Stratus Construction Limited v Affordable Residential Limited (in receivership)

[2013] NZHC 2842

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-003060 [2013] NZHC 2842

BETWEEN  STRATUS CONSTRUCTION LIMITED Applicant

ANDAFFORDABLE RESIDENTIAL LIMITED (IN RECEIVERSHIP) Respondent

Hearing:                   29 October 2013

Appearances:           T J Herbert for applicant

C B Hirschfeld for respondent

Judgment:                29 October 2013

(ORAL) JUDGMENT OF ASSOCIATE JUDGE ABBOTT

Solicitors:

K King, Wadsworth Ray, Auckland

G Sharrock, Right Law, Auckland

Counsel:

T Herbert, Barrister, Auckland

C Hirschfeld, Barrister, Auckland

STRATUS CONSTRUCTION LIMITED v AFFORDABLE RESIDENTIAL LIMITED (IN RECEIVERSHIP) [2013] NZHC 2842 [29 October 2013]

[1]      Stratus Construction Limited (Stratus) has applied for an order setting aside a statutory demand issued by Affordable Residential Limited (In Receivership) (Affordable) and served on Stratus on 21 May 2013.

Background

[2]      Affordable made demand for payment of $208,993.94, allegedly due under two invoices issued in respect of work undertaken under a contract for construction of 18 residential houses in Anna Place, Glen Eden, Auckland.   The contract was signed on 15 November 2012.  The invoices were issued on 31 December 2012 and

17  April  2013  (the  latter  being  one  day  after  Affordable  was  placed  into receivership).

[3]      Affordable issued its demand on the basis that it represented the balance of money invoiced, allowing credit for payments made in November 2012 (an initial deposit) and in January and February 2013.

[4]      Stratus  contends  that  the  invoices  were  not  valid  contractual  claims, essentially because they did not provide the detail required under the contract for a valid payment claim.

[5]      The  position  was  subsequently complicated  by  the  fact  that  both  parties purported to terminate the contract at the end of April 2013.  There is an issue over whether Affordable terminated on 29 April 2013 under the provisions of the contract. There is no question that Stratus had valid grounds for terminating the following day if the contract was still on foot (it relied on Affordable having been placed into receivership, which was a stated ground for termination under the contract).

Developments in the hearing

[6]      After hearing the case for Stratus, and at the commencement of submissions of counsel for Affordable, I indicated that I considered that Stratus had a prima facie case for an arguable dispute, and indicated to counsel where I would require submissions, essentially to persuade me that, notwithstanding the prima facie case, there was no arguable basis for a defence.

[7]      That was immediately before the morning adjournment.  After the morning adjournment counsel for Affordable sought an adjournment of the application to allow the parties to have discussions over the first area of dispute, namely whether the invoices had been sufficiently supported with detail as to the work undertaken to constitute valid contract claims.   After hearing from counsel I declined the application.  Although I endorse the parties getting together to try to resolve their dispute, it did not seem appropriate to me to maintain a statutory demand on foot where there was a dispute about it (and that was implicit in Affordable’s position in seeking an adjournment).   I took the view that the application would need to be resolved today unless Affordable elected to withdraw its opposition.

[8]      After  taking  instructions,  counsel  sought  leave  to  withdraw Affordable’s

opposition to the application.  Leave was granted.

[9]      That left an issue over costs.  In its written submissions ahead of the hearing, Stratus sought increased costs on the basis that the dispute had clearly been raised ahead of Affordable issuing its demand, and the demand should never have been issued.  An increase of 50% was sought from a base award of costs on a scale 2B basis.

[10]     Counsel for Affordable accepted that costs on a 2B basis were appropriate, but opposed any order for increased costs.  He also drew my attention to the fact that there is an unresolved question of costs over an application that Affordable filed on

17 October 2013 seeking to have the application struck out because Stratus had failed to file and serve its synopsis of argument and the casebook for this hearing by

27 September 2013.

[11]     Counsel for Stratus filed a memorandum immediately after receiving the application to strike out, explaining that Stratus had been working on the basis of submissions being due 10 working days ahead of the hearing, and it had assumed that that direction continued to apply when the date for hearing was later altered (the submissions were only one day late based on that assumption).

[12]     The Court determined the application on the papers on 17 October 2013, by re-setting the timetable for Affordable’s synopsis of argument (Stratus having filed a memorandum in response that day).   The Court reserved any issue over costs for determination at the same time as the substantive application.

Discussion on costs

[13]     I am not prepared to grant increased costs on all aspects of the application. Although I accept that Stratus’ solicitors wrote to Affordable on 30 April 2013, and referred to Affordable’s failure to support its contract claims with appropriate information, it is apparent from the evidence before the Court that this followed a series of meetings or communications between the parties where a number of aspects of the contract were under discussion.   It is inappropriate for me to attempt to analyse that information at this stage, as essentially it concerns matters that would be addressed in a determination of the substantive dispute.  Nonetheless, I accept that Affordable took a risk in pursuing its demand after Stratus had pointed out that it had not provided supporting information.  Equally, however, I can accept that Affordable (by this time in the hands of a receiver) had other reasons to feel that there were countervailing arguments.  The fact that Stratus sent another letter on 21 May 2013 (immediately after receiving the statutory demand) does not affect the view I have taken of the genesis of the application.

[14]     I regard the position as altering, however, when the detail of Stratus’ position was set out in its application to set aside.  At that point Stratus had provided the receiver with clear, and in my view, compelling evidence to support an arguable dispute.  Even though Affordable may still have believed that there were arguments on a number of matters, it ought to have been apparent to Affordable at that point that there was an arguable dispute, not only over whether valid contract claims had been made, but also over Affordable’s subsequent purported termination as against Stratus’ termination and the consequences of the respective terminations.  Under the former scenario there was still an argument over the validity of the contract claim made on 17 April 2013 needing to be addressed, whereas under the latter it was arguable at the very least that no payments were due until the contract works had

been completed and an expert assessment made of what value of contract works was payable to Affordable after allowing for offsetting costs of completion.

[15]     Under r 14.6(3)(b)(ii) and (iii) the Court can award increased costs against a party who persists in maintaining an opposition in face of clear facts or legal arguments.  I consider that that is the position that Affordable was in after receipt of Stratus’ application.

[16]     That leaves only the dispute between the parties over Affordable’s application to strike out for failure to comply with timetabling directions.  Stratus made an error by assuming that its synopsis should have been filed 10 working days before the adjourned hearing: the Court’s direction made it clear that synopsis was to be filed by a fixed date.  If Stratus had read that minute, it ought to have sought extension of time or at least raised the issue with the Court rather than simply assuming that as that date was 10 working days in advance, the same time period would apply after the hearing date was put back.   Conversely, however, the application to strike out was an overly vigorous response to the issue.  There is no evidence to suggest that the issue was discussed between counsel ahead of time, and a quick enquiry may well have resolved the need for the application, or at least have led to the matter being put back before the Court by memorandum for an extension.  In the end the Court made the sensible and realistic direction that the timetable should be amended. It was obviously possible to do that without prejudice to Affordable.

[17]     Weighing all of these matters, I consider that the appropriate result on this issue is that the costs in relation to the strike out application should lie where they fall.

Decision

[18]     The statutory demand dated 21 May 2013 is set aside on the basis of the evidence before the Court and the ultimate absence of opposition.

[19]     Affordable is to pay Stratus its costs in respect of the application on a scale

2B basis, with those costs uplifted by 50% in respect of all steps subsequent to the

filing of Stratus’ application,  with  the exception  of  its  response to Affordable’s

application to strike out (there being no costs awarded in respect of that step).

Associate Judge Abbott