 December 2021. Steelcraft subsequently received a payment in the sum of $60,000, leaving an outstanding amount of $192,125.88.

[6]    On 21 December 2021, Steelcraft served a statutory demand on Powercom under s 289 of the Companies Act 1993. This required Powercom to pay the sum of

$192,125.88 within 15 working days. Powercom failed to comply with the statutory demand. As a result, it is now presumed to be unable to pay its debts.1

[7]    On 4 February 2022 Steelcraft filed the present proceeding in which it seeks an order placing Powercom in liquidation. Powercom filed a statement of defence on 8 March 2022, and then provided further particulars of its defence on 28 March 2022.

Issues

[8]The proceeding raises the following issues:

(a)Who were the parties to the contract?

(b)Did Steelcraft serve a valid payment claim?

(c)Is the debt genuinely disputed?

(d)Is Powercom insolvent?

Who were the parties to the contract?

[9]    Mr King, counsel for Powercom, abandoned this argument during the hearing but I propose to deal with it in any event.

[10]   The contract that Steelcraft relies upon is in the form of a letter dated 23 March 2021. This was prepared by Powercom using the letterhead of “NZ Badminton Centre”. The letter is addressed to “Steelcraft Engineering”. It was signed by Mr Jason George, who is a director of Steelcraft, and by Mr Devathasan. Mr Devathasan now contends he entered into the contract in his personal capacity, and that he did not intend the contracting party to be Powercom.

[11]   The letter begins by stating “Further to our various site discussions and communications over the last few days including the latest letters submitted by you dated 04.12.20 with ref numbers JO345, we are pleased to confirm your appointment.”

1      Companies Act 1993, s 287(a).

This sentence refers to two documents dated 4 December 2020. The first is an account application form provided to Powercom by Steelcraft. This was completed by Mr Devathasan. He gave the full legal name of his business as “A 2 Z NZ Powercom Limited”. Under “Trading Name (if different from above)” Mr Devathasan wrote “NZ Badminton Centre”. Mr Devathasan also stated that Powercom was a company and he provided its Companies Office number and date of incorporation. Furthermore, Mr Devathasan signed the form in his capacity as a director of Powercom.

[12]   On the same date Mr Devathasan sent Steelcraft a letter headed “Letter of Intent relating to: Structural Steel for 443 East Tamaki Road, Badminton Hall”. I have annexed a copy of the letter to this judgment as Appendix 1 for convenience. The name “A 2 N NZ Powercom Limited, 443 East Tamaki Road, East Tamaki” can be seen at the top of the letter under the New Zealand Badminton Centre logo. Mr Devathasan signed the letter in his capacity as director.

[13]   These documents persuade me that Steelcraft and Powercom were the contracting parties. In addition, Powercom is the owner of the land on which the building work was carried out.

[14]   Notably, Mr Devathasan never asserted that he was contracting with Steelcraft in his personal capacity until Steelcraft filed the present proceeding. I accept Steelcraft’s submission that this assertion was a belated attempt to avoid Powercom being placed in liquidation. I have no doubt that, Mr Devathasan would have defended any proceeding brought against him in his personal capacity on the basis that Powercom was the party that contracted with Steelcraft.

Did Steelcraft serve a valid payment claim on Powercom?

[15]   The first argument for Powercom under this ground is based on an assertion that the payment claim did not comply with s 20(3) of the CCA because it was not accompanied by the prescribed advice regarding Powercom’s rights and obligations if it wished to dispute the claim. Steelcraft responds to this argument by pointing out that it sent the payment claim by email to Powercom’s email address. This is the email address set out at the top of the letter of intent dated 4 December 2020 (Appendix 1). As with earlier payment claims the final payment claim was accompanied by a

standard form (known as Form 1) that has been issued by the Ministry of Primary Industries for use by parties to construction contracts. Form 1 sets out the advice that s 20(3) requires the issuer of a payment claim to provide to the recipient. For convenience I attach a copy of the payment claim and Form 1 as Appendix 2 to this judgment.

[16]   Mr Devathasan initially claimed that he did not receive Form 1 but upon checking he accepted, when he gave evidence on the second day of the hearing, that he did receive the form with the ninth payment claim. He said he could read the headings on the form but the balance of the form was not legible. Having viewed a digital copy of the form that was displayed on a screen in the courtroom when       Mr Gaston gave evidence I am satisfied there is no substance to this argument. The digital version of the form is plainly legible.

[17]    I also note for completeness that Mr Devathasan did not object to the form of the payment claim when he received it. He did not do so until he filed his defence to the present proceeding. This is a further indication that Powercom is endeavouring to use a technical argument to avoid being placed in liquidation.

Is the debt genuinely disputed?

[18]   After he received the payment claim in December 2021 Mr Devathasan sent Steelcraft an email advising that some of the variations claimed in the payment claim were unauthorised. It is common ground, however, that this advice did not constitute a payment schedule for the purposes of the CCA. This means Powercom cannot rely on an argument based on unauthorised variations to resist paying the amount claimed in the payment claim.

[19]   Powercom also maintains that it has counterclaims and cross-demands against Steelcraft that should be taken into account at this stage. It says these raise a genuine dispute and that the Court should not place it in liquidation until the dispute has been resolved.

[20]   This argument faces the obstacle posed by s 23 of the CCA. This provides as follows:

23 Consequences of not paying claimed amount where no payment schedule provided

(1)The consequences specified in subsection (2) apply if the payer—

(a)becomes liable to pay the claimed amount to the payee under section 22 as a consequence of failing to provide a payment schedule to the payee within the time allowed by section 22(b); and

(b)fails to pay the whole, or any part, of the claimed amount on or before the due date for the … payment to which the payment claim relates.

(2)The consequences are that the payee—

(a)may recover from the payer, as a debt due to the payee, in any court,—

(i)      the unpaid portion of the claimed amount; and

(ii)     the actual and reasonable costs of recovery awarded against the payer by that court; and

(b)may serve notice on the payer of the payee's intention to suspend the carrying out of construction work under the construction contract.

(3)A notice referred to in subsection (2)(b) must state—

(a)the ground or grounds on which the proposed suspension is based; and

(b)that the notice is given under this Act.

(4)In any proceedings for the recovery of a debt under this section, the court must not enter judgment in favour of the payee unless it is satisfied that the circumstances referred to in subsection (1) exist.

[21]   It is now well established that the regime under the CCA is designed to protect cashflow for contractors in the building industry. The only means by which the recipient of a payment claim can contest it is by serving a payment schedule in response.2 This is reflected in s 79 of the CCA, which provides as follows:

79 Proceedings for recovery of debt not affected by counterclaim, set- off, or cross demand

In any proceedings for the recovery of a debt under section 23 or section 24 or section 59, the court must not give effect to any

2      Laywood v Holmes Construction Ltd [2009] NZCA

counterclaim, set-off, or cross-demand raised by any party to those proceedings other than a set-off of a liquidated amount if –

(a)judgment has been entered for that amount; or

(b)there is not in fact any dispute between the parties in relation to the claim for that amount.

[22]   In the present case Powercom has not calculated the amount it contends will be owing on the cross-claim so it cannot be said to be a liquidated amount. Furthermore, Powercom has not obtained judgment for any cross-claim and Steelcraft does not accept that any sum is owing by it. It follows that Powercom cannot rely upon any cross-claim against Steelcraft to defeat the present proceeding.

[23]   Finally, Powercom relies on an argument that the amount claimed in the payment claim was not payable in terms of the contract. It relies for this argument on the following section of the contract:

3.0      Payment terms:

All payment shall be made every 20th of the following month after completion

of the job and submission of valid invoice in line with the contract as approved by the Badminton Committee. Claims not received by the end of each month may not be included in the claim for that month to the contractor but the following month .. All warranties/certification/producer statements shall be provided by the contractors and work approved by the Council & relevant Engineers/Inspectors prior to the final payment approval.

[24]   Mr Devathasan says that Steelcraft has not yet provided it with all warranties, certifications and producer statements relating to the work it has carried out. He argues this means Powercom is not yet required to pay the amount claimed in the final payment claim. When Mr George gave evidence he said that Steelcraft holds these documents in its possession but normally does not provide them to customers until all outstanding monies under the contract have been paid.

[25]   This argument is not pleaded in Powercom’s statement of defence or in the particulars  of  its  defence  that  it  provided  at  Steelcraft’s  request.    Nor  did     Mr Devathasan raise it when he received the payment claim. More importantly, however, the argument cannot succeed because Powercom did not serve a payment schedule in response to the payment claim. If it had wished to run the argument it ought to have served a payment schedule stating that nothing was payable under the

ninth payment claim because Steelcraft had failed to provide it with the required documentation. It is too late to raise that argument now.

Is Powercom insolvent?

[26]   In this context the onus is on Powercom to rebut the statutory presumption that flows from its failure to comply with the statutory demand. To do this it has filed a copy of its financial statements for the year ended 31 March 2021. As at that date Powercom had total assets of $3.502 million and total liabilities of $3.312 million. This means it had a surplus of assets over liabilities in the sum of approximately

$189,000. Virtually all its current liabilities of $1.557 million related to shareholder current accounts.

[27]   The difficulty with this information is that it relates to the company’s position 17 months ago. I am therefore unable to make any finding that Powercom is solvent as at the present time. It follows that Powercom has not rebutted the presumption of insolvency that arose when it failed to comply with the statutory demand. Furthermore, there is nothing oppressive in Steelcraft utilising liquidation proceedings to enforce payment of the debt, particularly when Powercom never responded either to the payment claim or the statutory demand.

[28]   However, I accept that Powercom ought to be able to pay the debt owing to Steelcraft if it is still in the same financial position now as it was in March 2021. I am therefore prepared to give it a final opportunity to pay the debt.

[29]   When he gave evidence today Mr Devathasan told me he could arrange for the amount owing under the statutory demand to be paid into Steelcraft’s bank account immediately. I have therefore adjourned the proceeding to Wednesday 17 August 2022 when it will be called before me at 9.30 am. If the payment has not been made by that time I will make an order placing Powercom in liquidation.

Costs

[30]   Mr Gillies is to file and serve a memorandum setting out the costs Steelcraft seeks tomorrow so I can deal with that issue when the matter is called again on 17 August 2022.

Lang J

 

BUILDING PERFORMANCE

Form 1: Information that must accompany all payment claims

5 ectiOn 2O, COnSEfuCtion CDfitra CtS fict 2OO2