Super Power Earthmoving Limited v Dreamhome Construction Group Limited
[2023] NZHC 2265
•23 August 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-2440
[2023] NZHC 2265
BETWEEN SUPER POWER EARTHMOVING LIMITED
Plaintiff/Respondent
AND
DREAMHOME CONSTRUCTION GROUP LIMITED
Defendant/Applicant
Hearing: 17 July 2023 Appearances:
Matt Taylor for the Defendant/Applicant Cherie Holland for the Plaintiff/Respondent
Judgment:
23 August 2023
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Application for leave to file a defence out of time]
This judgment was delivered by me on 23 August 2023 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Righteous Law (Cherie Holland), Auckland, for the Plaintiff / Respondent Maria Taylor, Auckland, for the Defendant / Applicant
Copy for:
Matt Taylor, Barrister, Auckland, for the Defendant / Applicant
SUPER POWER EARTHMOVING LIMITED v DREAMHOME CONSTRUCTION GROUP LIMITED [2023] NZHC 2265 [23 August 2023]
TABLE OF CONTENTS
paragraph
Introduction [1]
Background [2]
Dreamhome’s application for leave to file defence out of time [6]
Affidavit of Yingjun Chen dated 3 April 2023 [8]
Super Power’s opposition [14]
Affidavit of Bowen Zhou dated 19 April 2023 [15]
Reply affidavit of Chengfan Sun dated 1 May 2023 [24]
Affidavit of Chenfan Sun dated 23 March 2023 [27]
Legal principles [36]
Conclusion in respect of Dreamhome’s arguable defence [61]
Period of delay and explanation [63]
Conclusion in relation to delay [66]
Prejudice to the parties [67]
Conclusion in relation to prejudice to Super Power [69]
Solvency of Dreamhome [70]
Conclusion in relation to Dreamhome’s solvency [73]
Overall justice [74]
Conclusion on overall justice [76]
Result [77]
Orders [78]
Introduction
[1] Dreamhome Construction Group Limited (Dreamhome) seeks leave to file a statement of defence out of time to an application by Super Power Earthmoving Limited (Super Power) seeking to liquidate Dreamhome for failing to make payment of amounts due under a statutory demand.
Background
[2] Dreamhome engaged Super Power to undertake earthworks for it on various Dreamhome construction projects in 2016 and 2017.
[3] In 2020, Super Power issued Dreamhome with four invoices for work allegedly carried out at three of Dreamhome’s sites in 2017 (the disputed invoices). Dreamhome claims to have been unable to reconcile these invoices and says they have consistently disputed them with Super Power by requesting additional clarification and an evidentiary basis for them.
[4] In 2022, Super Power issued a payment claim for the disputed invoices, followed up by a statutory demand and eventually liquidation proceedings, which were served on Dreamhome on 12 January 2023 and set down for determination on 4 April 2023.
[5] Dreamhome attempted to file its statement of defence late on 23 March 2023, beyond the requisite 10 working day deadline after service. They now seek leave to file that statement of defence out of time, which Super Power opposes.
Dreamhome’s application for leave to file defence out of time
[6]Dreamhome seeks an order to file a statement of defence out of time.1
1 Interlocutory application for leave to file statement of defence out of time dated 3 April 2023 at [1].
[7]The grounds on which the order is sought are:2
a. The defendant has a material defence;3
b. The defendant has a reasonable explanation for its delay, in the context of the ongoing written communications between the parties as to the disputed debt and the reasons for its rejection of the plaintiff's alleged claims;4
c. The defendant is and has at all times been solvent;
d. The defendant has deposited the alleged (and denied) core debt into a solicitor's trust account;5
e. The plaintiff is not materially prejudiced by leave to file out of time;
f. Any delay would only amount to an inconvenience and would not prejudice the plaintiff's claim;6
g. The defendant would be materially prejudiced if leave is not granted;7 and
h. The overall justice of the application supports the Court granting leave,8 as:
i. the plaintiff has failed and/or neglected to provide proof of its disputed claim against the defendant for at least three years and despite multiple written notices that the debt was disputed; and
ii. the purposes of the Companies Act 1993 and the High Court Rules 2016 would be defeated, if the technical liquidation of a solvent and trading company results from an undefended application, which is brought on the basis of a disputed debt, that the plaintiff has been repeatedly put on notice for several years.
Affidavit of Yingjun Chen dated 3 April 2023
[8] Ms Yingjun (Jessica) Chen (Ms Chen), Senior Quantity Surveyor of Dreamhome, has made an affidavit in support of Dreamhome’s application to file defence out of time.9 She deposes that she is authorised to make the affidavit as Dreamhome’s Director, Chengfan Sun (Mr Sun), who filed an affidavit in support of
2 At [2].
3 Day v Ost (No 2) Ltd [1974] 1 NZLR 714 (SC) at 717; Ratnam v Cumarasanay [1965] 1 WLR 8 (PC) at 12; Hurunui Estate (2002) Limited v Hurunui Hotel (2004) Limited [2015] NZHC 1152 at [11].
4 Hurunui, above n 3, at [12].
5 Hurunui, above n 3, at [13].
6 Hurunui, above n 3, at [14].
7 Hurunui, above n 3, at [15].
8 Hurunui, above n 3, at [15].
9 Affidavit of Yingjun Chen in support of interlocutory application to file defence to application for liquidation out of time dated 3 April 2023.
Dreamhome’s substantive opposition, was overseas and unable to make an affidavit in support of this interlocutory application in time.
[9] Ms Chen deposes that Dreamhome put Super Power on notice that they disputed the invoices with reasons when they first received them in 2020. She says Dreamhome again disputed the invoices in 2022 in correspondence with Super Power’s lawyers.
[10] Ms Chen says that the liquidation proceedings did not come to Mr Sun’s attention as he was away on holiday when the documents were served.
[11] She says that when Dreamhome became aware of Super Power’s threatened proceedings, they did not appreciate their gravity as Dreamhome had disputed the invoices in 2020 and again in late 2022.
[12] In March 2023, Ms Chen deposes that Dreamhome first engaged a lawyer, who took steps to have Super Power withdraw their proceeding as Dreamhome genuinely disputed the debt, which they declined to do.
[13] Ms Chen reasserts that the debt is disputed and that Dreamhome is trading and solvent. She says that Dreamhome will have to go through a time consuming and costly proceeding to have any technical liquidation annulled if they are not permitted to file their defence out of time. She further asserts her doubts that Dreamhome would be able to recover any payments made to Super Power in the meantime, as she doubts their solvency.
Super Power’s opposition
[14]Super Power opposes the application on the following grounds:10
a. The defendant has no material defence for the following reasons:
i. Valid Payment Claims were served; and
ii. The defendant did not serve its Payment Schedule/s.
10 Notice of opposition to defendant’s application for leave to file statement of defence out of time dated 19 April 2023 at [1]–[3].
b. The defendant has provided no reasonable explanation as to the period of delay in filing the statement of defence out of time with such delay causing the plaintiff to advertise its liquidation application in order to comply with legislation;
c. The defendant has not complied with the statutory demand served on it on 8 November 2022 therefore the defendant is presumed to be unable to pay its debts;11
d. The plaintiff will be prejudiced if leave is granted to the defendant to file its statement of defence out of time for the following reasons:
i. the plaintiff has been without the money owed to it by the defendant since 2017;
ii. further delay extends the period of time the plaintiff will be paid;
iii.the defendant is wasting funds on a defence which might properly be handled by a proof of debt before the company’s liquidator; and
iv. the defence by the defendant will involve the plaintiff in further unnecessary legal costs.
e. The defendant has not provided any evidence to support its alleged defence for the following reasons:
i. the affidavit of Chengfan Sun dated 23 March 2023 was served with the defendant’s statement of defence on 24 March 2023;
ii. although the statement of defence did not require any supporting affidavit, both the statement of defence and the affidavit of Chengfan Sun were filed out of time and without leave of the Court;
iii.the affidavit of Yingjun Chen dated 3 April 2023 filed in support of the defendant’s application to file its statement of defence out of time does not contain any evidence of the defendant’s alleged defence and refers to and relies upon the affidavit of Chengfan Sun which was filed out of time without the leave of the Court.
iv. The overall justice of the application does not support the Court granting leave.
Affidavit of Bowen Zhou dated 19 April 2023
[15] Bowen Zhou (Mr Zhou), a Legal Executive with Super Power’s lawyers, has made an affidavit in support of Super Power’s opposition to Dreamhome’s application.12
11 Companies Act 1993, s 287.
12 Documentary affidavit of Bowen Zhou in support of notice of opposition to defendant's application for leave to file statement of defence out of time dated 19 April 2023.
[16] On 22 September 2022 at about 11:10am, Mr Zhou deposes that Super Power served Dreamhome payment claims in relation to outstanding work done on three of their properties at Mission Bay, Glendowie and Huntington Park. Mr Zhou says Tracy Huang accepted service on Dreamhome’s behalf.
[17] Mr Zhou says that the payment claims were due by 20 October 2022 and that Dreamhome did not respond by providing payment schedules to Super Power.
[18] On 8 November 2022 at about 10:13am, Mr Zhou deposes that Super Power served Dreamhome a statutory demand for that payment. He says Ben Liu accepted service on Dreamhome’s behalf.
[19] Mr Zhou says that Dreamhome did not file any application to set aside the statutory demand by 22 November 2022 nor make payment of the amount due under the statutory demand by 29 November 2022, as required.
[20] On 12 January 2023 at about 11:02am, Mr Zhou deposes that Super Power served Dreamhome a notice of proceeding for putting it into liquidation, an affidavit in support, a statement of claim and a notice of hearing. Mr Zhou says Tracy Huang again accepted service on Dreamhome’s behalf.
[21] Mr Zhou says that Dreamhome did not file any statement of defence by 26 January 2023, as required.
[22] Mr Zhou deposes that Dreamhome filed a statement of defence and Mr Sun’s supporting affidavit dated 23 March 2023 and served Super Power on 24 March 2023. He says that Super Power filed a memorandum opposing the late filing on 27 March 2023, when the liquidation hearing was due to proceed on 4 April 2023.
[23] Mr Zhou then says that Dreamhome filed this interlocutory application with Ms Chen’s affidavit and a memorandum on 3 April 2023. He says that on 4 April 2023, Associate Judge Sussock confirmed that the statement of defence is only a draft until leave is granted.
Reply affidavit of Chengfan Sun dated 1 May 2023
[24] Chengfan (Johnny) Sun, Dreamhome’s Director, has filed an affidavit in reply to Mr Zhou’s.13 Mr Sun also appends his substantive affidavit in support of Dreamhome’s draft statement of defence.
[25] Mr Sun deposes that Super Power was on notice of the dispute in 2020 and again in 2022. As far as Mr Sun was concerned and because he says he received no response from Super Power’s lawyers, he says the disputes were raised and he assumed that if Super Power considered the sums due, they would have proceeded with a Disputes Tribunal claim in the ordinary way.
[26] Mr Sun further deposes that the liquidation proceedings were served on 12 January 2023 during Dreamhome’s Christmas shutdown and when he was away from the office and out of Auckland. He says he was not able to obtain legal advice until March 2023 and prepared the defence as soon as possible, that being 23 March 2023.
Affidavit of Chengfan Sun dated 23 March 2023
[27] Mr Sun has filed an affidavit in support of the defence to the application by Super Power for liquidation.14 A preliminary point arises as to whether the Court should allow this affidavit to be read in support of Dreamhome’s application for leave.15 This affidavit was filed out of time on 23 March 2023 with the statement of defence and without leave of the Court. I am of the view that the contents of this affidavit are directly relevant to Dreamhome’s application and I will allow it to be read in support of the application.
[28] Mr Sun deposes that Dreamhome is an Auckland-based trading and solvent building contractor and property developer which engages various specialist
13 Affidavit of Chengfan Sun in reply to opposition to defendant's application to file defence to application for leave to file statement of defence out of time dated 1 May 2023.
14 Affidavit of Chengfan Sun in support of defence to application for liquidation dated 23 March 2023.
15 Submissions of the plaintiff/respondent dated 12 July 2023 at [32](e).
third-party subcontractors. He says that in 2017 Dreamhome was involved in three relevant properties in Mission Bay, Glendowie and Huntington Park.
[29] Regarding the Mission Bay property, Mr Sun says on around 27 January 2017 Super Power was contracted to provide equipment, cartage, and labour. Super Power issued, and Dreamhome paid in full, two invoices for this work — invoice 113 for
$21,683.25 paid in April 2017 and invoice 127 for $107,572.97 paid in August 2017. Subsequently, Super Power has issued invoice 128 for $9,545 for excavation/exportation work allegedly done on 10 and 11 July 2017. Mr Sun says Dreamhome disputes invoice 128 claiming the work had progressed beyond earthworks by July 2017 and that all work was paid in full in the initial two invoices issued at the time.
[30] Regarding the two lots at Glendowie, Mr Sun says on around 15 June 2017 Plumbing 4S Limited NZ (P4S) was contracted to provide drainage and excavation work to install underground tanks and for concrete works at both lots. Dreamhome paid P4S a deposit, P4S carried out the works and Dreamhome paid the final balance. Subsequently, Super Power has issued invoice 132 for $5,232.50 for materials, labour and machinery for concrete cutting allegedly done between 28 and 30 June 2017. Mr Sun says Dreamhome disputes invoice 132 claiming this work was carried out by P4S not Super Power. Mr Sun accepts that at Glendowie Super Power did provide an excavator and associated labour and transport, and completed three loads and cartage for the clearing, hard fill and levelling off. He accepts that this work was belatedly invoiced in 2020 as invoice 155 for $4,062.38 and says Dreamhome accepts this invoice and that it can be paid from funds in Dreamhome’s lawyers’ trust account.
[31] Regarding the Huntington property, Mr Sun says in February 2017 RNJ Electrical Limited (RNJ) carried out excavation work, including underground services, cable joining and hand digging. Dreamhome paid RNJ’s invoice 207062 for some of that work in August 2017. Subsequently, Super Power has issued invoice 146 for $24,710.63 for machinery, labour and materials to perform concrete cutting, trench excavation, site clearing, and walkway preparation allegedly done on 18 days between 8 July and 9 October 2017. Mr Sun says Dreamhome disputes invoice 146 claiming
Super Power was not contracted for this property and could not have carried out these works on the alleged dates as they had been completed in February 2017 by RNJ.
[32] Mr Sun deposes that in early 2020, EC Credit Control (ECCC), Super Power’s debt collection agency, contacted Dreamhome to demand payment of invoices 128, 132, 146 and 155. Dreamhome responded by email on 25 February 2020 accepting and advising they would pay invoice 155, but rejecting and disputing invoices 128, 132 and 146 while requesting proof of work. Mr Sun confirms no response was received from ECCC nor Super Power.
[33] Mr Sun says no further communication occurred until Super Power’s lawyers reached out in November 2022. On 8 November 2022, Dreamhome advised that invoice 155 was approved for payment and provided reasons for disputing the remaining three. On 15 November 2022, Super Power’s lawyers purportedly provided documentary proof for invoices 128, 132 and 146, but when Dreamhome questioned their evidence in an email later that day, Mr Sun says no reply was forthcoming.
[34] Mr Sun says a statutory demand was issued for the disputed invoices without warning in January 2023, while he was away on holiday. He disputes the contractual basis for any interest on the sums. He further says that on 9 March 2023, Dreamhome’s lawyers wrote to Super Power’s again disputing the debt and the statutory demand and requesting the liquidation proceeding be withdrawn otherwise a stay of the proceedings/restraint of advertising application would be made. Super Power’s lawyers responded on 13 March 2023 with instructions to advertise the liquidation unless Dreamhome made payment within 3 working days.
[35] In concluding, Mr Sun reasserts Dreamhome is trading and solvent and has placed the alleged debt of $43,550.51 in their lawyer’s trust account. Dreamhome maintains there is no debt due, and that Super Power has been on notice since 2020 that Dreamhome disputed the invoices.
Legal principles
[36] Rule 31.17 of the High Court Rules 2016 provides that a statement of defence in liquidation proceedings must be filed within 10 working days after the date on which the statement of claim was served.
[37] Rule 31.20 provides that a person who does not file a statement of defence within the time prescribed may not appear at the hearing without an order extending the time granted on an interlocutory application under r 31.22 or special leave of the Court.
[38] Under r 31.22(1)(a), when a proceeding is commenced under r 31.3 (that is, as an application to put a company into liquidation by statement of claim), an interlocutory application (unless made with leave of the Court) may not be made to the court before the date of the hearing specified in the notice of proceeding served with that statement of claim unless it is “an application for an extension or abridgment of time”.
[39]Under r 1.19:
Extending or shortening time
(1)The court may, in its discretion, extend or shorten the time appointed by these rules, or fixed by any order, for doing any act or taking any proceeding or any step in a proceeding, on such terms (if any) as the court thinks just.
(2)The court may order an extension of time although the application for the extension is not made until after the expiration of the time appointed or fixed.
[40] Leave will not be granted to file a defence out of time unless an arguable defence can be shown on the papers.16 In principle, then, the test to be applied is the same as in an application to set aside a statutory demand.17
16 Fresh Cut Flower Wholesalers Ltd v Living and Giving Gift Co Ltd (2001) 16 PRNZ 173 (HC) at [9].
17 Orme v Parkway Investments Ltd HC Hamilton M149/00, 7 May 2001 at [15]. Broadly stated, factors relevant to setting aside a statutory demand include whether a genuine substantial dispute exists as to the underlying debt, whether the company appears to have a counterclaim, set-off or cross-demand and whether the demand ought to be set aside on other grounds. See Companies
[41] Leave should not be granted if the applicant is insolvent, and the applicant should be able to provide a reasonable explanation for its failure to files its statement of defence in time.18 In summary, as Associate Judge Doogue has said:19
Thus, there are three matters to consider:
a)Is there an arguable basis that defendant is not liable?
b)Is the defendant insolvent?
c)Has the defendant advanced a reasonable explanation for its failure to file and serve its statement of defence.
[42] Grant of extension of time is an indulgence, as the Court rules are designed to ensure the speedy resolution of liquidation proceedings.20 An applicant must provide a proper factual foundation upon which the Court can exercise its discretion to grant the indulgence.21 The ultimate consideration informing the exercise of the discretion is the overall justice of the case.22
[43]Section 20 of the Construction Contracts Act 2002 (CCA) provides:
20Payment 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.
Act 1993, s 290; Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 301; and AAI Ltd v 92 Lichfield Street Ltd (in rec & liq) [2015] NZCA 559, (2015) 23 PRNZ 52 at [22].
18 Auckland City Council v Stonne Ltd HC Auckland CIV-2007-404-4208, 30 November 2007 at [20]. See also Khurana Trustee Ltd v Castle Backpacker K Road Ltd [2021] NZHC 1315 at [19]–[25] .
19 At [21].
20 Eversons International Ltd (in liq) v Bionutrient Customs Ltd [2020] NZHC 2989 at [19].
21 Body Corporate 166208 v York Trustees Ltd [2018] NZHC 593 at [30].22 Eversons International Ltd (in liq) v Bionutrient Customs Ltd, above n 20, at [21], citing Body Corporate 62870 v Health Distributors (Holdings) Ltd [2018] NZHC 1717 at [8].
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.
(3)A payment claim must be accompanied by—
(a)an outline of the process for responding to that claim; and
(b)an explanation of the consequences of—
(i)not responding to a payment claim; and
(ii)not paying the claimed amount, or the scheduled amount, in full (whichever is applicable).
(4)The matters referred to in subsection (3)(a) and (b) must—
(a)be in writing; and
(b)be in the prescribed form (if any).
Section 21 of the CCA provides:
21Payment schedules
(1)A payer may respond to a payment claim by providing a payment schedule to the payee.
A payment schedule must—
(a)be in writing; and
(b)identify the payment claim to which it relates; and
(c)state a scheduled amount.
(3)If the scheduled amount is less than the claimed amount, the payment schedule must indicate—
(a)the manner in which the payer calculated the scheduled amount; and
(b)the payer’s reason or reasons for the difference between the scheduled amount and the claimed amount; and
(c)in a case where the difference is because the payer is withholding payment on any basis, the payer’s reason or reasons for withholding payment.
[45]Section 22 of the CCA provides:
22Liability for paying claimed amount
A payer becomes liable to pay the claimed amount on the due date for the payment to which the payment claim relates if—
(a)a payee serves a payment claim on a payer; and
(b)the payer does not provide a payment schedule to the payee within—
(i)the time required by the relevant construction contract; or
(ii)if the contract does not provide for the matter, 20 working days after the payment claim is served.
[46]Section 23 of the CCA provides:
23Consequences 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
Evidence from the bar
[47] Before considering the substantive issues to be dealt with in this judgment there is a preliminary issue as to the admissibility of documents handed up by Ms Holland during the hearing comprising copies of a number of text messages between the parties and other attachments. The intention of Ms Holland in providing these to the Court was to help substantiate the existence of a contract between the parties for the works to which the invoices underlying the statutory demand and liquidation application relate.
[48] Mr Taylor objected to these documents being submitted to the Court as they were evidence from the bar and should have been put in evidence by affidavit by Super Power if they were to be relied on by Super Power.
[49] Having considered the issue I am of the view that it is not material to my determination in this judgment whether these documents are admitted into evidence or not. If admitted, they would not affect my conclusion at [61]. Out of procedural fairness to Dreamhome I exclude them.
Analysis
[50] Mr Taylor, for Dreamhome, proposes that the factors the Court may consider in deciding an application under r 31.22 are:
(a)whether the defendant has a material defence;23
(b)whether the defendant has a reasonable explanation for its delay, and the reasons for its rejection of the plaintiff’s alleged claim;24
(c)the defendant’s solvency;25
(d)whether the plaintiff would be materially prejudiced by leave to file out of time;26
(e)whether the defendant would be materially prejudiced if leave is not granted;27 and
(f)the overall justice of the matter.
[51] Mr Taylor, in his submissions, then deals with each of these factors in respect of Dreamhome’s application. The approach in this judgment is to review each of these factors to determine their applicability to Dreamhome’s application.
Arguable defence
[52] Mr Taylor submits that the debts underlying the liquidation application are disputed between Dreamhome and Super Power. He submits that the basis of the dispute is as follows:
(a)What are the alleged contracts under which Dreamhome is alleged to have engaged Super Power to provide the services?
(b)What was the alleged scope of works for each of the alleged engagements?
(c)Whether Super Power actually provided any of the claimed works.
(d)Whether the parties’ correspondence over the course of several years constitutes sufficient notice of a dispute, as to invalidate any post-dated
23 Day v Ost (No 2) Ltd [1974] 1 NZLR 714 (SC) at 717; Ratnam v Cumarasanay [1965] 1 WLR 8 (PC) at 12; Hurunui Estate (2002) Limited v Hurunui Hotel (2004) Limited [2015] NZHC 1152 at [11].
24 Hurunui, above n 3, at [12].
25 AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389, (2008) 19 PRNZ 13 at [5].
26 Hurunui, above n 3, at [14].
27 Hurunui, above n 3 at [15].
invoices, including those purportedly issued as payment claims under the CCA.
(e)Whether the liquidation application is an abuse of process.
[53]Mr Taylor expands on the dispute as follows:
(a)The invoices that Super Power relies on were issued in 2020, but the work that it alleges it performed was purportedly done in 2017. He submits that immediately upon receiving these invoices in 2020 Dreamhome responded and notified Super Power in writing that the invoices were disputed (except for one invoice which it advised was approved) because:
(i)the work claimed had actually been performed by a third party whom Dreamhome had paid; and
(ii)there was no contract with Super Power for the works being claimed.
Super Power did not respond or provide evidence to the contrary;
(b)notwithstanding written notice that the invoices were disputed, Super Power alleges that in 2022 its director issued Dreamhome with payment claims under the CCA.
(c)Mr Taylor submits there were several issues with the payment claims:
(i)as no construction contract exists, the CCA does not apply;
(ii)there is no evidence of service of these alleged payment claims and service is required pursuant to s 80 of the CCA;
(iii)the payment claims do not adequately identify the construction work to which the payment claims relate, for the purposes of s 20(2)(c) of the CCA;
(iv)between 8 and 15 November 2022, Dreamhome corresponded with Righteous Law in respect of the disputed claims. On 15 November 2022 Dreamhome unequivocally notified Righteous Law that by continuing the absence of any relevant evidence to the contrary, it denied the validity of Super Power’s claims;
(v)the payment claims that were allegedly served on Dreamhome are not in evidence before the Court and so the Court cannot assess their validity;
(vi)even if the alleged payment claims were valid, Dreamhome provided a response sufficient to constitute a payment schedule under s 21 of the CCA.
[54] Mr Taylor submits that even if the payment claims by Super Power were valid under the CCA, the decision of the Court of Appeal in Laywood v Holmes Construction Wellington Limited indicates that the right for a party to recover a payment claim under the CCA will not necessarily be determinative in the context of the Court’s decision on whether to put a company into liquidation.28 The Court made the following comments:
[61] We emphasise at this point the distinction between an application to set aside a bankruptcy notice or a statutory demand on the one hand and an adjudication of bankruptcy or order to wind up a company on the other. The question we are asked to resolve concerns the former.
…
[65] We emphasise again that we were asked to consider only the first of the two stages referred to at para [61] above. It may be that different considerations arise at the point that the court must determine whether it will exercise its discretion to adjudicate a judgment debtor bankrupt or order the liquidation of a company (see AMC Construction Ltd v Frews Contracting Ltd
28 Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35, [2009] 2 NZLR 243.
[2008] NZCA 389 at para [7]). But that is a point on which we express no opinion.
[55]Mr Taylor submits that Super Power issued a statutory demand for
$220,536.62, which included a claim for interest of $176,986.11 on an allegedly core debt of $43,550.51. He submits as no contract for Super Power’s work exists, the basis on which Super Power is entitled to interest is not established and accordingly the statutory demand is for an invalid amount.
[56] Mr Taylor submits that this is a case where there are conflicts of evidence and issues of credibility relating to the underlying dispute, namely the contractual basis for the works, the scope of works completed, and the validity of the underlying claims. This means that this matter should not be determined without Dreamhome’s defence being considered.
[57] Ms Holland, on the other hand, submits there is no substantial dispute whether the debt, for which payment was demanded under the statutory demand, is owing and due. She submits that the payment claims made on Dreamhome were valid and refers to the decision of Demasol Ltd v South Pacific Industrial Ltd where the Court held that the only enquiries required in relation to an application to set aside a statutory demand in the context of a CCA payment claims are:29
(a)whether the payment claim complied with s 20 of the CCA; and
(b)whether the party applying to set aside the statutory demand had provided a payment schedule contesting its liability or paid the amount claimed by the due date;
and further that the general merits of the payment claim are not open for consideration and are irrelevant in the statutory demand context.
[58]Ms Holland submits that:
(a)the payment claims complied with s 20 of the Act;
29 Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480 at [47].
(b)Dreamhome did not provide a payment schedule which complied with the CCA, and accordingly, failure to provide payment schedules and to pay the claimed amount renders Dreamhome liable to pay the claimed amount on due date for payment to which the claim relates;
(c)the consequences thereof are that Super Power may recover from Dreamhome as a debt due to Super Power in any Court the unpaid portion of the claimed amount and the actual and reasonable costs of recovery ordered against Super Power by that Court.30
[59] Finally, Ms Holland submits that even if Dreamhome’s response to the payment claims could constitute a payment schedule, the communications which Dreamhome submits may constitute a payment schedule are dated 15 November 2022, and such communications came only as a result of service of the statutory demand.
[60] Ms Holland also submits that Dreamhome’s allegation that the dispute is long- standing is incorrect. She submits that Dreamhome’s evidence of bringing the dispute to the attention of Super Power is weak and consists of handwritten notes on invoices that were rendered by Super Power. She submits that there is no evidence of when these undated handwritten notes were written or if, or when, these handwritten notes were forwarded to Super Power. Ms Holland then analyses the invoices rendered by Super Power in respect of the projects at Yattendon Road, St Heliers; and Mt Taylor Drive, Glendowie; and Huntington Park.
Conclusion in relation to Dreamhome’s arguable defence
[61] I am of the view that Dreamhome has established an arguable defence to the liquidation application on the basis that there is a substantial dispute as to the underlying debts on which the liquidation application is based. The reasons for my view are as follows:
(a)There is a dispute between the parties as to whether the works to which the disputed invoices relate were pursuant to a contract which existed
30 Construction Contracts Act, s 23(2).
between the parties or not, and whether the relevant works were carried out by Super Power.
(b)There is a dispute between the parties as to whether the payment claims were made on Dreamhome under the CCA, with Dreamhome alleging a construction contract did not exist in the first place, the claims were not properly served, did not describe the construction work accurately and were not put in evidence for the Court to assess their validity. There is a corresponding argument by Super Power that the payment claims were valid, that Dreamhome did not respond to the payment claims by issuing a valid payment schedule, and therefore Super Power is entitled to recover the amount claimed by Dreamhome under the payment claims as a debt under s 23 of the CCA. These issues need to be resolved at trial.
(c)In relation to the payment claims under the CCA, even if the payment claims were valid and Dreamhome did not issue a valid payment schedule in response, as alleged by Super Power, there is the issue raised by Mr Taylor relating to the decision in Laywood where, while the Court of Appeal accepted the position that claims under the CCA may be determinative in an application to set aside a bankruptcy notice or a statutory demand, they may not be determinative in an application for adjudication of bankruptcy or for an order to liquidate a company.31 It is noted that the Court deliberately left this issue undecided in the Laywood case.32
(d)There are issues regarding the validity of the statutory demand which was served by Super Power on Dreamhome on 8 November 2022. The statutory demand was for $220,536.62, which included interest of
$176,986.11. There is a dispute as to whether there is any contractual entitlement for Super Power to charge this interest. If not, then the statutory demand significantly overstates the debt due and owing,
31 Laywood v Holmes Construction Wellington Ltd, above n 28.
32 At [65].
which potentially raises a dispute as to the validity of the statutory demand.
(e)Disputes as to the extent that Dreamhome notified their dispute over the invoices to Super Power need to be resolved at trial.
Period of delay and explanation
[62] Mr Taylor submits that while Dreamhome does not dispute that it was served with Super Power’s application for liquidation, based on the correspondence between the parties and/or Super Power’s agents since 2020, Dreamhome’s immediate failure to apprehend the nature and significance of the notified proceedings was reasonable in the circumstances and any initial delay is not significant.
[63] Mr Taylor submits as follows, in relation to the issue of the liquidation proceedings:
(a)with knowledge that Dreamhome disputed and denied Super Power’s claim, Super Power issued the liquidation proceedings, which were served at Dreamhome’s offices during the holiday period when the director was away from Auckland;
(b)having had no response from Righteous Law to the exchange in November 2022 (which is disputed by Super Power), Dreamhome’s director apprehended the proceedings were a continuation of the dispute and did not apprehend the gravity of the liquidation proceedings;
(c)Dreamhome then engaged counsel, who wrote to re-affirm the dispute over the alleged debt and gave notice that the application would be defended unless the application was withdrawn. Before Dreamhome’s interlocutory application to prevent advertising proceedings could be filed, Super Power advertised the proceedings;
(d)The subject of the alleged debt owed to Super Power dates from 2017 and was first invoiced in 2020. There was another two-year hiatus before the matter was again brought to Dreamhome’s attention in late-2022. At no point did Super Power provide any cogent evidence in support of the disputed invoices, although Dreamhome repeatedly notified Super Power in writing of the reasons why such proof was required and that the invoices were otherwise denied;
(e)The context of ongoing written communications between the parties as to the disputed debt and the reasons Dreamhome required proof of bona fides mean that Dreamhome’s initial failure to comprehend that further steps in Court would be necessary is not unreasonable.
[64] Ms Holland, on the other hand, submits that Dreamhome had sufficient opportunity to properly put forward any defence to Super Power’s liquidation proceedings that it may have had. She submits as follows:
(a)Dreamhome was served with the liquidation proceedings on 12 January 2023, having already been served with the statutory demand. She submits that Dreamhome understood the gravity of the proceedings yet did not engage counsel until March 2023;
(b)Dreamhome had already been put on notice by way of service of the payment claims and service of the statutory demand, and if it had any genuine defence it would be ready to put it forward;
(c)while Dreamhome submits it did not appreciate the gravity of the proceedings, not understanding the gravity of the proceedings is no excuse for not filing a statement of defence within time;
(d)the period of delay of eight weeks in filing the statement of defence is significant.
[65] In summary on this point, Ms Holland submits that Dreamhome’s director did understand the gravity of the statutory demand and chose not to engage counsel, and that any reasonable businessperson understands the gravity of receiving a statutory demand, particularly after having been served with payment claims. She submits Dreamhome deals with construction contracts and payment claims throughout its business and it is reasonable to submit that Dreamhome understood the gravity, however it chose to sit on its hands and do nothing.
Conclusion in relation to delay
[66] In my view, delay by Dreamhome in filing a statement of defence is not fatal to its application for leave. While Ms Holland makes a good point that Dreamhome should have been familiar with payment claims and statutory demands, given its business of property development, it is not necessarily unreasonable that Dreamhome did not take steps when the liquidation application was served on it given the background of:
(a)what Dreamhome regarded as a long-standing dispute in respect of the disputed invoices, dating back to at least 2020, and in Dreamhome’s view, a dispute which was clearly raised with Super Power at the end of 2022; and
(b)the proceedings were served during the holiday period, explaining some of the period of delay in Dreamhome responding.
Prejudice to the parties
[67] Mr Taylor submits there is no material prejudice to Super Power in allowing an extension of time to file a defence. He submits that the delay would only amount to inconvenience and would not prejudice Super Power, relying on the Hurunui decision.33 Mr Taylor submits that in all the circumstances the interests of justice displaces any inconvenience to Super Power. Given the background of Super Power’s continued refusal and/or failure to provide any relevant evidence to substantiate its
33 Hurunui, above n 3, at [13].
claims and Dreamhome’s consistent written notices to Super Power with reasons for denying Super Power’s claims, the delay only goes to convenience, and does not create material prejudice to Super Power.
[68] Ms Holland, on the other hand, submits that prejudice to Super Power is significant. She makes the following points:
(a)Dreamhome was served with payment claims on 22 September 2022 and did not provide payment schedules by 20 October 2022, and in effect Dreamhome has delayed payment to Super Power due under the payment claims by at least 22 weeks.
(b)Super Power has been without the money owed to it by Dreamhome since 2017. Further delay extends the period of time before Super Power will be paid. Dreamhome is wasting funds on a defence which might properly be handled by a proof of debt before the company’s liquidator and any defence by Dreamhome will involve Super Power in further unnecessary legal costs.
Conclusion in relation to prejudice to the parties
[69] In my view, while there is obvious prejudice to Super Power in the sense that when the statement of defence is filed the proceedings will continue and Super Power will incur further costs, the prejudice to Dreamhome of not allowing the statement of defence to be filed, outweighs the prejudice to Super Power. The reasons for this are as follows:
(a)There have been significant delays by Super Power itself in pursuing these debts, from 2017 to 2020 and then to 2022;
(b)As I have found at [61] above, there is a substantial dispute regarding the validity of the underlying debts, and this needs to be tested at trial. Denying Dreamhome the ability to file a defence means these issues cannot be tested and in my view the prejudice to Dreamhome outweighs any prejudice to Super Power.
Solvency of Dreamhome
[70] Mr Taylor submits that Dreamhome’s application under r 31.22 is supported by the Court of Appeal’s AMC Construction decision where the Court said:34
[E]xamination of a company’s solvency will often be a useful aid in determining whether the refusal to pay is a result of a bona fide dispute as to liability, or whether it reflects the inability to pay.
[71]Mr Taylor submits that:
(a)at all times Dreamhome has been solvent and trading as a builder and residential property developer;
(b)Dreamhome has placed the amount of the alleged debt, being
$43,550.51, into its solicitor’s trust account and Righteous Law was notified of this;
(c)if the proceedings are allowed to proceed without Dreamhome’s defence being admitted, the result will mean the liquidation of a solvent and trading company.
[72]Ms Holland, on the other hand, submits that:
(a)Solvency is unlikely to be a stand-alone ground for an arguable defence in liquidation proceedings, because if the debt is indisputably owing, then it should be paid. She relies on the decision in Kupe Trustee Company Ltd v My Trustee Company (Beech) Ltd.35 The defendant’s solvency is an important, but not decisive, factor against the exercise of the discretion.
(b)The Court should not place too much weight on the fact that Dreamhome has paid funds into the solicitor’s trust account as this is not evidence of Dreamhome’s solvency. Dreamhome has not provided
34 AMC Construction Ltd v Frews Contracting Ltd, above n 25, at [5].
35 Kupe Trustee Company Ltd v My Trustee Company (Beech) Ltd [2022] NZHC 2700 at [48].
evidence as to its solvency and whether the sum of $43,550.51 was transferred from its own bank or what was the source of the funds. Dreamhome has not provided financial statements as evidence of its ability to pay debts, and has provided nothing to convince the Court that it is not insolvent.
Conclusion in relation to Dreamhome’s solvency
[73] I am of the view that the position regarding the solvency of Dreamhome is neutral in relation to granting the application for leave. On the one hand, Dreamhome has paid the amount of the core debt into its solicitor’s trust account, but no further evidence of its solvency has been provided. On the contrary, there is no evidence before the Court that Dreamhome is unable to pay its debts.
Overall justice
[74] Mr Taylor submits that the overall justice of the case supports granting leave for the following reasons:
(a)Super Power has failed and/or neglected to provide proof of the disputed claims against Dreamhome for at least three years, despite multiple written notices that the debt was disputed;
(b)the purposes of the Companies Act 1993 and the objectives of the Rules would be defeated if the technical liquidation of a solvent trading company results from an undefended application brought on the basis of a disputed debt that Super Power has repeatedly been put on notice of for several years;
(c)the use of the statutory demand procedure to enforce an unsubstantiated claim is an abuse of the Court’s process, as the intended purpose of the statutory demand procedure is to establish presumption of solvency, not to force recovery of a disputed debt.
[75] Ms Holland, on the other hand, submits that the overall justice of the case favours declining leave for the following reasons:
(a)Dreamhome has not provided evidence of a clear and unequivocal dispute;
(b)Dreamhome does not have an arguable defence;
(c)delay in filing the statement of defence is substantial, is prejudicial against Super Power’s interest and undermines the position of the CCA to facilitate regular and timely payments between the parties to a construction contract;
(d)the effort made by Super Power to show Dreamhome the seriousness of this matter has been completely ignored by Dreamhome;
(e)Super Power is not utilising the statutory demand procedure as a debt collection device — Dreamhome forced Super Power to file liquidation proceedings as Dreamhome continued to ignore the advice provided to it in the statutory demand, and notice of proceeding for putting the company into liquidation;
(f)even if, as alleged by Dreamhome, there is no construction contract between the parties, Dreamhome had an opportunity to make an application to set aside the statutory demand and put its alleged defence forward at that time and yet chose not to.
Conclusion on overall justice
[76] In my view, the overall justice of the case favours granting leave to Dreamhome to file the statement of defence. The reasons for this are:
(a)as I have determined at [61] there is a substantial dispute as to the validity of the debts underlying the payment claims, statutory demand and liquidation proceedings issued by Super Power;
(b)there have been delays by Super Power itself in seeking to recover the debt from 2017, when the alleged work was carried out, up until 2020, and then again to 2022;
(c)while there was no real evidence before the Court as to the solvency of Dreamhome, Dreamhome has paid into its solicitor’s trust account the core debt, indicating at least some level of solvency.
Result
[77] As a result of the conclusions I have reached at [61], [66], [69], [73] and [76], I am of the view that leave should be granted to Dreamhome to file its statement of defence out of time.
Orders
[78]I make the following orders:
(a)Leave is granted to Dreamhome to file its statement of defence out of time.
(b)My preliminary view is that as the Court is granting Dreamhome an indulgence, costs should lie where they fall. Counsel should endeavour to agree costs. If no agreement is reached within 20 working days of the date of this judgment, within 5 working days of the expiry of the 20 working day period counsel for Dreamhome will file a memorandum as to costs (not exceeding five pages), and counsel for Super Power will file a reply (not exceeding five pages) within 5 working days of receipt of counsel for Dreamhome’s memorandum. A decision on costs will then be made on the papers.
…………………………….. Associate Judge Taylor
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