VHH Limited v Ruskin Holdings Limited
[2014] NZHC 2919
•24 November 2014
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
CIV-2014-425-000106 [2014] NZHC 2919
BETWEEN VHH LIMITED
Applicant
AND
RUSKIN HOLDINGS LIMITED Respondent
Hearing: 19 November 2014 Appearances:
R Davis for Applicant
R T Chapman for RespondentJudgment:
24 November 2014
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] VHH Limited (VHH) applies to set aside a statutory demand issued against it by Ruskin Holdings Limited (Ruskin) dated 19 September 2014. The sum demanded is $11,380.73.
[2] VHH carries on business as a building company. Ruskin carries on business as an electrical contractor. For some years the two companies have worked in harmony, with VHH engaging Ruskin to carry out electrical work on new houses it was building. The relationship broke down early this year.
[3] Attached to the demand is a statement from Ruskin to VHH showing an amount due of $13,964.78. The breakdown of this sum is shown on a summary. One item on the summary refers to a job by the name of Mulhern. On the statement there is a handwritten notation that this item, for $2,584.05, has been deducted as it is in dispute. This exercise reduces the balance claimed to $11,380.73, the sum
shown in the statutory demand.
VHH LTD v RUSKIN HOLDINGS LTD [2014] NZHC 2919 [24 November 2014]
[4] The balance is made up of 12 invoices, seven of which are described as “finance charges” which total approximately $4,782. One invoice is described as “debt collection” for $1,624.55. The remaining four invoices are claimed in respect of two jobs, described as Mitchell and Hansen Road.
[5] VHH says it has a cross-claim against Ruskin as it did not complete works on time on the Mulhern job. As a result VHH became liable to the owners of the property for liquidated damages. It says it is entitled to pass these damages on to Ruskin as Ruskin was the sole cause of the late completion. As well, VHH had to pay for alternative accommodation for the owners. The sum involved exceeds the amount in the statutory demand.
[6] VHH also says there is a substantial dispute in relation to whether the sum claimed is owing. It says there is no agreement to pay interest and that there has been faulty workmanship on the jobs to which the invoices relate.
[7] Ruskin says there is no dispute that the sums are owing. It says that it is entitled to charge interest on unpaid debts in accordance with its terms of engagement, and that in any event VHH has agreed to pay the sum now claimed. It also says that there is no contractual basis for a claim to recover the pecuniary damages incurred by VHH on the Mulhern job.
[8] Section 290 of the Companies Act provides:
290 Court may set aside statutory demand
(1) The Court may, on the application of the company, set aside a statutory demand.
(2) …
(3) …
(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;
(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.
[9] In Industrial Group Ltd v Bakker,1 the judgment of the Court given by
Fogarty J included the following passage:2
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.
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.
Does VHH have a cross-claim against Ruskin?
[10] VHH says it has a claim against Ruskin in relation to Ruskin’s delayed completion of its work on a house being built for Mulhern. Ruskin was invited to tender for this work on 31 October 2012. In the letter of invitation sent by VHH it specified that certain documents were to be read prior to the tender being submitted. One of them was a document produced by the Specialist Trade Contractors Federation and Master Builders, titled “Subcontract Agreement and Subcontract Conditions SA - 2009”.
[11] Clause 10.4 of this document provides:
10.4 Subcontractor Failure to Complete
10.4.1If the Subcontractor fails to complete the Subcontract Works within the time specified in the Contractor’s current construction programme, the Subcontractor indemnifies the Contractor for an equitable proportion of any liquidated damages that the Contractor may become liable for under
1 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413.
2 At [24] and [25].
the Head Contract, or alternatively such damages as the Contractor may suffer as a result of the Subcontractor’s default.
10.4.2Without prejudice to any other method of recovery, the Contractor may deduct the amount of such damages, costs or losses from any payments which would otherwise be payable to the Subcontractor under this Subcontract. The Subcontractor must still meet their obligations to complete the Subcontract Works and all other obligations and liabilities under this Subcontract.
[12] On 4 December 2012 Ruskin submitted a quote. The quote did not refer specifically to this Subcontract Agreement, nor to other terms and conditions which Ruskin now maintains are the terms and conditions on which it ordinarily operates, and which it is entitled to apply to this subcontract.
[13] On Tuesday, 4 December 2012 VHH accepted the quote. Under the heading
“Contract Agreement” the letter of acceptance said:
We note you have been sent a copy of our subcontract agreement with the tender documentation and your acceptance is based on the terms and conditions in this subcontract agreement SA - 2009. If you require clarification on this please contact the VHH office.
[14] According to VHH, Ruskin ceased work on the Mulhern house early in February 2014. This is not disputed by Ruskin. Its director, Mr Crum, expressed significant concerns with VHH’s creditworthiness, and in email exchanges cited overdue payments on a number of jobs.
[15] According to its director, Mr Cerecke, VHH tried to arrange an alternative electrical contractor to complete the Mulhern job, but Mr Crum had put word about in the industry on its overdue accounts and Mr Cerecke was unable to arrange an alternative contractor. It was not until the parties reached a conditional resolution of their disputes on the Mulhern and other jobs in mid-May that Ruskin finished the Mulhern work.
[16] As a consequence of delays VHH became responsible to the owners of the Mulhern house for approximately $1,400 in accommodation expenses, and was pressed into agreeing to a liquidated damages agreement at $100 per day for each
day of late completion. In the end there were 115 days applied to the liquidated damages agreement resulting in VHH passing a credit to Mulhern for $11,500.
[17] All in all VHH says it has incurred losses of approximately $12,900 as a consequence of Ruskin not adhering to its work programme, withdrawing its services, and then making it impossible for VHH to obtain the services of another electrical contractor.
[18] VHH therefore says it is entitled to claim its losses from Ruskin under clause
10.4 of the Subcontract Agreement, the sum exceeds the amount of the statutory demand, and the demand should be set aside.
[19] Ruskin says that the agreement to vary the contract between VHH and the owners of the Mulhern house was made after it contracted to supply electrical services as a subcontractor, and that it is not bound by the agreement between the owners and VHH, as a result.
[20] I do not accept this submission. It is beyond contention that the standard terms in document SA - 2009 apply to the subcontract. Under clause 10.4, Ruskin is liable for “an equitable proportion of any liquidated damages that the contractor may become liable for under the head contract”, and this liability is not limited only to a liability in the head contract as it then stood. Indeed, there is no indication that Ruskin asked for or received the head contract at the time it entered the subcontract. The clause specifically applies to liquidated damages for which VHH may become liable. Certainly, for the purposes of establishing an apparent cross-claim, under s 298(4)(b), it is sufficiently shown that Ruskin may be liable for an equitable proportion of the sum of $11,500. That sum exceeds the sum claimed in the statutory demand. There is no suggestion that there was any cause for the delay in completion of the Mulhern house apart from Ruskin’s withdrawal, so arguably it is liable for the entire loss.
[21] In clause 10.4.1 liability for damages the contractor may suffer as a result of the subcontractor’s default is expressed as an alternative to liability for liquidated damages so it seems arguable that liability may not extend to the additional $1,400
paid for accommodation expenses, but that is an argument to be resolved in another forum.
[22] Ruskin argues, also, that whatever liability it may have had under the contract, if any, an agreement was entered on 21 May which put an end to any such liability. That is the date on which Mr Cerecke sent the fourth in a sequence of emails, which started two days before. On 19 May he wrote an email to Mr Crum following a meeting at the latter’s office at which it appears that they agreed “a way forward from our current impasse”. The email continued, to the extent presently relevant:
If you can please confirm the following as agreed:
1. Cragg’s claim of $12,770.75 to be paid by Friday, 30th May/Frankton to complete final works and power connection immediately afterwards (2 day lead time to get power connected).
2. Mulhern claims of $11,607.94 plus $5,750 plus $3,593.75 other outstanding claim to be paid by Tuesday 3rd June / Frankton to immediately complete Mulhern contract including power connection.
7 days lead time required to complete after receipt of payment for completion by 10 June.
3. Mitchell $4,541.89 to be paid in June and Hansen $430.63 to be paid in May (although likely Hansen paid before this). We agree there is no dispute on these invoices.
4. No interest charges (as previously agreed) as long as this agreement is upheld and no charges from VHH for any remedial works. Agreed to apply ‘reasonableness’ to this so if dates move slightly this is not outside the spirit of the agreement.
5. ...
6. ...
7. ...
8. ...
If you can confirm this is also your interpretation of our meeting this afternoon.
Thanks. Chris.
[23] Mr Crum responded the next day, thus:
Hi Chris, I’ve added in the specific dates and other dollar amounts. Its cutting the timeline fine to be finished and all clear of Mulhern by 10 June, ideally we would need that payment by end of May or we could miss the deadline. Which including the Hansen small amount would mean a total payment of $34,153.07 on or before Friday May 30. As soon as we get the Cragg’s payment we can get that livened, tested and out of the way.
Are you happy to copy this to Ian Gould?
regards, Pete Crum.
[24] On 21 May Mr Cerecke replied:
Hi Pete
Tweaks as noted below ...
And shortly after that Mr Crum wrote back:
Agreed. Regards,
Pete Crum.
[25] Without oral evidence it is not possible from this exchange of emails to be certain which entries were made by which party, and when. Mr Crum’s first email states that he has added in specific dates and “other dollar amounts” and Mr Cerecke’s second email refers to having noted “tweaks”.
[26] Nonetheless it is clear that agreement evolved over that period of three days in the terms which are set out in the emails I have quoted.
[27] The agreement reached was not honoured by VHH. However, so far as the Mulhern house is concerned, it seems that Ruskin did complete electrical work and a final completion certificate was issued in June, bringing to an end the period of
liability for liquidated damages. Some part of Ruskin’s charges on this job must have been paid as well, judging from the reference to a disputed balance on the Mulhern job, in a much lower sum, on the invoice attached to the statutory demand. The demand, however, does include interest charges as well as the sums owing for Mitchell, and a job at Hansen Road.
[28] Mr Chapman says that the email exchange constitutes a contract as there were obligations on both parties, it records agreement to pay the sums which now form the basis of the statutory demand, and makes no reference to any possible counterclaim or set-off.
[29] Mr Davis says that on 10 March 2014 Ruskin was put on clear notice that VHH would have a counterclaim once the full cost to complete remedial works and contract completion is quantified. That statement was contained in a summary of issues between the companies, sent to Ruskin on that day. The summary also set out a number of specific issues with workmanship undertaken by Ruskin on five projects, including the Mulhern project.
[30] It is not the role of this Court on an application of this nature to resolve liability for a counterclaim which is alleged.3 It is sufficient if the Court is satisfied that there appears to be a counterclaim. I am not satisfied that an agreement to pay the outstanding amounts has the effect of preventing a counterclaim for liquidated damages being brought. Ruskin was on notice of the claim before the email exchange, there is no mention of it in the emails, and the agreement related to getting Ruskin back onto the projects it had walked away from, and being paid.
[31] VHH has established to the requisite standard that it appears to have a claim against Ruskin in a sum ($11,500) exceeding the amount claimed in the statutory notice ($11,380.73).
[32] It is therefore entitled to an order that the statutory notice be set aside.
3 At [9] above.
Does VHH have a defence to the claim?
[33] Given the conclusion I have reached in relation to VHH’s claim, it is unnecessary to decide this point. In deference to the arguments of counsel, and in case it may assist VHH and Ruskin to reach a final resolution of their differences, a laudable outcome given the relatively small amounts involved, I proffer the following view.
[34] The claim for interest is based on Ruskin’s standard terms and conditions applying to this subcontract. In my opinion, they do not. The documents evidencing the entry into the subcontract plainly show that the terms of SA - 2009 were incorporated into the contract. This agreement stipulates the documents which comprise the subcontract, and the standard terms and conditions of the subcontractor are not within the listed documents.
[35] However, if Ruskin is right in its argument that the emails of 19 to 21 May
2014 constituted a new contract, there may be room to argue that there is agreement for interest charges to be met. Clause 4 of the email of 19 May from Mr Cerecke is ambiguous, but it seems to be open to an interpretation that there was a previous agreement to pay interest, which would not apply as long as the terms agreed on were met. The same applies to various offsets which VHH maintained it is entitled to for remedial work resulting in alleged faulty or erroneous workmanship by Ruskin on some of the jobs.
[36] Had it been necessary to do so, I would have set aside the demand so far as it sought payments of interest. There is an arguable defence to that part of the claim, sufficient for the purposes of setting aside the notice.
[37] Conversely, I am not convinced that there is an arguable defence in relation to the outstanding sums claimed in the notice on the Mitchell and Hansen Road jobs. There is clear evidence of an agreement to pay those sums and to forego claims for remedial work. I would not have set aside the notice in respect of the amounts relating to those projects.
Outcome
[38] For the reasons given, I set aside the statutory demand dated 19 September
2014.
[39] The respondent will pay costs to the applicant on a 2B basis together with disbursements fixed by the Registrar.
J G Matthews
Associate Judge
Solicitors:
Arthur Watson Savage (AWS Legal), Invercargill. Berry & Co, Oamaru.
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