West Village Capital Partners Limited v Acrow Limited

[2019] NZHC 1035

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-002648

[2019] NZHC 1035

UNDER

Section 20 of the Companies Act 1993

IN THE MATTER OF

an application to set aside a statutory demand

BETWEEN

WEST VILLAGE CAPITAL PARTNERS LIMITED

Applicant

AND

ACROW LIMITED

Respondent

Hearing:	7 May 2019
Appearances:	J Q Wilson and G R Garcia for Applicant A L Harlowe for Respondent
Judgment:	22 May 2019

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

WEST VILLAGE CAPITAL PARTNERS LTD v ACROW LTD [2019] NZHC 1035 [22 May 2019]

Introduction

[1]    The applicant, West Village Capital Partners Ltd (West Village), is the developer of a 153-unit residential apartment complex on the corner of Cook Street and Union Street in the Auckland CBD known as the “Union Green Apartments”. West Village entered into a fixed lump sum contract with Ebert Construction Ltd (Ebert) to build the Union Green Apartments. Ebert was placed into receivership in July 2018 and into liquidation in October 2018.

[2]    The respondent, Acrow Ltd (Acrow), is an equipment rental company that hires out propping and scaffolding. It had a contract with Ebert to provide essential scaffolding services for the Union Green Apartments.

[3]    West Village seeks to set aside a statutory demand issued against it by Acrow, pursuant to s 290(4)(a) of the Companies Act 1993. The statutory demand relates to three invoices issued by Acrow for what it says was the provision of essential scaffolding services provided to West Village while it searched for a new construction company following the collapse of Ebert.

[4]    West Village contends that there was no contract of any kind between it and Acrow that entitles Acrow to payment of the invoiced sums. It says there is a substantial dispute as to whether the alleged debt represented by the invoiced sums is owing.

[5]    Acrow contends that West Village triggered a contractual continuity guarantee requiring Acrow to continue to provide scaffolding services. Acrow claims that pursuant to the continuity guarantee West Village was obliged to pay for such services on the same rates as Ebert. Alternatively, it is claimed by Acrow, that in the absence of the continuity guarantee applying, the parties nevertheless reached a binding agreement that West Village would pay for ongoing scaffolding services provided by Acrow.

[6]    The critical issue I must determine is whether there is a genuine and substantial dispute that West Village has any contractual liability for the debt.

Relevant legal principles

[7]    The Court’s jurisdiction to set aside a statutory demand is contained in s 290(4) of the Companies Act 1993. That section reads:

290     Court may set aside 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.

[8]    The Court of Appeal has recently confirmed the principles the Court should apply in exercising this jurisdiction.1 The principles are:

(a)The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.

(b)The mere assertion the dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.

(c)If such material is available, the dispute should normally be resolved other than by means of proceedings in the Court’s Companies Act jurisdiction.

(d)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.

[9]The Court of Appeal also stated:

[22]     It is important to keep in mind the words of the statute. What the applicant must show is that the dispute it raises has substance; the applicant

1      AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559 at [17]. See also Carroll Civil Ltd v Texco Drilling and Piling Ltd [2019] NZHC 260 at [19].

must explain to the Court what the dispute is; and the dispute so shown must be a real and not a fanciful or insubstantial dispute. The Court must bear in mind that it is operating in the summary jurisdiction with the accompanying disadvantages that brings for any applicant. The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.

(Footnotes omitted).

Factual background

[10]   On 17 August 2016, West Village and Ebert entered into the head contract for the construction of the Union Green Apartments. In May 2017, Ebert and Acrow entered into a sub-contract agreement in respect of the provision by Acrow of scaffolding services.

[11]   On 19 May 2017, Acrow provided a sub-contractor’s continuity guarantee in favour of West Village.

[12]   Clause 3.3.1 of the specific conditions of the sub-contract between Ebert and Acrow required that a continuity guarantee be provided.

[13]Clause 1 of the continuity guarantee (of 19 May 2017) provides:

THE Subcontractor hereby covenants that in the event of the employment of the Contractor being determined under the Building Contract, the Subcontractor will, if required by the Principal, complete its portion of the Contract Works under the same conditions and for the same consideration as originally agreed between the Contractor and the Subcontractor. The Principal shall only be liable for payments under such arrangement accruing as from the date of issue of the requirement by the Principal to the Subcontractor.

[14]   Ebert hired propping, scaffolding and construction frames from Acrow. This included “Doka” formwork, which is a panel formwork system that connects to form ramps and walls, amongst other things.

[15]   Ebert was placed into receivership on 31 July 2018 and subsequently placed into liquidation on 3 October 2018. On 9 August 2018, Ebert’s receivers advised West Village that Ebert would not perform the head contract.

[16]   The propping, scaffolding and construction frames owned by Acrow remained at the Union Green site when Ebert left that site on 10 August 2018.

[17]   In late December 2018, West Village entered into a new head contract with Dominion Constructors Ltd (Dominion) to complete the development.

[18]   On 15 August 2018, Acrow delivered a letter to West Village advising that it had been informed by the receivers of Ebert that control of the Union Green site had been returned to MyLand Partners (NZ) Ltd (Myland Partners). West Village receives management and support services from MyLand Partners and some of the critical correspondence and documents at issue are between Acrow and MyLand Partners.

[19]In the letter of 15 August 2018, Acrow advised that it required payment of

$207,668 plus GST in order to leave its equipment on the site. Acrow advised that if MyLand Partners were unable to make the payment, Acrow would make arrangements to begin removal of its assets on 21 August.

[20]   West Village replied by a letter dated 20 August 2018. The letter stated that while Ebert had abandoned the construction site the construction contract had not, by that stage, been terminated. West Village advised that it was looking to procure Dominion as the new contractor. The letter went on to state that “if Dominion is the head contractor, it will likely wish to use Acrow’s propping given the connections between Acrow and the Dominion Group. If that is not the case, then the propping will need to be removed in an orderly way in the context of installing replacement propping”.

[21]   On 22 August 2018, Acrow’s solicitors sent a letter to West Village. They advised that the propping could be removed with no residual health and safety risks and that refusing to allow Acrow to enter the site and uplift the equipment so that West Village could use it for the purposes of continuing the development without payment would be unlawful and specifically an act of conversion. Acrow demanded that West Village either make payment as set out in its earlier letter of 15 August or accommodate Acrow in entering the site and uplifting the equipment.

[22]   West Village replied on the same day via its solicitors, Bell Gully. West Village denied any conversion. The letter further stated:

We are instructed that the equipment remains where it was installed under the hireage contract. Now that Ebert has abandoned the site, the equipment is available to collect subject to ensuring any health and safety issues are addressed. We refer to WVCP’s letter to Acrow dated 20 August 2018.

[23]The parties then engaged with one another on the removal of the equipment.

[24]   On 23 August 2018, Mr Gough, on behalf of Acrow, emailed Mr Moinfar of Myland Partners advising that he had been to the site that day to make arrangements for Acrow to remove the equipment and that Acrow was in the process of finalising the plan for the removal of the equipment. During that site visit, Mr Gough says that he discussed not only what scaffolding would be removed but also what scaffolding would remain, as well as the pricing of the remaining services.

[25]   On 28 August 2018, Mr Callum Rae (a contractor employed by MyLand Partners), sent a document which he described in his covering email as “the scaffolding take off” to Mr Chris Moller (a quantity surveyor from Russell Property Group, who was assisting Dominion). The document was headed “Union Green Scaffold Review”.

[26]   On 29 August 2018, Bamford Consultants produced a “Preliminary Review Backpropping Stripping with Current Construction Status” diagram. Mr Rae forwarded the backpropping plan to Mr Moller on the same date. Later that same day, Mr Rae forwarded that document, together with the “scaffolding take off” document, to Mr Gough of Acrow. Amongst other things, Mr Rae asked for Acrow to confirm that it wished for the site to be open on Saturday (1 September 2018) and requested a plan for the dismantling of the equipment and certain other confirmations.

[27]   The document referred to as the “scaffolding take off”, attached to Mr Rae’s 29 August 2018 email (a document of significance and which Acrow relies upon), is headed “Union Green Scaffold Review” and specifically refers to scaffolding items that are to remain under the heading “Items in bold to stay”.

[28]   Acrow sent a summary of its pricing to Dominion on 29 August 2018. Dominion was, at that time, in negotiations to become the head contractor to West Village.

[29]   On 14 September 2018, Acrow sent three invoices addressed to MyLand Partners via a MyLand email address. This included:

(a)Invoice 497950 (dated 14 September 2018) for “Scaffold & Doka Equipment Continuation of Hire” for the period 10 August to 31 August 2018;

(b)Invoice 497948 (dated 14 September 2018) for “Hire Scaffold September as per MyLand Partners email 29/8/18” and “Rental of Doka Framework as per MyLand Partners email 29/8/18”; and

(c)Invoice 497949 (dated 14 September 2018) for “Hire Scaffold October as per MyLand Partners email 29/8/18” and “Rental of Doka Formwork October as per MyLand Partners email 29/8/18”.

[30]   In September 2018, there was communication between Mr Blacklock of MyLand Partners and Ms Barrington of Acrow about the invoices. Acrow says that at no stage did MyLand Partners, on behalf of West Village, dispute the invoices.

[31]   Following a formal demand on 6 November 2018, Acrow served the statutory demand on 15 November 2018, demanding payment of three invoices.

Analysis and decision

[32]   In analysing the critical issue of whether there is a substantial dispute about West Village’s contractual liability for the debt, I first address the question of the continuity guarantee and secondly, whether contractual liability arises on some other basis.

The continuity guarantee

[33]   In contending that no contract for the hire of the scaffolding equipment arose under the continuity guarantee, West Village submits:

(a)In order for the continuity guarantee to apply, the employment of the contractor must be determined and the Principal must require the sub- contractor to complete its portion of the contract works under the same conditions as under the sub-contract; and

(b)The Principal is only liable for payments accruing “from the date of issue of the requirement by the Principal to the sub-contractor”.

[34]   West Village contends that there was both no requirement issued to Acrow and no determination of the employment of the contractor (Ebert).

[35]   Acrow contends that the continuity guarantee was triggered by West Village on 29 August 2018 by the sending of the email of Mr Rae of the same date together with the attachments (both the scaffolding report and “to be read in conjunction with the Bamford Consultants back-propping review”) sent to Mr Gough of Acrow. The email was sent following a walk around the site by representatives of the respective parties and discussions about pricing. The attachments to the email are said to clearly set out what items were to remain and what was to be removed.

[36]   Acrow says that the requirement issued by West Village went beyond the 592 square metres propping highlighted in the Bamford Consultants report and required extra equipment such as ramps, walls and lift charts. This was to allow for an interim measure of continuation services allowing for site inspections from Auckland Council, engineers and others. The items which had been agreed would remain were not solely those which the parties were required to leave in-situ because of the requirements of the Health and Safety at Work Act 2015. This is all said to represent a clear requirement issued by West Village that Acrow was to continue to provide certain agreed scaffolding items and a commitment by West Village (as the guarantee provides) to pay for the ongoing services.

[37]   Acrow further argues that earlier correspondence between the parties (including the exchange of letters on 21 and 22 August 2018) was not an outright rejection by West Village of Acrow’s services. Rather, what had been agreed was the suspension of further discussions until West Village could confirm that Dominion would become the new head contractor.

[38]   On the evidence before me, I find that the applicant, West Village, has established that there is arguably a genuine and substantial dispute as to whether the continuity guarantee was triggered by it. There is a genuinely triable claim that West Village did not issue a requirement under the guarantee but rather, in obviously difficult circumstances, was focused on seeking a replacement contractor as soon as reasonably practicable. There were clearly discussions about scaffolding remaining in place and those discussions may not have been confined to issues of health and safety. However, against the backdrop of the correspondence between the solicitors (and in particular the Bell Gully letter of 22 August 2018 expressly disavowing any contractual or other liability for the equipment) it is clearly arguable that a more formal requirement might reasonably have been expected, not the relatively informal communications of 29 August 2018. In any event, there is a dispute on the evidence as to whether matters extended beyond health and safety.

[39]   The perspective of Mr Gough on the communications of 29 August 2018 are entirely understandable and plausible. Acrow was obviously concerned to achieve some certainty with the equipment either remaining and West Village paying for it, or it being removed. However, I accept the submission of Mr Wilson, for West Village, that there is a genuine and substantial dispute as to whether the arrangements between the parties (particularly those recorded in the email and attachments of 29 August 2018) should be understood or interpreted as invoking the continuity guarantee or be interpreted as no more than the conclusions of the health and safety experts on what equipment should remain and what should be removed. I reject the submission of  Mr Harlowe, for Acrow, that there is only one reasonable explanation for the scaffolding review attached to the 29 August 2018 email, namely that it was a requirement for certain equipment to remain.

[40]   It is true that cl 1 of the continuity guarantee does not contain an express requirement that the principal give written notification of the invocation of the clause. However, cl 1 expressly contemplates a requirement being issued (not just a process for removal of equipment and the need to comply with health and safety legislation), one which Acrow as the sub-contractor is bound to comply with. The steps taken by the parties have to be assessed within that framework.

[41]   The Bell Gully letter of 22 August 2018 expressly foreshadowed the parties communicating and reaching agreement on what scaffolding equipment needed to remain in order to address health and safety legislative requirements. That earlier correspondence is, in my view, an important context for assessing the communications on 29 August 2018. It is clearly arguable, in applying orthodox contractual interpretation principles, that a reasonable bystander would not interpret the communications of 29 August 2018 as an assumption of responsibility by West Village under the continuity guarantee.2 Although the evidence is in dispute, there is a tenable claim that West Village, focused on attempting to bring Dominion on board as soon as possible (with the result that the issue of the equipment remaining on site or not, would be quickly resolved) did not trigger the continuity guarantee as contemplated by cl 1.

[42]   I also accept the submission of Mr Wilson that Acrow’s failure to issue the three invoices in accordance with the express terms of the head contract provides some support for the conclusion that no requirement was issued by West Village pursuant to the continuity guarantee – that is, the conduct of the parties, including the fact that on 29 August 2018 an invoice was issued by Acrow to Dominion, is not suggestive of the invocation of the continuity guarantee.

[43]   I reject the submission of Mr Harlowe that the commercially obvious and sensible approach for West Village would have to have been to invoke the continuity guarantee. The invoking of the continuity guarantee does of course give rise to direct financial liability by West Village and having already taken legal advice about the situation, it is entirely understandable that West Village would be proceeding

2      Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].

cautiously and would likely only invoke the continuity guarantee in a formal way (that is, via its solicitors).

[44]   I acknowledge that, as persons conducting a business or undertaking (PCBU), both parties had responsibilities under the Health and Safety at Work Act 2015. However, steps taken to address health and safety obligations cannot automatically be equated to an assumption of responsibility by West Village under the continuity guarantee.

[45]   In support of his submission that the guarantee had been triggered by West Village,  Mr Harlowe  relied on what he described as the  “statutory estoppels” in     s 18(1)(c) and (d) of the Companies Act 1993. He contended that MyLand Partners and Mr Rae, acting with apparent or ostensible authority, made representations that bound West Village under the continuity guarantee. However, as Mr Wilson submitted, the question is not whether MyLand Partners or Mr Rae were authorised to reach a binding commitment on behalf of West Village but rather, what were they authorised to do – what was the scope of the holding out? I acknowledge the role of Mr Taylor in the various arrangements but there is a substantial dispute (involving contested evidence that I cannot determine) as to whether Messrs Taylor and Rae were authorised and/or held out as having authority to invoke the continuity guarantee.

[46]   Having concluded that there is a substantial dispute about whether the continuity guarantee was invoked by West Village issuing a requirement, it is not necessary for me to determine whether the guarantee did not in any event apply, because the employment of Ebert (the contractor) had not been determined. I express no view on that issue.

Alternative basis for contractual liability

[47]   In support of its alternative argument that, in the absence of the continuity guarantee applying, the parties nevertheless reached agreement for West Village to retain and pay for the remaining scaffolding equipment, Acrow relies on the decision

of Fisher J in Transpower New Zealand Ltd v Meridian Energy Ltd.3 Acrow contended that the basic premise of the law in Transpower is that:

(a)Where a party elects to accept a service offered on a contractual basis then that party is bound by such offer.

(b)In a commercial context, a real and practical approach must be taken to the question whether, viewed as a whole and objectively, the exchanges between the parties show a concluded agreement. Undue emphasis upon the traditional sequence of offer and acceptance can sometimes distract from the ultimate question which is whether the dealings show a concluded bargain.4

[48]   Transpower related to a contract for transmission service between Transpower, as the owner and operator of the national electricity transmission grid, and Meridian Energy Ltd, an electricity generator and user of the grid. The parties had negotiated for a contract for services in the context of the division of the Electricity Corp of New Zealand (ECNZ) among state-owned enterprise generators, including Meridian. Transpower maintained that, in the absence of explicitly agreed terms, certain “posted terms” were deemed accepted by Meridian’s conduct in using its transmission services.

[49]   Meridian used Transpower’s grid after it acquired generation assets from ECNZ. Meridian made payments at a level that it calculated were being paid by its main South Island competitor, Contact Energy Ltd, but denied any contract.

[50]   Fisher J held that where an offeree took a benefit offered without explicitly rejecting the terms, its conduct could constitute acceptance of terms, but where the offeree made clear that it rejected the terms on which the benefit was offered, the offer had not been accepted and no contract resulted as there had been not the requisite coincidence of offer and acceptance. In that case, Transpower knew that Meridian had rejected the posted terms and that, too, was fatal to the existence of a contract.

3      Transpower New Zealand Ltd v Meridian Energy Ltd [2001] 3 NZLR 700 (HC).

4 At [51].

[51]   I reject the submission of Acrow that West Village is contractually liable in the alternative manner contended for. I find that West Village has demonstrated that there is a genuine and substantial dispute as to whether it can be contractually liable for the ongoing hireage of the scaffolding equipment in circumstances where it retained and continued to use and enjoy the benefits of that equipment. On the evidence before me, as at 29 August 2018 (when the contract is said to have come into existence), West Village had not seen the pricing terms and had as recently as 22 August 2018 expressly indicated that it would not accept any contractual responsibility. It is clearly arguable, as Mr Wilson submitted, that having clearly stated its contractual position, West Village was not required to keep repeating or restating that position. In any event, what it did on 29 August 2018 was, arguably, to provide its health and safety assessment (as foreshadowed in the Bell Gully letter of 22 August 2018).

[52]   In relation to the communications between Mr Blacklock of MyLand Partners and Ms Barrington of Acrow in September 2018, there is a clear dispute on the evidence as to whether MyLand Partners, on behalf of West Village, ever accepted responsibility for the invoices. Mr Moinfar has responsibly acknowledged that MyLand was not always “speedy” with its response to some of Acrow’s correspondence, but that provides no basis for concluding that there was a clear commitment or acknowledgement by MyLand on behalf of West Village that the invoices would be paid.

[53]   It may well be the case that Acrow has a significant quantum meruit claim against West Village for its retention and use of the scaffolding equipment. However, that cannot assist Acrow in its attempt to uphold the statutory demand. Mr Harlowe did not seek to argue (rightly so in my view) that on the basis of a quantum meruit claim the statutory demand should be upheld. An unliquidated claim cannot constitute a debt for the purposes of s 289 of the Companies Act 1993.5 The acknowledged slow response by West Village to Acrow’s pursuit of its claim (during a period when it continued to use the equipment) may well be of relevance to any quantum meruit claim.

5      Re Prime Link Removals Ltd [1987] 1 NZLR 510 (HC); and Northern Crest Investments Ltd v Robt Jones Holdings Ltd [2009] 19 PRNZ 258 (HC).

[54]   Having concluded that West Village has demonstrated there is a substantial dispute that it has no contractual liability for the debt, it follows that the statutory demand should be set aside. The dispute should be resolved other than by means of proceedings in this Court’s Companies Act jurisdiction.

Result

[55]   I conclude that the applicant, West Village Capital Partners Ltd, has demonstrated that there is a genuine and substantial dispute as to the existence of the debt in the statutory demand issued by Acrow on 14 November 2018.

[56]   I set aside the statutory demand issued by the respondent, Acrow Ltd, dated 14 November 2018, pursuant to s 290(4)(a) of the Companies Act 1993.

[57]   My preliminary review is that the applicant, West Village, having succeeded, should be entitled to costs and on a 2B basis. If the parties cannot agree on costs, then memoranda are to be filed within 14 days.

Associate Judge P J Andrew