Teak Construction Group Limited v KMJB Harris Limited
[2025] NZHC 700
•28 March 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-2336
[2025] NZHC 700
UNDER the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
TEAK CONSTRUCTION GROUP LIMITED
Applicant
AND
KMJB HARRIS LIMITED
Respondent
Hearing: 4 March 2025 Appearances:
A J B Holmes for Applicant
N P Tetzlaff and D R Lang for Respondent
Judgment:
28 March 2025
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 28 March 2025 at 3.00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
TEAK CONSTRUCTION GROUP LIMITED v KMJB HARRIS LIMITED [2025] NZHC 700 [28 March 2025]
[1] Teak Construction Ltd (Teak) was engaged to build a factory extension at Penrose. KMJB Harris Ltd (KMJB) undertook earthworks for Teak on the project and issued monthly payment claims. KMJB issued a statutory demand to Teak in respect to its payment claim 22. This judgment concerns Teak’s application to set aside the statutory demand.
[2] KMJB says Teak failed to respond to payment claim 22 with a payment schedule within 20 working days as required by s 22 of the Construction Contracts Act 2002 (the Act) and became liable to pay the claimed amount which, under s 23 of the Act, is a debt due.
[3] Teak says under its subcontract with KMJB it was to provide payment schedules within 25 working days from the last day of the month in which payment claims were served, and it did so. It also says its payment schedule 22 certified that the amount to be paid was a negative sum and there is no amount due and owing to KMJB.1 In the alternative, Teak says that if the parties did not enter into a subcontract because they failed to agree on essential terms the Act does not apply and KMJB is limited to a claim in quantum meruit.2
[4] The issue is whether Teak has established it is fairly arguable that the amount of payment claim 22 is not due and owing. This requires consideration of whether Teak and KMJB entered into a subcontract for the performance of the earthworks, and if so on what payment terms.
Background facts
[5] The facts were helpfully set out in Mr Holmes’ written synopsis, which for present purposes I have utilised with changes where necessary.
1 Construction Contracts Act, s 24. Counsel for KMJB confirmed that the statutory demand relies upon the alleged failure by Teak to respond to the payment claim on time. I understand it is accepted by KMJB that if that argument fails the sum demanded is genuinely disputed.
2 Canam Construction (1995) Ltd v LaHatte [2010] 1 NZLR 848 (HC) at [41]–[46]; M van der Wal Builders & Contractors Ltd v Walker HC Auckland CIV-2011-004-083 at [84]; and Finesse Residential Ltd v Vasanthan [2013] NZHC 3202.
[6] Teak is a construction company and engaged KMJB as a subcontractor for excavation and drain-laying works on several projects from 2021.
[7] On 25 March 2022, Teak invited KMJB to tender for earthworks on the Penrose Project. On 3 May 2022 KMJB submitted an initial tender, and submitted a revised tender on 27 July 2022.
[8] On 27 July 2022, representatives of Teak and KMJB met for what is known as a pre-award meeting and completed Teak’s subcontractor pre-award checklist. It recorded that “a Subcontract Agreement will be issued, reflecting agreed price”.
[9] On 4 August 2022, Teak sent KMJB a letter of intent advising that its tender was successful and KMJB would be engaged on the condition that it enter a subcontract agreement.
[10] Teak’s position is that before KMJB began work it was aware of the terms of Teak’s subcontract agreement and had agreed to those terms on projects at Mairangi Bay Apartments (November 2021), Point Chevalier Road (August 2022) and John Glenn Avenue (August 2022), including that payment schedules would be provided within 25 days of the end of the month in which KMJB submitted payment claims.
[11] On 15 September 2022, Teak sent KMJB a letter of acceptance (KMJB says it was sent earlier). It recorded that a subcontract agreement between Teak and KMJB would be entered, with final terms to be agreed. I set it out in full below:
RE: NZ Bakels Project Century3 Letter of Acceptance
Dear Ken
Further to your tender offer for the abovementioned project, Teak Construction Group Ltd hereby advises you, by way of this Letter of Award, that your tender offer was successful. A formal Subcontract Agreement between KMJB Harris Limited and Teak Construction Group Limited for the Earthworks, Siteworks & Drainage scope will be entered into, with final terms to be agreed.
The following particulars will form the bases on [sic] the subcontract:
3 The Penrose Project was also referred to as the NZ Bakels Project.
Contract Sum: $1,778,274.37 (excl. GST):
Scope of subcontract: Earthworks, Siteworks & Drainage Head Contract Site Position Date: 19/09/2022
Expected Subcontractor Start date: (To follow) Construction Programme: As attached (To follow)
Head contract: NZS 3910 2013 with Special Conditions to follow
Whilst your subcontract is being prepared, please proceed with the procurement materials and commencement of shop drawings if applicable.
This Letter of Award will be superseded by the subcontract agreement to follow.
Regards,
Adam Dyer
[12]On or around 10 October 2022, KMJB commenced work.
[13] On 25 October 2022, Teak sent KMJB its subcontract agreement for execution, including specific and general conditions. The cover letter stated:
We confirm that your Tender for the above mentioned project has been successful and that our agreement is fully recorded in the attached Commercial Subcontract Agreement. You should execute and return a copy of the Subcontract Agreement (together with the Payment Details Form) to our office as soon as possible.
…
By commencing work on the Project, you accept all of the terms and conditions contained in the Commercial Subcontract Agreement. In addition, we reserve the right to withhold payment until an executed copy of the Commercial Subcontract Agreement is received. Each copy of these documents needs to be signed, completed and returned to us for execution BEFORE your first progress claim. We will then send one copy back to you for your records.
...
[14]The specific conditions of the subcontract agreement included that:
(a)KMJB was required to submit payment claims by the 25th of each month for work carried out up to the end of the month; and
(b)Teak was required to submit payment schedules within 25 working days from the last day of the month in which payment claims were served.
[15] Also on 25 October 2022, KMJB issued its payment claim 1 to Teak. It provided for payment by 28 November 2022.
[16] In October and November 2022, KMJB sought variations to the scope of works. Teak says the process adopted was the same as under its subcontract agreement and used by Teak and KMJB on the other projects.
[17] On 8 November 2022, KMJB sought changes to Teak’s subcontract agreement (which it had not signed). The changes related to the practical completion dates (which were stated as 2022 instead of 2024) and the payment terms. It did this by sending a marked-up copy of proposed changes by email to Teak.
[18] On 13 January 2023, Adam Dyer, a Senior Quantity Surveyor at Teak, replied to KMJB and rejected the proposed changes to the payment terms. He wrote:
We will not be altering our payment terms. However, we’re happy to provide best endeavours in the early issuance of payment schedules.
If you could return the subcontract only altering the Practical Completion year (2022 being my error) that would be great.
[19] On 4 February 2023, Kenneth Harris, the director of KMJB, emailed Teak regarding all four projects KMJB was undertaking for Teak. He said communication had not been clear and proposed a meeting to “resolve outstanding issues”. Mr Harris also noted that KMJB had requested changes to the agreed payment claim/payment schedule timings, and regarding the Penrose Project:
KMJB sent a marked up contract for the [Penrose] contract as the proposed contract had completion dates prior to starting onsite
Teak’s QS Adam Dyer advised that Sam would be responding to the marked up contract but again no response received to date.
[20] Mr Harris’ statement that there had been no response from Teak to the marked-up subcontract was not correct given Mr Dyer’s email of 13 January 2023.
Samuel White, Teak’s director, replied on 8 February 2023, attaching the 13 January 2023 email and stating:
Teak will provide the Payment Schedule in accordance with the Subcontract Agreement, however if Payment Schedule are [sic] able to be provided earlier Teak will endeavour to do so, this would be something KMJB would need to discuss with each individual QS.
[21] On 9 February 2023 Mr Harris replied again, stating he had received the 13 January 2023 email on 23 January 2023 and that on receiving it:
I immediately rung Adam and stated that the contract terms offered are not acceptable and KMJB would not be signing the contract.
He said the payment claim/payment schedule process did not assist KMJB’s cashflow.
[22] In response, Mr White suggested a meeting, which was held on 23 February 2023. Mr White’s evidence is that:
... Teak agreed at the meeting to change retentions to a sliding scale calculation and correct the completion dates. I recall that Mr Harris understood and accepted timing of the Payment Schedules and payment terms. KMJB made no further objections with the payment terms as far as I am aware.
[23] Mr White emailed Mr Harris on 6 March 2023 to record outcomes of the meeting, which included for the Penrose Project, “Subcontract Agreement — minor adjustments to be made, to be tabled with KMJB to sign off”. No subcontract agreement was ever signed.
[24] KMJB continued work on the Penrose Project and issued monthly payment claims. With two exceptions, the payment claims from March 2023 to March 2024 had payment dates of the 28th of the following month. The exceptions were the payment claims of November 2023 and March 2024 (issued before holiday periods) which had payment dates of the 22nd and 26th of the following month respectively.
[25] From April 2024, and without discussion with Teak, KMJB began issuing payment claims with payment dates of the 20th of the following month. Teak did not issue its payment schedules by those dates but continued to provide them in accordance with its previous practice.
[26] On 23 July 2024, KMJB submitted payment claim 22, claiming $401,215.06 (including GST). This was stated to relate to the period 1 July 2024 to 31 July 2024 and the due date for payment was confusingly “20/08/2024 20 working days or as per contract”.
[27] On 21 August 2024 Mr Harris wrote to Teak, alleging that Teak had failed to serve a payment schedule in time because “KMJB refused to sign the contract that Teak proposed for this site as detailed many times before on previous emails”. Mr Harris also asserted that KMJB “relied upon the provisions of NZS3910 as documented by Teak on the letter of award to KMJB Harris” and that Teak had been required to serve a payment schedule “NO Later than 20 working days from the date in which KMJB Harris serves the Payment [sic] claim on Teak”.
[28] KMJB served a statutory demand on Teak on 23 August 2024. After receiving a letter from Teak’s lawyers KMJB withdrew the statutory demand.
[29] Teak served its payment schedule 22 on 30 August 2024. Teak made deductions from payment claim 22 for what is says was incomplete work, incorrectly claimed variations and errors in rates exceeding the amount of the payment claim by
$122,299.60.
[30] On 30 August 2024, KMJB served the statutory demand that is the subject of this application. The amount demanded was “$401,215.06 in accordance with the payment claim issued by KMJB HARRIS LIMITED on 23 July 2024”.
[31] Teak’s lawyers wrote to KMJB’s lawyers on 3 September 2024, inviting KMJB to withdraw the statutory demand. In response, KMJB’s lawyers asserted that KMJB and Teak had agreed to terms set out in NZS 3910:2013, and that KMJB “did not accept” the terms of the subcontract and “was not bound by the Subcontract”. Teak’s application to set aside the statutory demand followed.
Statutory demands: legal principles
[32]Section 290 of the Companies Act relevantly provides:
290 Court may set aside statutory demand.
(1)The court may, on the application of the company, set aside a statutory demand.
(2)The application must be—
(a)made within 10 working days of the date of service of the demand; and
(b)served on the creditor within 10 working days of the date of service of the demand.
…
(4)The court may grant an application to set aside a statutory demand if it is satisfied that—
(a)there is a substantial dispute whether or not the debt is owing or is due; or
…
[33] The principles that apply when the Court is exercising the discretion under s 290(4) were confirmed by the Court of Appeal in Confident Trustee Ltd v Garden and Trees Ltd.4 In summary:
(a)The onus is on the applicant to show there is a fairly arguable basis on which it is not liable for the amount claimed. The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion a dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed. If such material is available, the dispute should normally be resolved by means of ordinary civil proceedings.
(c)If a counterclaim, cross-demand or set-off is suggested, an applicant must establish that this is reasonably arguable in all the circumstances.
4 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
(d)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.
[34] In Industrial Group Ltd v Bakker, the Court of Appeal reiterated that on an application to set aside a statutory demand the Court does not attempt to resolve a dispute between the parties. It said:5
[24] We note that the statutory scheme is for applications to set aside statutory demands to be a summary proceeding. The application must be made within 10 working days of the date of service of the demand: s 290(2)(a). No extension of time may be given: s 290(3). It follows that it would be unusual for the High Court to engage in detailed analysis of the merit of any counterclaim, set off or cross demand. 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 approach required by the “appearance” test in s 290 is a review with a low threshold. The tight time constraints distinguish the s 290 discretion from that to be exercised on, say, a summary judgment application, where the presence 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.
(footnote omitted)
[35] The Court retains a discretion to refuse to set aside a statutory demand notwithstanding that an applicant has made out the grounds for setting it aside under s 290(4). The discretion will be exercised in rare cases. Ultimately the governing consideration will be whether allowing the statutory demand to form the basis of an application for liquidation “savours of unfairness or undue pressure”.6
Did Teak and KMJB enter a subcontract for the performance of the work by KMJB and on what terms?
[36] Counsel referred me to Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd as setting out the pre-requisites to formation of a
5 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413.
6 Stewart’s Cycle City Ltd v Sheppard Industries Ltd [2013] NZHC 256 at [9].
contract.7 These were helpfully considered in a construction context by Palmer J in
Electrix Ltd v The Fletcher Construction Company Ltd as follows:8
[41] Somewhat obviously, the law of contract regulates contractual relationships. But it only does so if there is a contract, at law. Even in commercial contexts, it sometimes occurs that parties do business without forming a contract. In Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd the parties signed a heads of agreement in relation to the supply of gas but further negotiations towards a contract broke down. Four of a full court of five judges in the Court of Appeal found:
The question whether negotiating parties intended the product of their negotiation to be immediately binding upon them, either conditionally or unconditionally, cannot sensibly be divorced from a consideration of the terms expressed or implicit in that product. They may have embarked upon their negotiation with every intention on both sides that a contract will result, yet have failed to attain that objective because of an inability to agree on particular terms and on the bargain as a whole. In other cases, which are much less common, the intention may remain but somehow the parties fail to reach agreement on a term or terms without which there is insufficient structure to create a binding contract.
[42]The Court said:
[53]The pre-requisites to formation of a contract are therefore:
(a)An intention to be immediately bound (at the point when the bargain is said to have been agreed); and
(b)An agreement, express or found by implication, or the means of achieving an agreement (eg an arbitration clause), on every term which:
(i)was legally essential to the formation of such a bargain; or
(ii)was regarded by the parties themselves as essential to their particular bargain.
A term is to be regarded by the parties as essential if one party maintains the position that there must be agreement upon it and manifests accordingly to the other party.
[54] Whether the parties intended to enter into a contract and whether they have succeeded in doing so are questions to be determined objectively. In considering whether the negotiating parties have actually formed a contract, it is permissible to look beyond the words of their “agreement” to the background circumstances from which it arose – the matrix of facts.
7 Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 (CA).
8 Electrix Ltd v The Fletcher Construction Company Ltd [2020] NZHC 918.
[43] The Court said a court “has an entirely neutral approach when determining whether the parties intended to enter into a contract”; whereas, if it is satisfied a contract exists, it will “do its best to give effect to their intention and, if at all possible, to uphold the contract despite any omissions or ambiguities”.
[37] The fact that parties have entered into a contract may be inferred from conduct, as the Court is seeking to determine whether there is an appearance of mutual agreement such that a reasonable bystander would consider the terms had been agreed:9
[111] The Court of Appeal placed some weight on the fact that the deeds of 28 August 2009 had been proffered to Kakara and Weta and not signed. A similar point was advanced in different terms by Dr Harrison QC in argument when he said that the appellants were not able to establish through clearly identified offers and acceptances the contracts of novation on which they rely. Considerations of this kind will often be very significant but given the course of conduct as a whole they are not controlling in the present case. In Brogden v Metropolitan Railway Co, Lord Hatherley concluded that a written agreement signed by one party and proffered to, but never executed by, the other was of contractual effect if:
… the course of dealing and conduct of the party to whom the agreement was propounded has been such as legitimately to lead to the inference that those with whom they were dealing were made aware by that course of dealing, that the contract which they had propounded had been in fact accepted by the persons who so dealt with them.
(footnotes omitted)
The Construction Contracts Act
[38] Section 9 of the Act provides that, subject to ss 11 and 11A, the Act applies to every construction contract relating to the carrying out of construction work in New Zealand entered into on or after the commencement of the Act whether it is written, oral or partly written and partly oral. The term “construction contract” is relevantly defined as “a contract for carrying out construction work”.10 There is no suggestion that KMJB did not undertake construction work within the meaning of the Act.
Savvy Vineyards 3552 Ltd v Kakara Estate Ltd [2014] NZSC 121, [2015] 1 NZLR 281, citing
Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 (HL) at 682 per Lord Hatherley.
10 Construction Contracts Act, s 5.
[39] The Act contains default provisions for payments to a party who carries out construction work under a construction contract, but also provides that parties are free to agree on certain matters. Section 15 provides:
15 Application of sections 16 to 18
If the parties to a construction contract fail to agree on a mechanism for determining any of the matters referred to in section 14, the relevant provisions of sections 16 to 18 apply to the extent that those provisions relate to any matter for which a mechanism has not been agreed on between the parties.
[40]The four matters upon which the parties may agree under s 14 are:
(a)the number of payments under the contract;
(b)the interval between those payments;
(c)the amount of each of those payments; and
(d)the date when each of those payments becomes due.
[41] Absent agreement between the parties otherwise, the default provisions include s 18 which provides:
18 Due date for payment
A payment (as that term is defined in section 19)11 under a construction contract becomes due and payable on the date occurring 20 working days after a payment claim is served under section 20 in relation to the payment.
[42] Sections 20 and 21 set out the requirements for a valid payment claim and payment schedule responding to a payment claim. Importantly, s 22 provides:
22 Liability 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
11 Construction Contracts Act, s 19 is concerned with progress payments. The term “progress payment” is defined in s 5 of the Act to include an instalment of the contract price and a final payment under the contract.
(ii)if the contract does not provide for the matter, 20 working days after the payment claim is served.
[43] Section 23 of the Act sets out the consequences of not responding to a valid payment claim with a payment schedule within the time allowed under s 22(b), which include that the payee may recover from the payer “as debt due to the payee, in any court” any unpaid portion of the claimed amount.
Teak’s position
[44] Teak’s starting position is that there are factual disputes concerning whether the parties entered a subcontract at all and if so on what terms, which cannot be finally resolved on this summary application.
[45] It contends the evidence shows that it is fairly arguable the parties did enter a subcontract, which included the payment terms set out in the subcontract agreement specific conditions provided to KMJB on 25 October 2023. As noted earlier, those included that Teak was to respond to KMJB’s payment claims by issuing a payment schedule 25 working days after the last day of the month upon which the payment claim was issued (cl 2.7 of the specific terms of subcontract).
[46] Teak argues that the terms of the subcontract were agreed on 23 February 2023 at the latest as the uncontested evidence of Mr White is that he had a meeting on that day with Mr Harris who “accepted the timing of the payment schedules and payment terms”. Other evidence demonstrating KMJB had accepted its subcontract terms includes:
(a)KMJB continued to undertake the work;
(b)the absence of objection to the payment terms after the meeting of 23 February 2023;
(c)the manner in which variations were made and processed;
(d)the issue of payment claims and payment schedules was generally consistent with the subcontract agreement; and
(e)the timing of payment claims and payment schedules were the same as those agreed between Teak and KMJB on other projects that were on foot.
KMJB’s position
[47] KMJB’s position has evolved or, as Mr Holmes perhaps more accurately described it, pivoted over time.
[48] The position taken by KMJB’s lawyers to justify the issue of the statutory demand was set out in their letter to Teak’s lawyers of 5 September 2024. They asserted that the contract governing KMJB’s work was NZS 3910:2013. They wrote:
3As our clients were very familiar with the terms of NZS 3910 2013, our clients were happy to commence work under these terms and, with your client’s approval, commenced construction work.
…
5As the Subcontract was not presented prior to the commencement of the construction work, the contract governing the construction work was NZS 3910 2013, with any subsequent conditions presented in the Subcontract being an offer to vary the head contract. …
[49] They also asserted that both s 22 of the Act and NZS 3910:2013 provide 20 working days from the date a payment claim is issued for the payer to issue a payment schedule. They said as Teak had not responded to payment claim 22 within that period the payment claim was a debt due and the statutory demand would not be withdrawn.
[50] For this application, the evidence of KMJB’s director, Mr Harris, is that KMJB received Teak’s letter of acceptance of 4 September 2022 which stated the head contract for the project was NZS 3910: 2013 “with special conditions to follow” but he does not go so far as to say NZS 3910: 2013 governed the work subsequently undertaken. He said:
8[Teak] was eager for KMJB to commence construction work for this project, despite not having provided KMJB a copy of the Subcontract or any of its terms and conditions. KMJB established onsite and commenced construction work on 27 September 2022.
…
12. As KMJB was not agreeable with the Subcontract’s terms regarding practical completion and payment, neither I nor another representative of KMJB accepted signed or returned the Subcontract to the applicant.
…
19. ... As there was no agreed contractual timeframe on when KMJB needed to issue a payment claim or when the applicant needed to respond, KMJB issued payment claims 2-21 towards the end of the month (no later than the 27th) to allow [Teak] several days to process the payment claims before the end of the month.
…
32.At the date of issuing [payment claim 22], KMJB had not accepted the terms of the Subcontract, and had not issued any payment claims in accordance with the Subcontract’s payment terms.
[51] Mr Harris referred to KMJB’s unilateral decision to shorten the date by which Teak had to respond to its payment claims, which occurred from April 2024. He did not justify taking that action by reference to NZS 3910: 2013 or the Act:
22.In response to these delays, KMJB shortened the due date for [Teak] to respond to the 20th day of the following month. This ensured that KMJB had enough time to receive payment and pay its bills associated with the construction works.
[52] For the hearing, KMJB’s initial position was different again. Counsel’s written submission was that “[t]he Tender Offer, Letter of Acceptance [of 15 September 2022], and NZS 3910:2013 together comprise the terms of the Construction Contract applying between Teak and KMJB”.
[53] I raised with Mr Tetzlaff that KMJB had not put NZS 3910:2013 into evidence and that it was my recollection that its payment terms were not the same as the default provisions under the Act.12 He accepted that was the case and that the position initially advanced by KMJB as to the application of NZS 3910:2013 could not be maintained.
[54] Mr Tetzlaff then put forward a fresh argument. This was that KMJB had commenced work under NZS 3910:2013, but following the 23 February 2023 meeting KMJB intended to sign Teak’s subcontract agreement once minor adjustments were made to it. As that did not happen NZS 3910:2013 was no longer in anyone’s
12 For which see Construction Contracts Act, ss 15–18 (inclusive).
contemplation and to fill the void it is necessary to imply into the contract between the parties the default payment provisions of the Act. However, he also submitted that NZS 3910:2013 continued to apply, save only in respect to its payment provisions.
[55] The position taken by KMJB that there was ever a subcontract on the terms of NZS 3910:2013 is unsupportable. It was plainly never the parties’ intention to contract on that basis and Mr Harris does not say that in his evidence. KMJB could not bind Teak to NZS 3910:2013 simply because it was happy to begin work under it. The correspondence between the parties, particularly the letter of intent of 4 August 2022 and the letter of acceptance of 15 September 2022, is clear that a formal subcontract agreement was to be entered into between Teak and KMJB but that there were a range of issues outstanding to be agreed.
[56] Mr Tetzlaff submitted that the last sentence of the letter of acceptance — “[t]his Letter of Award will be superseded by the subcontract agreement to follow” — meant there was already a binding agreement between the parties until such time as the subcontract agreement was signed. That submission begs the question, if there was a contract what were its terms? It also overlooks that Teak had been clear that a formal subcontract agreement had to be entered into, the final terms of which were yet to be agreed.
[57] The argument advanced for the first time at the hearing that following the 23 February 2023 meeting the parties abandoned the payment terms of NZS 3910:2013, requiring the implication of the default payment provisions under the Act, is unsupported by any evidence or defensible legal analysis. It presupposes that there was a contract between the parties upon the terms contained in NZS 3910:2013, which I do not accept. It does not explain how the parties manifested an intention to abandon some parts of NZS 3910:2013 but not others. It does not explain why it would be necessary as a matter of law to imply the default payment provisions of the Act. It is also inconsistent with how KMJB conducted itself when issuing its payment claims.
[58] For the reasons advanced by Teak, I am satisfied it is fairly arguable KMJB did agree to the terms of its subcontract agreement and payment terms at the meeting on
23 February 2023 or that its agreement can be reasonably inferred from its conduct thereafter. Some further support for that view can be found in Mr Tetzlaff’s submission that the parties left the 23 February meeting intending to sign Teak’s subcontract agreement with minor modifications.
[59] The contrary submission made for KMJB that all of its payment claims were consistent with the default payment terms of the Act is factually incorrect. Further, whether KMJB sought variations consistent with standard processes or in accordance with Teak’s subcontract agreement, and any significance that can be attached to that, is also not a matter I can decide on this application.
[60] If, as I have found is fairly arguable, the parties entered into a subcontract on Teak’s payment terms, there is no dispute that Teak served its payment schedule in response to payment claim 22 within time. It follows there is a genuine and substantial dispute as to its liability for payment claim 22 and the statutory demand must be set aside.
[61] There is an alternative position that Mr Holmes addressed, which is that the parties intended but failed to enter into a contract because they did not reach agreement on all essential terms. If that was the case it would not assist KMJB. Its case relies upon the default provisions of the Act. If the parties did not enter into a contract the Act would not apply. KMJB would be entitled to bring an action in quantum meruit but there is plainly a dispute whether Teak has any liability in respect to any such claim.13
Result
[62] I am satisfied Teak has shown there is a genuine and substantial dispute as to its liability for the sum claimed in the statutory demand. No arguments were advanced that the Court should refuse to set aside the statutory demand in the exercise of its discretion.
13 Electrix Ltd v The Fletcher Construction Company Ltd, above n 8.
[63] The statutory demand is set aside under s 290(4)(a) of the Companies Act 1993.
[64] I can see no reason why Teak would not be entitled to costs. Counsel shall confer on costs, but if they cannot agree then they may submit memoranda of no more than six pages within 14 days and I will determine costs on the papers.
O G Paulsen Associate Judge
Solicitors:
Kennedys, Auckland
Smith and Partners, Auckland
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