Xinhao Developments Limited v Local Civil Construction Limited - [2022] NZHC 1082

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-2312

[2022] NZHC 1082

UNDER the Companies Act 1993, section 290

IN THE MATTER OF

an application for an order setting aside the statutory demand

BETWEEN

XINHAO DEVELOPMENTS LIMITED

Applicant

AND

LOCAL CIVIL CONSTRUCTION LIMITED

Respondent

Hearing: 29 April 2022

Appearances:

C L Holland for the Plaintiff

J P Nolen / CJ H Fraser for the Respondent

Judgment:

17 May 2022

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

This judgment was delivered by me on 17 May 2022 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules

………………………….
Registrar/Deputy Registrar

Solicitors:
Turner Hopkins (C L Holland), Takapuna, for the Plaintiff
K3 Legal Limited (J P Nolen/C J H Fraser), Auckland, for the Defendant

XINHAO DEVELOPMENTS LIMITED v LOCAL CIVIL CONSTRUCTION LIMITED [2022] NZHC 1082 [17 May 2022]

Introduction

[1] Xinhao Developments Ltd (Xinhao) applies to set aside a statutory demand that Local Civil Construction Ltd (Local Civil) has made on it.

Background

[2] Xinhao and Local Civil entered into a contract dated 7 November 2017 (the Contract), under which Local Civil would carry out certain works at 242 Flat Bush School Road, Flat Bush, Auckland (the Flat Bush address). A third party, Candor3, was engaged on behalf of Xinhao as the engineer that would supervise works carried out under the Contract.

[3] The Contract was for a lump sum of $5,150,000 plus GST. It was divided into two separable portions,1 each scheduling various property development works. The Contract was entered into on industry standard terms and conditions, but with some agreed amendments. Relevant for present purposes is the deletion of cl 9 and its replacement with a new cl 9.1, providing there will be no variations to the Contract whatsoever, and that any unscheduled works required for practical completion would be at Local Civil’s own cost.

[4] Local Civil completed its work under Separable Portion A between late 2017 and late 2018. Over that period, it submitted payment claims to Candor3, which was responsible for reviewing and certifying the scheduled amounts. On receipt of payment certificates, Local Civil would render invoices to Xinhao for the certified scheduled amounts.

[5] In June 2018, Xinhao paid Local Civil an additional sum of $230,000. This payment was described as a “bonus” in an email from Mr Hao Li, a director of Xinhao, to Candor3 (June 2018 payment).

1 Later in this judgment, I will refer to the separable portions respectively as “Separable Portion A” and “Separable Portion B”.

[6] Local Civil and Xinhao’s arrangement continued without incident until late 2018. Then, when the works progressed from those scheduled under Separable Portion A to those scheduled under Separable Portion B, a dispute developed between Local Civil and Candor3 (on behalf of Xinhao). Local Civil took the view that it should be paid additional amounts for certain additional works. Candor3 (and Xinhao), meanwhile, considered there should be…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] NZHC 1082
Decision Date: 17 May 2022

CaseChat Overview and Summary

Xinhao Developments Limited applied to set aside a statutory demand issued by Local Civil Construction Limited. The statutory demand sought the sum of $222,995.26. The application hinged on whether there was a substantial dispute over the debt, and whether Xinhao had a counterclaim, set-off, or cross-demand. Local Civil opposed the application, arguing the debt was undisputed and any counterclaims were barred by the Construction Contracts Act 2002.

The court considered whether there was a genuine and substantial dispute over the debt, and whether Xinhao's solvency or any counterclaims could justify setting aside the statutory demand. The court found there was no substantial dispute over the debt as the statutory demand related to certified scheduled amounts. It also found that Xinhao's solvency was not a ground to set aside the statutory demand as the debt was undisputed. The court dismissed the application, holding that there were no grounds to set aside the statutory demand under the Companies Act 1993. The court awarded costs to Local Civil.

The key issues were whether there was a genuine and substantial dispute over the debt, and whether any counterclaims or Xinhao's solvency could justify setting aside the statutory demand. The court found that there was no substantial dispute over the debt, as the statutory demand related to certified scheduled amounts, and any counterclaims were barred by the Construction Contracts Act. The court also held that Xinhao's solvency was not a ground to set aside the statutory demand as the debt was undisputed. The application was dismissed and costs were awarded to Local Civil.

Orders