Triple Connection Limited v Concept Builders Queenstown Limited

[2024] NZHC 1049

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2023-425-082

[2024] NZHC 1049

UNDER

section 290 of the Companies Act 1993

IN THE MATTER

of an application to set aside a statutory demand

BETWEEN

TRIPLE CONNECTION LIMITED

Applicant

AND

CONCEPT BUILDERS QUEENSTOWN LIMITED

Respondent

Hearing:	23 April 2024
Appearances:	M R T Colthart for Applicant R P Conner for Respondent
Judgment:	2 May 2024

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 2 May 2024 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

TRIPLE CONNECTION LIMITED v CONCEPT BUILDERS QUEENSTOWN LIMITED [2024] NZHC 1049 [2 May 2024]

[1]    The applicant, Triple Connection Ltd (TCL), applies to set aside a statutory demand served by the respondent, Concept Builders Queenstown Ltd (Concept), relating to a debt arising from an adjudicator’s determination under the Construction Contracts Act 2002 (the Act) in Concept’s favour. TCL submits there are exceptional circumstances justifying the setting aside of the statutory demand because it is challenging the adjudicator’s determination in other proceedings, it has a good arguable case it will succeed, and considers any amount it pays to satisfy the adjudicator’s determination (and the statutory demand) may be irrecoverable from Concept. Concept opposes the application, arguing there are no exceptional circumstances justifying the Court setting aside the statutory demand.

Background

[2]    TCL entered a construction subcontract with Concept under which Concept provided labour for a residential construction project in Queenstown known as Jade Lake Queenstown. Between March 2021 and June 2022, TCL paid in full the 40 invoices rendered by Concept under the subcontract, totalling $1,476,500.87 (including GST).

[3]    From around June 2022, Jinlin Wang took over the day-to-day management of TCL’s operations. He sought to revisit Concept’s charges. A dispute arose which ultimately led to termination of the subcontract. In mid-December 2022, Concept commenced an adjudication under the Act with the Building Disputes Tribunal, claiming approximately $130,000 from TCL.

[4]    TCL opposed Concept’s claim, including on the ground of overcharging by Concept. TCL relied upon a report prepared by quantity surveyors, Rawlinsons, which it considers shows a very significant disparity between the total number of labour hours claimed by Concept (27,240.5 hours), and the labour hours required to carry out the work (between 15,408 and 17,139 hours).

[5]    By a determination dated 16 February 2023, the adjudicator determined TCL is liable to pay Concept the sum of $134,266.34 (including GST) (the interim determination).1

[6]    The adjudicator, who it is accepted is a highly regarded expert in construction law, did not accept that the Rawlinsons report supported TCL’s position because of “limitations and exclusions recorded by Rawlinsons”.2 He said:

[112] The Rawlinsons report was correct to identify those limitations and exclusions. This is especially so given my findings above as to additional work, disruption and delays. Absent Rawlinsons revisiting its review and findings taking further account of those matters, I am not prepared to accord any weight to the conclusions TCL draws in its Response.

[7]    TCL also made allegations that Concept’s invoices contained false, or no, descriptions of the work undertaken. The adjudicator’s findings included that Concept’s timesheets had been reviewed and approved by a Mr Owen who was employed as a construction manager by TCL and that “[i]f there was any failing or negligence on Mr Owen’s part, then this is sheeted home to TCL and not Concept”.3

[8]    The adjudicator noted that Concept had undertaken a thorough review of the timesheets and provided detailed annotated responses to TCL’s concerns.4 He concluded:

[188] The fundamental question is whether the timesheets evidence Concept charging for work it did not perform? The initial onus is on Concept to justify its charges. … Concept has discharged that onus.

…

[190] But in the end TCL does not suggest that the work/tasks were not completed. Whether under the Subcontract or the Act, Concept is entitled to be paid for that work. The fact that TCL needs to understand better the hours expended, misses the point.

1      Because of a dispute over payment of the adjudicator’s fee the determination was not released until 5 September 2023.

2      Concept Builders  Queenstown  Ltd  v  Triple  Connection  Ltd,  Building  Disputes  Tribunal,  16 February 2023, BDT22-112498 at [111].

3 At [183].

4 At [186].

[9]    TCL says that, unbeknownst to it, at the time of the adjudication Concept was a defendant in proceedings:

(a)	CIV-2022-425-81: Safari Construction (2005) Ltd v Concept Builders Queenstown Ltd (Safari proceeding); and
(b)	WHT TRI-2021-100-001: Body Corporate 408209, ZQN Apartments v Queenstown Lakes District Council.
[10]	In the	Safari proceeding (and a related proceeding under CIV-2023-425-13)

damages are sought from Concept and its director (Martin Lawn) alleging they were recipients of payments fraudulently arranged on false invoices in relation to “ghost contractors” and for charging labour by real contractors who had not worked.

[11]             On 23 December 2022, the High Court made without notice orders freezing the assets of Concept and Mr Lawn.5 On 31 August 2023, Churchman J dismissed an application by Concept and Mr Lawn to discharge the freezing orders.6

[12]             As TCL places particular reliance upon the judgment of Churchman J, I set out the following paragraphs from it:

[14][Concept and Mr Lawn] say they were unwitting accomplices to a  fraud perpetrated by Mr Dunning. However, they have admitted they knew the ghost contractors were not working for [Concept], and that they were charging a $15 per hour per labourer “administration fee” for placing the ghost contractors on Concept invoices.

…

[28] … In particular, [Concept and Mr Lawn] have admitted in their statement of defence that they have overcharged Safari by charging an “administration fee” in respect of the ghost contractors; there is an unsigned brief of evidence from a contractor whom [Safari] suspect of being used to overcharge them, in which he states he was no longer working in Queenstown when Concept continued to charge for his labour; and [Safari] say emails discovered by [Concept and Mr Lawn] imply that from at least 2016 Mr Lawn was aware that at least one ghost contractor did not exist.

…

5      THL (2005) v JDR Limited [2022] NZHC 3627.

6      Safari Construction (2005) Ltd v Concept Buildings Queenstown Ltd [2023] NZHC 2387.

[41] … And as I have noted, I consider there is a prima facie case that the respondents have engaged in fraudulent conduct in this case. Concept itself appears to have minimal liquid assets, and it has transferred out, as I understand it, approximately $1,082,037 in loans and advances to Mr Lawn, or in investments in one of his companies, over an unknown period of time. There is, of course, no requirement for [Safari] to establish any nefarious intent. A risk by itself is sufficient. I consider [Concept and Mr Lawn] are able to take steps to render themselves judgment-proof. …

(footnotes omitted)

[13]             On 11 September 2023, Concept served a statutory demand on TCL for the sum of the interim determination. TCL’s application to set aside the statutory demand followed.

[14]             On 21 September 2023, TCL issued a notice of arbitration to Concept in respect of the substantive dispute between the parties. Relevantly for present purposes, the notice identifies the disputes arising in broad terms, including:

(a)the total amount properly due and payable by TCL to Concept for the subcontract works completed by Concept between 9 March 2021 (being the date Concept commenced work on site) and 23 August 2022 (being the date TCL served Concept with a notice of termination of the subcontract agreement); and

(b)whether the total amount paid by TCL to Concept for the subcontract works exceeds the amount properly due and payable by TCL and, if so, the amount payable by Concept to TCL for the overpayment.

[15]             Beyond issuing the notice of arbitration TCL has not progressed the arbitration since September 2023.

[16]             On 20 September 2023, TCL made a request for access to the court file in the Safari proceeding. However, TCL’s request was opposed by Concept and declined by the Court.7 In her judgment Dunningham J said:

7      Safari Construction (2005) Ltd v Concept Builders Queenstown Ltd [2023] NZHC 2811.

[15]      While these proceedings involve the application for a freezing order, that is clearly a pre-substantive hearing stage. Although evidence has been filed, it is entirely untested. Furthermore, the pleadings in the associated civil proceeding are not finalised.

[16]      In this case, TCL appears to seek access to the documents not to identify the general nature of the allegations, because they are already aware of that from the judgment, but to seek evidence which may be supportive of a claim that some of the payments sought by Concept Builders are not valid. However, first, it is not clear to me that the allegations made in the present proceedings are the same as those TCL is pursuing. Second, I consider the judgments contain sufficient information about the allegations made to understand the general nature of them. It is not clear to me that providing the supporting affidavits could take matters any further when that evidence is untested.

Legal principles

[17]Section 290 of the Companies Act 1993 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.

(3)No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the court may extend the time for compliance with the statutory 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

(b)the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c)the demand ought to be set aside on other grounds.

(5)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.

(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.

(7)An order under this section may be made subject to conditions.

[18]     TCL recognises that due to the “pay now, argue later” principle underlying the Act it cannot rely upon s 290(4)(a) or (b) of the Companies Act to advance its application to set aside the statutory demand.8 I therefore do not discuss the principles that underlie  applications  that  rely  on  those  provisions.  TCL relies  solely  upon s 290(4)(c); that is, it says the statutory demand must be set aside “on other grounds”.

[19]     The leading case on the meaning of s 290(4)(c) is Commissioner of Inland Revenue v Chester Trustee Services Ltd, where Tipping J noted that applications under the section come down to whether a creditor’s prima facie entitlement to liquidate a company is outweighed by some other factor making it plainly unjust for liquidation to ensue.9 Tipping J said:

[3]    … the general policy of the Act that insolvent companies should be   put into liquidation, if a creditor seeks such an order, should not be departed from lightly. To justify such departure there must be some other factor, be it policy, principle or simply the justice of the particular case, which outweighs the prima facie entitlement of the creditor to an order putting the insolvent company into liquidation. If the focus is on the justice of the particular case the discretion must always be exercised on a principled basis and not on some ad hoc perception of what individual justice might require. All cases involving s 290(4)(c) must in the end come down to a judgment by the Court as to whether the creditor's prima facie entitlement is outweighed by some factor or factors making it plainly unjust for liquidation to ensue. The ground advanced by the insolvent company must be sufficiently compelling to overcome the general policy of the Act with regard to insolvent companies.

[20]     Also, in Commissioner of Inland Revenue v Chester Trustee Services Ltd, Baragwanath J made the additional valuable points:

[47]      I agree that it is no function of the Court to create an exclusive list of circumstances in which the discretion may be exercised where Parliament has not done so. But caution is required when considering how the discretion may properly be used. …

[48]      Section 290 serves a valuable purpose, allowing a truly disputed debt to be challenged or a cross-claim to be advanced by a more convenient procedure than that of application for interim injunction required under

8      Construction Contracts Act 2002, ss 58, 59, 60, 73 and 79.

9      Commissioner of Inland Revenue v Chester Trustee Services [2003] 1 NZLR 395 (CA) at [1]–[3].

previous legislation. I accept that subs (4)(c) provides jurisdiction to the Court to set aside a statutory demand even though a company is unable to pay its debts and is therefore insolvent. But like any statutory discretion, that conferred by s 290(4)(c) must be exercised in conformity with the purposes of the measure by which it is conferred. Use of the exceptional power must be confined to cases which clearly justify departure from the fundamental principle that insolvency should bring the end of a company’s existence.

[21]     For TCL, Mr Colthart submits the exceptional circumstances justifying the setting aside of Concept’s statutory demand are that TCL has a good arguable counterclaim against Concept, and there is a “very high risk” that any payment made to Concept to satisfy the interim determination (and the statutory demand) will be irrecoverable should Concept subsequently be required to repay it in other proceedings between the parties.

[22]     TCL relies upon Kariiti Ltd v Donovan Drainage & Earthmoving Ltd which concerned an application for a stay of a liquidation proceeding and restraint of advertising under r 31.11 of the High Court Rules 2016.10 There, the plaintiff had obtained an adjudication determination under the Act against the defendant company and served a statutory demand in reliance upon it. When no payment had been made the plaintiff applied for liquidation of the defendant company. The defendant company considered the adjudicator’s determination was wrong. It issued a proceeding in the District Court seeking a determination of the correct amount payable and applied for interim relief under r 31.11 of the High Court Rules.

[23]     Associate Judge Bell noted that while under s 79 of the Act there are restrictions on counterclaims, set-offs and cross-demands that can be raised in proceedings for recovery of debts under the Act, payers have sometimes applied to the court for interim relief on the basis the payee is unlikely to pay them back even though they have good arguments to show that the payee will have been overpaid.11 He noted this issue might come before the court in various applications, including to set aside a statutory demand.12 He went on to say:

10    Kariiti  Ltd  v  Donovan  Drainage  &  Earthmoving  Ltd   HC  Whangarei  CIV-2010-488-613,  19 November 2010.

11     Kariiti Ltd v Donovan Drainage & Earthmoving Ltd, above n 10, at [5]–[6].  I was also referred  to Concrete Structures (NZ) Ltd v Palmer [2006] NZAR 513; Oceania Football Confederation Inc v Engineered Solutions & Systems Ltd [2019] NZHC 1439 and Alpine Prime Properties Ltd v Haskell Construction Ltd [2019] NZHC 3223.

12 At [9].

[10] While each application will turn on its own facts and circumstances, there are two important considerations:

a)How real is the risk that the payee will not repay once there has been a final determination on the merits under a dispute resolution procedure under s 26(1)?

b)How strong is the payer’s claim that the payee will have to repay under that later determination?

…

[17] For the payer to persuade the Court that it ought to be relieved from enforcement of its obligations under ss 23, 24 and 59 of the Construction Contracts Act, because of the risk that the payee will not repay, it needs to establish:

a)That there is a high degree of likelihood that the payee will not be able to repay if a determination after a dispute resolution procedure under s 26(1) goes in the payer’s favour; and

b)That it has a good arguable case that it will succeed under the dispute resolution procedure under s 26(1).

[24]In respect to the risk of non-payment, he said:

[11]  The risk must be more than nominal. It is not enough for the payer simply to express a concern about the payee’s ability to repay. In England, the issue has arisen in applications for stay of execution under order 47 of the Civil Procedure Rules when adjudicators’ orders under the Housing Grants Construction and Regeneration Act 1996 have been enforced. That Act operates in a broadly similar way to our Construction Contracts Act. There is, therefore, helpful guidance from English decisions, just as Australian decisions under state Building and Construction Industry Security of Payments legislation are helpful. In Total M and E Services Ltd v ABB Building Technologies Ltd … Wilcox J said at 52:

... The risk of an inability to repay on due time is one of a number of factors to be taken account of in the balancing exercise. Where the risk is high as where there is strong uncontradicted evidence of a present inability to pay or a company is in administration a stay may be appropriate on terms safeguarding the disputed monies. The burden is clearly upon the party seeking a stay to adduce evidence of a very real risk of future non-payment.

…

[13]      So, if the payee is in substantially the same financial position as it was when the payer chose to engage it under the construction contract, the payer can hardly complain about the risk of non-payment, because that is a risk the payer took when he entered into the contract with the payee. Similarly, when a payee’s weakened position is attributable to a significant degree to the payer’s failure to pay sums due under ss 23, 24 or 59, that is not a be good reason for relieving the payer from its obligation to pay.

[14]      On the other hand, it is not the policy of the Construction Contracts Act to transfer between parties to construction contracts the risk of insolvency. So where the payee is in insolvent liquidation or receivership or administration, or there is no dispute that the payee is insolvent, then there will be evidence of an inability to repay.

[25]     Associate Judge Bell rejected the defendant company’s submission that it was enough that there was a reasonable possibility the payee might not repay. He said that put the standard too low and “[r]elief should only be allowed when there is a high likelihood that the interim payment will become final”.13

[26]     In relation to the strength of the payer’s case, Associate Judge Bell said the standard was that the payer must establish a good arguable case that it will succeed under another dispute resolution procedure and:

[20]      While I allow for the case where the payer’s case is blindingly obvious, a word of caution is required. Disputes under construction contracts are typically not suitable for summary decision. Arguments about delays in performance, defective workmanship, over-charging and the like are not the materials to build an argument that the payer’s case is blindingly obvious.

[21]      When a payer does not adequately address both the risk of non- payment and the strength of its case, then it is hardly likely to get interim relief against non-payment under ss 23, 24 and 59.

[27]     On the facts of Kariiti Associate Judge Bell refused to grant interim relief, citing the absence of “any real basis” of an inability to repay and the absence of any evidence as to the strength of the defendant’s claim in the District Court proceeding.14

[28]     The principles in Kariiti were applied in C&R Property Development Ltd v MR Civil Ltd, which concerned an application to set aside a statutory demand issued in respect of a sum found to be owing in an adjudication determination under the Act.15 The applicant had paid the sum of the determination award into the trust account of its solicitors, had commenced various proceedings against the respondent for damages and sought judicial review of the adjudication determination. Edwards J found that the applicant could not establish a high likelihood that the respondent would be unable to repay the debt, and that the applicant’s proceedings also did not warrant  departure

13 At [15].

14 At [35].

15     C&R Property Development Ltd v MR Civil Ltd [2020] NZHC 1470.

from the “pay now, argue later” principle underpinning the Act. Relevantly for present purposes, she said:

[28]      C&R says that it has a good arguable case against MR Civil for liquidated damages, defective works and remediation costs. It also says it has a good arguable case for judicial review.

[29]      The difficulty with the first of these claims is that the Adjudicator has already considered C&R’s case for liquidated damages, defective works and remediation costs. The claim for liquidated damages was partially allowed, but the remaining claims were rejected for want of proof. C&R says that the failure for want of proof was because the adjudication did not provide either the time or opportunity to properly hear the claims and test the evidence. But C&R has not produced any additional evidence to substantiate that submission. There is no evidential foundation to give weight to C&R’s claims that the Adjudicator’s conclusions regarding want of proof were wrong. Consequentially, there is nothing to suggest that C&R has a good arguable case on this aspect of its claim.

[30]      Entertaining C&R’s claims would also be contrary to s 79 of the CCA, which prohibits the court from giving effect to any counterclaim, set-off, or cross-demand in any proceedings for the recovery of a debt under ss 23, 24 or 59 of the CCA. The issue of a statutory demand is a proceeding for the recovery of a debt. C&R’s claims are put forward as counterclaims, set-off or cross-demands to the recovery of the adjudicated amount as a due debt. Those counterclaims are not the subject of a liquidated amount for which judgment has been entered, and they remain the subject of a dispute between the parties. This Court is precluded by s 79 from entertaining C&R’s claims.

(footnotes omitted)

TCL’s submissions

The risk of non-payment

[29]      TCL argues there is a “very high risk” that if it is required to pay Concept the amount of the interim determination will not be recoverable and as a result it will be irretrievably prejudiced. The primary factors it relies upon are that:

(a)Concept is now facing the Safari proceedings for a sum in excess of

$1 million and another proceeding before the Weathertightness Homes Tribunal;

(b)Concept has had its assets frozen by the High Court;

(c)the findings by Churchman J in the Safari proceeding that:

(i)Concept appears to have minimal liquid assets and has transferred out approximately $1,082,037 in loans and advances to Mr Lawn or in investments in one of his companies over an unknown period of time;16

(ii)Concept and Mr Lawn “are able to take steps to render themselves judgment-proof”;17 and

(iii)the Safari Proceeding is going to a substantive trial later this year;18

(d)if Safari is successful against Concept any sums now paid by TCL to Concept would likely be paid to Safari in satisfaction of any judgment or Concept would be subject to liquidation proceedings and the investigations TCL is presently undertaking and any resulting proceedings (if those investigations substantiate TCL’s concerns) would be rendered nugatory; and

(e)Concept has “stonewalled” TCL, as its evidence does not dispel TCL’s legitimate concerns and it has not provided information when requested so that TCL can form a view as to Concept’s financial position.

Good arguable counterclaim

[30]      Mr Colthart accepts that TCL does not have “firm evidence” to substantiate its case against Concept and that TCL is making ongoing enquiries with the help of investigators, who are relying on informers. He says TCL has laid a complaint with the police but provided no details of it. He acknowledges that TCL has not progressed the arbitration, including because of costs concerns.

[31]      Despite that, TCL says it has established a clearly arguable claim against Concept. TCL relies upon the Rawlinsons report, which it argues the adjudicator was

16     Safari Construction (2005) Ltd v Concept Buildings Queenstown Ltd, above n 6, at [41].

17 At [41].

18 At [6].

wrong to dismiss. Mr Colthart submits that the huge variation in the hours charged by Concept and what Rawlinsons considers was required to do the work cannot be explained away for the reasons given by the adjudicator. More generally, TCL says there are other good grounds for believing that the adjudicator was wrong both in substance and in dismissing the Rawlinsons report.

[32]      TCL submits it is important also that Concept has acknowledged it had overcharged Safari by including “ghost contractors” on its invoices. It argues it is reasonable to conclude that had the adjudicator known about the Safari proceeding and the facts giving rise to the making of the freezing orders more credence would have been given to TCL’s allegations of being overcharged by Concept.

[33]      TCL also submits it would have been easy for Concept to supply information it has requested and put to rest TCL’s concerns. It notes that its investigators have made a request that Concept supply payslips for certain contractors and employees of Concept which have not been supplied.

My analysis

[34]      The starting point is to recognise the statutory context and the purposes of the Act. They are set out in s 3 as:

The purpose of this Act is to reform the law relating to construction contracts and, in particular,—

(a)to facilitate regular and timely payments between the parties to a construction contract; and

(b)to provide for the speedy resolution of disputes arising under a construction contract; and

(c)to provide remedies for the recovery of payments under a construction contract.

[35]      As many cases have recognised, the Act created a “pay now, argue later” regime. Whilst not determinative, it is a highly relevant consideration on an application of this kind.19 In my view, before setting aside a statutory demand on the

19     See SRG Global Remediation Services (NZ) Ltd v Body Corporate 197281 [2022] NZCA 518 at [93].

grounds relied upon here the case for doing so should be compelling. If it was otherwise, it would be too easy for parties in the position of TCL to cut across the scheme of the Act and undermine its objectives.

[36]      To my mind TCL has not established that the Court should set aside the statutory demand. To explain why, it appears to me most logical to deal first with TCL’s contention it has a good arguable case against Concept and then with the alleged risk of non-payment in the event TCL is successful in later proceedings.

A good arguable case?

[37]      Associate Judge Bell, in Kariiti Ltd v Donovan Drainage & Earthmoving, took the view that a payer in TCL’s position must show it has a good arguable case that it will succeed in later proceedings.20 I have real doubts as to whether that puts the standard high enough. In any event, TCL has failed to meet the relatively low threshold of a good arguable case.

[38]      The first point is that it is unclear upon what basis TCL proposes to advance its claim against Concept. The arbitration notice suggests only that there has been an overpayment to Concept, whereas counsel’s submissions and Mr Wang’s evidence suggest an “alignment” between TCL’s claim and allegations of fraud made against Concept in the Safari proceeding. Mr Wang says, for instance:

[25] It is incorrect for Mr Lawn to characterise our request as a fishing expedition; it is also incorrect for him to say that the Safari and TCL allegations are different (or that we are trying to use what Safari has alleged as a basis to avoid payment). There is alignment between what Safari has alleged, and what TCL has alleged, since July 2022 (when first raised this with Mr Lawn). Then, I said it was overcharging; now we are wondering whether it was more serious than that. In 2022 and until August 2023, we did not know about the Safari allegations.

[39]      The failure to clearly articulate the basis upon which TCL will advance its claim is telling, particularly in light of counsel’s acknowledgement that TCL does not have firm evidence to substantiate its concerns and that its investigations have “stalled”.

20     Kariiti Ltd v Donovan Drainage & Earthmoving, above n 10, at [16]–[17].

[40]      If the matter is viewed as simply a case of Concept overcharging TCL, then the difficulty with TCL’s position is that the parties have already fully aired their positions before the adjudicator, and he has resolved them in favour of Concept. In that regard the case is similar to C&R Property Development Ltd v MR Civil Ltd.21

[29] The difficulty with the first of these claims is that the Adjudicator has already considered C&R’s case for liquidated damages, defective works and remediation costs. The claim for liquidated damages was partially allowed, but the remaining claims were rejected for want of proof. C&R says that the failure for want of proof was because the adjudication did not provide either the time or opportunity to properly hear the claims and test the evidence. But C&R has not produced any additional evidence to substantiate that submission. There is no evidential foundation to give weight to C&R’s claims that the Adjudicator’s conclusions regarding want of proof were wrong. Consequentially, there is nothing to suggest that C&R has a good arguable case on this aspect of its claim.

[41]      TCL’s reliance upon the Rawlinsons report is misplaced. The adjudicator not only found that the Rawlinsons report could not be relied upon for reasons Rawlinsons themselves had identified but was satisfied also that Concept had established its charges. He noted Concept’s invoices had been subject to review by TCL, and to the extent there was any negligence in that process that was TCL’s responsibility. Importantly, there has been no attempt by TCL to update the Rawlinsons report and no other evidence provided of any overcharging of TCL (or fraudulent practices towards TCL) by Concept that was not before the adjudicator.

[42]      I reject TCL’s submission that had the adjudicator known of the Safari proceeding it would have given more credence to TCL’s allegations that it had been overcharged. The submission is entirely speculative. The kernel of the allegation against Concept in the Safari proceeding is that it obtained payment fraudulently, such as by including “ghost contractors” on invoices. There is nothing before me to suggest Concept adopted that practice in respect to TCL. I do not see how the adjudicator could possibly have had any regard to the Safari proceeding in the adjudication, particularly when, as noted by Dunningham J, the allegations made in the Safari proceeding are untested.22

21     C&R Property Development Ltd v MR Civil Ltd, above n 15.

22     Safari Construction (2005) Ltd v Concept Builders Queenstown Ltd, above n 7, at [16].

[43]      The fact TCL presently has nothing new to advance (other than the Safari proceeding) to support a claim against Concept is reflected in the fact that it has not, since September 2023, done anything to advance the arbitration proceeding and its investigations have stalled. It appears TCL is hoping that something will fall out of the Safari proceeding or be found by its investigators in due course that will provide a basis to advance its claim against Concept. It cannot be the case that Concept can be expected to wait indefinitely for payment of a sum that has been found to be due to it in the adjudication determination in those circumstances.23

[44]      TCL refers to its investigators having requested payslips from Concept which have not been provided. It says if Concept had no sensitivity about the allegations made in the proceeding then it would not have opposed the request to access the court file and would have provided the payslips TCL’s investigators have requested. In his affidavit, Mr Wang says:

[32]     … It cannot on the one hand say that there is nothing to see here, and on the other hand, actively oppose our efforts to investigate our concerns.

[45]      The position adopted by TCL is unrealistic. It overlooks that the parties are engaged in what is plainly a bitter dispute. They have gone through a complex determination proceeding in which Concept’s timesheets and invoices have been subjected to close scrutiny by TCL and an expert adjudicator. The adjudication was decided in Concept’s favour, but at significant expense to it.24 TCL has refused to pay what it has been found to owe Concept and clearly has no intention of paying unless forced to do so. I do not see how TCL could expect Concept to provide further disclosure designed to assist TCL maintain its position that it should not be required to pay Concept. Put another way, Concept is under no obligation to prove its entitlement to payment of what has already been found to be due to it.

[46]      This is enough to decide the present application against TCL, but for completeness I will go on and consider the issue of the risk of non-payment.

23     Oceania Football Confederation Inc v Engineered Solutions & Systems Ltd [2019] NZHC 1439 at [236].

24     I am told by counsel that the adjudicator charged $60,000 which the parties contributed to equally.

Risk of non-payment

[47]      In Kariiti Ltd v Donovan Drainage & Earthmoving Ltd Associate Judge Bell held that a party in the position of TCL should only be granted relief if there was a high risk that an interim payment would become final.25 TCL argues that here there is a very high risk of non-payment.

[48]      There is no evidence that Concept is insolvent, has ceased to trade or is not paying its debts as and when they fall due.

[49]      The fact that Concept is facing other proceedings is not evidence of an inability to repay. Although reference was made to a claim against Concept in the Weathertightness Homes Tribunal, there was no evidence provided as to what the claim involved or any potential liability that Concept may have in relation to it.

[50]      The focus of TCL’s case is the Safari proceeding. TCL says the making of the freezing orders are a major change in Concept’s circumstances and that it is facing a claim in excess of $1,000,000. There is very limited information before me as to what (if any) potential liability Concept may have in the Safari proceeding. This is not surprising, as in the latest minute issued in that proceeding Associate Judge Lester noted the absence of any particulars in the plaintiffs’ pleadings of invoices that had been said to have been fraudulently inflated by Concept and the acknowledgement of counsel for Safari of the inability to provide such particulars pending receipt of a report from Deloitte.26 Associate Judge Lester noted that any further delay was putting the trial scheduled presently for October 2024 at risk. Not only are the allegations made against Concept untested, but it appears that Safari is not yet in a position to particularise them.

[51]      I accept the making of freezing orders against Concept and Mr Lawn is a major change in circumstances, but I do not accept that prejudices TCL. The freezing orders do not prevent Concept from carrying on its business while ensuring there is no dissipation of assets of the company or its director.

25     Kariiti Ltd v Donovan Drainage & Earthmoving Ltd, above n 10, at [15].

26     Safari Construction (2005) Ltd v Concept Buildings Queenstown Ltd HC Invercargill CIV-2023- 425-13, 11 April 2024 (minute) at [4]–[5].

[52]      TCL relies on statements made by Churchman J in his judgment dismissing the application to lift the freezing orders.27 Those statements must be understood in the context in which they were made. Churchman J found that Safari had a good arguable case but noted that in the context that meant one “capable of tenable argument”.28 That is a low threshold.   Further, as Churchman J noted in his judgment, Concept and   Mr Lawn complied with ancillary orders earlier made by Osborne J to disclose their assets by affidavits. There is no statement that Churchman J considered Concept insolvent or unable to pay its debts. His comment that Concept appears to have “minimal liquid assets” says little about Concept’s ability to repay TCL. The reference to the transfer of loans and advances to Mr Lawn “over an unknown period of time” are explained by Mr Lawn in his affidavit. Further, the statement that Concept and Mr Lawn “are able to take steps to render themselves judgment proof” was clearly not intended to suggest they had taken any steps to do so.29 In any event, should that risk have existed it no longer does while the freezing order is in place.

[53]      TCL says that the Safari proceeding is going to substantive trial later this year. While it would appear from the minute of Judge Lester this must now be in doubt, in isolation the fact the trial is set down for hearing says nothing about Concept’s ability to repay TCL.

[54]      TCL then says an inference should be drawn against Concept as to its solvency and ability to repay TCL from its failure to provide requested information. For the reasons I have given, Concept is under no obligation to provide such information.

Conclusion

[55]      Contrary to TCL’s submission, this is not an exceptional case. TCL was found to owe Concept a sum in adjudication proceedings under the Act in which it fully participated, which were conducted by an expert adjudicator and resulted in a fully-reasoned decision. The thing that has changed since the issue of the adjudication determination is that TCL has learned of other proceedings against Concept in which

27     Safari Construction (2005) Ltd v Concept Buildings Queenstown Ltd, above n 6.

28 At [24].

29     See [41] where Churchman J noted there was no requirement of actual proof that Concept and Mr Lawn intended to dissipate assets.

allegations of fraudulent conduct have been made. However, there is nothing new to suggest that Concept conducted itself in the manner Safari alleges in its dealings with TCL.

[56]      I am satisfied TCL has not shown it has a good arguable case that Concept will have to repay TCL in later proceedings or that there is a high risk it would be unable to do so if ordered. I therefore find there are no “other grounds” to justify me setting aside the statutory demand. While TCL may regard this result to be harsh, it is the result mandated by the scheme of the Act.30

Result

[57]TCL’s application to set aside the statutory demand is dismissed.

[58]Under s 291 of the Companies Act 1993, TCL is to pay Concept the sum of

$134,266.34 within five working days of this judgment. If it does not do so, Concept may apply to have TCL put into liquidation.

[59]      Concept is successful and costs should follow the event. I order that Concept is entitled to costs against TCL calculated on a 2B basis plus reasonable disbursements as fixed by the Registrar.

O G Paulsen Associate Judge

Solicitors:

Glaister Ennor, Auckland Hazelton Law, Wellington

30     Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480 at [50] citing Marsden Villas Ltd v Wooding Construction Ltd [2007] 1 NZLR 807 at [16], [17] and [111].