Weyerhaeuser New Zealand Incorporated v Alan Rigg Contracting Limited HC Nelson Civ-2007-442-142
[2007] NZHC 1711
•30 March 2007
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2007-442-000142
BETWEEN WEYERHAEUSER NEW ZEALAND INCORPORATED
Applicant
AND ALAN RIGG CONTRACTING LIMITED TONY BUTLER CONTRACTING LIMITED
Respondents
Hearing: 29 March 2007
Appearances: F M Farr for Applicant
G M Downing for Respondents
Judgment: 30 March 2007
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN Upon Application to Set Aside Statutory Demand
The Contract
[1] Weyerhaeuser and the respondents (Riggs and Butler) were parties to a contract for the supply of earthworks and roading works by Riggs and Butler in the Nelson region. The contract was subject to written agreement. Weyerhaeuser was to pay for the works in accordance with a “rate notification”. The works contract required Riggs and Butler to invoice Weyerhaeuser based on the hours of operation of the machines utilised in the works.
[2] By those contracts Weyerhaeuser has paid Riggs and Butler more than
$8,375,000 to date.
WEYERHAEUSER NEW ZEALAND INCORPORATED V ALAN RIGG CONTRACTING LIMITED AND ANOR HC NEL CIV-2007-442-000142 30 March 2007
The Dispute
[3] A dispute has arisen regarding Weyerhaeuser’s liability to pay invoices in the sum of $220,137.80 for invoices dated February 2007. Prior to that, and for nearly three years, Riggs and Butler had issued invoices which were promptly paid. The issue over the February 2007 invoices highlighted, for Weyerhaeuser, concerns they say they had for the accuracy of invoice charging. Weyerhaeuser claims that from about mid-2006 it became concerned that the number of hours being invoiced by Riggs and Butler exceeded the number of hours recorded on monitors installed on Riggs and Butler equipment. There was a discussion between the parties on about
15 August 2006. Before then, Weyerhaeuser states, they resolved to engage a suitably qualified professional to conduct a comparison of records from independent sources with the hours charged by Riggs and Butler. This inquiry also compared machine hours invoiced against machine hours recorded on each machine’s monitor. In the result of those investigations, Weyerhaeuser claims Riggs and Butler have overcharged by a sum exceeding considerably the amount Riggs and Butler claims was due by their February invoice.
[4] Following discussions between the parties, Weyerhaeuser offered to pay the February 2007 invoices less a sum of about $88,000 which they claimed was overcharged and for which no explanation could be given. This was to occur pending further investigations.
[5] Those further investigations, they say, concerned the fact that Riggs and Butler were charging machine use time over that period during which its employees were taking “smoko”. Further checks, they state, reveal charges for a period of time when the machines were not in use but rather were “warm-ups” or “warm-downs”. Those factors were additional to the “unexplained” $88,000 which Weyerhaeuser refused to pay.
[6] Weyerhaeuser had employed the services of a private investigator, Mr Milne. His report indicated a “pattern of substantial overcharging”.
[7] When Weyerhaeuser would not pay the February invoice they were served with a statutory demand. In defence of an application to set that aside Riggs and Butler claim:
i) No genuine dispute arises concerning the debt. It is a liquidated sum due under a monthly invoice that has not been challenged and in fact in the past has been accepted as due and payable.
ii) Weyerhaeuser’s counterclaim is speculative, for an unliquidated damages sum, is without foundation, and is rigorously disputed.
iii) The counterclaim quantum does not equal or exceed the quantum of the debt. Elements of unfairness or undue pressure come from Weyerhaeuser and not from Riggs and Butler.
The Evidence
[8] Ms Riggs has provided an affidavit on behalf of Riggs and Butler. She is responsible for the accounting and invoicing of the contract works. She states Weyerhaeuser has until now always paid their invoices each month, after checking invoices supplied. Further, Weyerhaeuser did regular audits on a three-monthly basis, following which no concerns have ever been raised.
[9] Ms Riggs says Weyerhaeuser approved the February 2007 invoices for payment, but wanted to deduct about $88,000 plus GST by way of counterclaim. To her mind Weyerhaeuser have not at all previously denied responsibility for payment. Vigorous correspondence was exchanged between the parties’ lawyers until the statutory demand was issued.
[10] Ms Riggs offered her own view of Weyerhaeuser’s complaints of overcharging. When Riggs and Butler took over the contract from another in 2004 they started by using the previous contractors “bush docket” forms. They were used as the basis for rendering monthly invoices to Weyerhaeuser. The bush dockets were
an on-site recording of how much time was spent on site with each machine. From those bush dockets, Ms Riggs constructed the monthly invoice to Weyerhaeuser. She used the hours from the dockets for each machine to invoice charges to Weyerhaeuser. She said, “This is how things have always been done in the forestry industry”. Ms Riggs says Weyerhaeuser regularly audited their invoices. At no time until August 2006 was any concern raised regarding the invoices. She added that the only matter discussed of any relevance to invoicing was an intention in the future to move to computer-generated invoicing from GPS technology, once such a system was available and once both parties agreed upon an appropriate system to be employed.
[11] In August 2006 Ms Riggs assisted Mr Milne, Weyerhaeuser’s private investigator, with the provision of various information and documentation relating to the period from the beginning of the contract in 2004. She says Riggs and Butler co-operated fully with Mr Milne’s investigation.
[12] She recalls a meeting in December 2006 in which Mr Milne’s report was tabled. She recalls a reference in the report in which Riggs and Butler’s charges were compared with individual machine hour clocks. She recalls reference to a claim of overcharging in the figure estimated at $607,000. Subsequently she spent some time with Mr Milne pointing out various errors and flaws with his calculations.
[13] For the purposes of this proceeding her explanation is:
i) As before, she had rendered invoices based upon bush docket hours. She said there is no contractual obligation to charge on the basis of machine clock hours. They were never asked to do otherwise.
ii) It is industry practice to include a half-hour smoko each day in the charges rendered for use of machines.
iii) It is industry practice to charge for “warm-ups” and “warm- downs” of machines. It is a safety issue “and everyone does it”.
[14] Ms Riggs does not accept there has been any overcharging at all.
[15] This month, Ms Riggs has undertaken a thorough reconciliation of all invoices for the two and a half years to August 2006. Any evidence of overcharging, she says, was inconsequential. That reconciliation compared bush dockets to invoices issued.
[16] Since Weyerhaeuser has raised its allegations Riggs and Butler have indicated they would thereafter stop charging for “smokos”. This notwithstanding, on 7 March 2007 Weyerhaeuser gave notice of termination of the contract.
Riggs and Butler submissions
[17] Mr Downing, for Riggs and Butler, submits the alleged counterclaim (in an amount which exceeds the statutory demand amount) is speculative, is for an unliquidated damages claim and lacks merit.
[18] He submits:
i) Weyerhaeuser had always previously accepted invoices based upon charges calculated in accordance with “bush dockets”.
ii) Not until August 2006 was it asserted that the contract required the hourly rates to be based on a reading of mechanical hour clock time rather than being based on bush dockets. There is no contractual basis for such a claim.
iii) Previous charges based on bush dockets included charges for a half-hour smoko each day and for warm-ups and warm-downs of machines. Those practices were also adopted by other contractors to Weyerhaeuser.
iv) Because Weyerhaeuser paid invoices on the basis of past practice, they were stopped from challenging that basis for future payments.
[19] Mr Downing submits Weyerhaeuser has the onus of establishing it has a fairly arguable basis to resist liability for the amount claimed. He says something more is needed than an arguable case to set aside a statutory demand. To impeach a statutory demand something more is needed than the mere assertion that there is an available set-off: there must be evidence showing a real basis for a claim of set-off, such that it is clear and persuasive. Mr Downing refers to the accepted standard that the amount claimed by way of set-off must be equal to or exceed the opposite claim of the amount that is due.
[20] Obviously a set-off or counterclaim in an unquantified sum will attract considerable scrutiny from a Court. By Mr Downing’s estimation, Weyerhaeuser’s claim would at best amount to about $67,000 without the “smoko” factor (Ms Riggs claims the figure of $88,000 ought to be $67,000). Regardless, either sum is well short of the liquidated sum claimed by the Riggs and Butler invoice.
[21] Riggs and Butler’s fall-back position is that if the sum of $220,000 approximately is not due, then at least, by Weyerhaeuser’s own calculations, the sum of $121,000 approximately is to be paid. Mr Downing says there is no dispute regarding payment of that sum.
Considerations and reasons for decision
[22] The contracts binding the parties required charges based upon the hours of operation of the machines utilised by Riggs and Butler. As well, Weyerhaeuser was required to pay “all ancillary costs associated with providing the services”. The contract unhelpfully did not specify that charges could only be made for hours when the machine was at work. Also, the parties clearly anticipated the continued use of the bush dockets when their contract was made.
[23] For some time prior to Weyerhaeuser’s challenge of the February 2007 invoices there had been communication and correspondence between the parties regarding the implementation of a system to supplant that based upon the issue of “bush dockets”. It was agreed a qualified professional would be engaged to conduct a comparison of available records from independent sources, for comparison with the hours charged by Riggs and Butler. Discussion included the use of electronic monitors available on the machines, satellite linked recording systems, and others.
[24] Although Weyerhaeuser had faithfully met invoices rendered when due, the investigations which followed from August 2006 suggested a pattern of significant overcharging. This investigation did not suggest deliberate overcharging, but rather the charging for use which may not be within acceptable trade practice. The parties disagree whether machine use could be charged when smoko breaks were taken. That disagreement has much significance in this case, for it accounts for the single largest element of Weyerhaeuser’s calculation of $261,000 they claim was overcharged.
[25] Weyerhaeuser states that in March 2007 it was resolved it would in the interim deduct about $88,000 on account of perceived overcharging: it says pending further investigations. Weyerhaeuser remains committed to the view the extent of overcharging not only equals, but may considerably exceed, the value of invoices already paid. To describe that claim as unliquidated is to put a gloss on the effort made to calculate it. It is based on a comparison of actual machine hours compared to hours invoiced. Of the machines investigated, an overall average of 8.3% was calculated. That is a significant factor. And the enquiry still continues.
[26] To impeach a statutory demand a company must be able to do more than simply assert there is an available set-off. It must point to evidence showing a realistic basis for a claimed set-off. In colloquial terms, it must be shown there is a “genuine and substantial dispute”.
[27] I am of the clear view this matter is not properly one for a Company’s Act procedure, but rather should be adjudicated upon in the ordinary jurisdiction of this Court.
[28] Complaints by Riggs and Butler that no action has until now been taken to challenge the accounts can be explained by the fact until recently no evidence has been provided as a basis for which that challenge could be made. Also, the offer to pay the February invoices in a reduced sum did not indicate acceptance of past charging practices. The issue of the statutory demand appeared to harden Weyerhaeuser’s resolve to pay no more than might properly be due.
[29] The evidence suggests that claims of industry practice permitting charges for “smoko” and “warm-ups” and “warm-downs” are, on the basis of evidence provided, at large. If those charges are industry practice, then the custom of charging must be certain, it must be reasonable, and must be proved by clear and convincing evidence. I am not satisfied that evidence is available at this time.
[30] My feeling is that a contract that requires for charges to be based upon the hours of machinery operation may not correspond with “bush dockets” which purports to record the hours for which invoices have issued. It is an open question whether the “bush dockets” are consistent with the terms of the express contract.
Judgment
[31] The application to set aside the statutory demand is granted.
[32] Weyerhaeuser claims for costs on a solicitor and client basis. That is inappropriate. It is hardly surprising that Riggs and Butler would not accept Weyerhaeuser’s view of reasons why the statutory demand should be withdrawn. Before then, for two and a half years, their invoices had been unchallenged. It matters not that Weyerhaeuser’s solicitors had invited Riggs and Butler’s solicitors to withdraw the statutory demand. They could hardly have been criticised for not accepting that invitation.
[33] Costs shall be payable to Weyerhaeuser on a category 2B basis together with disbursements as fixed by the Registrar.
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