MCALPINE HUSSMANN LlMlTED v COOKE INDUSTRIES Ltd

• Jurisdiction: New Zealand
• Judge: FAIRE,JA Faire
• Judgment Date: 16 March 2012
• Neutral Citation: [2012] NZHC 464
• Date: 16 March 2012
• Court: High Court
• Docket Number: CIV 2011-404-5663

[2012] NZHC 464

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

court:

JA Faire

CIV 2011-404-5663

Under the Companies Act 1993

In The Matter Of an application to set aside a statutory demand pursuant to section 290 of the Companies Act 1993

Between

McAlpine Hussmann Limited

Applicant

and

Cooke Industries Limited

Respondent

Counsel:

JL Thomas for applicant

E St John for respondent

JUDGMENT OF ASSOCIATE JUDGE FAIRE

[on application to set aside a statutory demand]

This judgment was delivered by me on 16 March 2012 at 11:30am,

pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

The application

1 The applicant applies to set aside a statutory demand dated 1 September 2011 which demands payment “of the sum of $73,188 being a debt owed pursuant to the Construction Contracts Act 2002”.

2 The applicant pleads three principal grounds in support of its application, namely:

• (a) That there is a genuine and substantial dispute whether or not the debt is owing and is due;

• (b) That it is not insolvent and is well able to pay any further liability if it is ultimately found to be obliged to pay to the respondent arising out of the cancelled Trox order; and

• (c) It has defences to any claim the respondent brings for the amount specified in its invoice received on 1 July 2011.

The statutory basis for the application

3 The application is made in reliance on the Companies Act 1993, s 290(4)(a)

and (c). Section 290(4)(a) provides:

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

    …

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

The court's approach to an application to set aside a statutory demand based on the Companies Act 1993, s 290(4)(a)

4 The approach that the court adopts to an application that relies on the Companies Act 1993, s 290(4)(a) can be shortly stated. The court is required to determine whether there is a substantial dispute whether or not the debt is owing or is due. The applicant must show a fairly arguable basis upon which it is not liable for the amount claimed: Forge Holdings Ltd v Kearney Finance (NZ) Ltd1 and Queen City Residential Ltd v Patterson Co-Partners Architects. 2 That formulation was approved in United Homes (1988) Ltd v Workman. 3 Once that position is reached the statutory demand should be set aside and the dispute is then disposed of, if necessary, by other proceedings in the ordinary way.

The court's approach to an application to set aside a statutory demand based on the Companies Act 1993, s 290(4)(c)

5 Before analysing the facts of this case it is appropriate that I refer to the examination of this question by the Court of Appeal in Commissioner of Inland Revenue v Chester Trustee Services Ltd: 4

That said, I agree with Baragwanath J that 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.

6 The Court of Appeal has given guidance in those situations where the company relies on an alleged ground of its solvency as a stand-alone ground for

setting aside a statutory demand under the Companies Act 1993, s 290(4)(c). In AMC Constructions Ltd v Frews Contracting Ltd the Court of Appeal said: 5

If there is no dispute as to the company's liability, so that para (a) or (b) [of s 290(4)] cannot be invoked, it is difficult to imagine circumstances in which the company should be able to avoid paying a debt, merely by proving that it is able to pay that debt. If the debt is indisputably owing, then it should be paid. If the company simply refuses to pay, without good reason, it should not be able to avoid the statutory demand process by proving, at the statutory demand stage, that it is solvent. The demand should be allowed to proceed. If it is not met, and an application for liquidation is filed, in reliance on the presumption in s 287(a) that the company is unable to pay its debts, then the company will have an opportunity on the liquidation application to rebut the statutory presumption, which applies ‘unless the contrary is proved’. There might be circumstances in which it is appropriate to advance the inquiry as to solvency to the s 290 stage, but that would require some particular circumstance not present in this case.

The opposition

7 The respondent opposes the application. It relies on three separate matters, namely:

• (a) That there is no genuine and substantial dispute whether or not the debt is owing;

• (b) The applicant failed to serve a valid payment schedule pursuant to the Construction Contracts Act 2002. The result is that the funds that are the subject of the statutory demand are now a debt due pursuant to the Construction Contracts Act 2002; and

• (c) In the alternative, the applicant had no grounds to cancel the contract with the respondent and the respondent was under no duty to mitigate the loss.

Background

8 The applicant obtained a subcontract from Hawkins Constructions Ltd, which was the head contractor on a significant building project at the Auckland Sky City Casino.

9 The subcontract required the applicant to carry out the HVAC Mechanical Services supply and installation. The subcontract required air conditioning diffusers and componentry made by a company known as Trox in Germany. The respondent is the New Zealand agent for Trox.

10 As the project progressed it became apparent that any delays in installing the air conditioning would delay overall completion of the project. The head contractor asked the applicant to find out how long it would take to get the Trox components to New Zealand by normal sea freight and how long it would take to get them to New Zealand by air freight. The applicant contacted the respondent and asked for time estimates to get the Trox components to New Zealand. The respondent confirmed an anticipated ex-works German delivery of three weeks for the order. Additional time would be required to get the components transported to New Zealand. On 18 May 2011 the applicant advised the respondent to place the order for the componentry. The order number for this was PD132090. The applicant also asked that the order be air-freighted to New Zealand. It asked for the cost of the difference between sea freight and air freight to be advised. The applicant anticipated that, having received advice from the respondent, the Trox order would arrive in New Zealand on approximately 18 June 2011.

11 On 20 May 2011 the applicant notified the respondent that an item in the order needed a length adjustment. It asked for the cost difference for air-freighting to be advised. On 26 May 2011 the respondent confirmed that they would proceed with the order. On 3 June 2011 the applicant learned that the respondent had placed the order on hold for a week while it revised the quote. It went on to say that ‘we expect to be able to issue a firm delivery date by the middle of next week’, being 8/9 June 2011.

12 Further delays occurred. On 8 June 2011 the respondent advised that a further 10 working days was required for technical detailing and drawing and that they would try to confirm the completion date by the beginning of the next week.

13 On 16 June 2011 the respondent advised the applicant that Trox had released the plans for production and the ex-works Germany delivery date would be 5 July 2011. When the time for air freight was added, that meant that there would be an expected delivery in New Zealand on 17 July 2011.

14 The applicant advised the head contractor of this amended delivery date. The head contractor immediately instructed the applicant to cancel the Trox order because the head contractor was concerned that the late delivery date would delay the whole project. On 21 June 2011 the applicant cancelled the Trox order.

15 What follows next is not entirely clear. The case was argued based on the evidence adduced by affidavit by the manager of the applicant. No evidence was advanced by affidavit on behalf of the respondent. Mr St John explained that the reason for this was that the issues that arise on this application could, in the respondent's view, be determined based on the facts set out in the applicant's manager's affidavit.

16 The original quoted figure appears to be that contained in an email dated 26 May 2011 which records quoted figures based on standard sea freight terms:

Sky City South $12,800

Sky City North $118,066.

Whether those figures include GST cannot be determined from the documentation.

17 The applicant's manager has produced the actual invoice rendered by the respondent. It is dated 30 June 2011. The operative provision provides:

Charges associated with the cancellation of your order no. PD132090, quantity 1, unit price $90,897. Net amount $90,897.

To that a GST component of $13,634.55 is added. The applicant's manager describes his understanding of that invoice as: ‘The full value of the Trox order less any charge for freight’.

18 The applicant complains that the invoice does not indicate the manner in which the respondent has...