Alfex Doors and Windows Ltd v Alutech Windows and Doors Ltd [2001] NZCA 181; (2001) 16 PRNZ 963 (30 May 2001)

Last Updated: 13 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA38/01

	BETWEEN	ALFEX DOORS AND WINDOWS LIMITED
		Appellant

	AND	ALUTECH WINDOWS AND DOORS LIMITED
		Respondent

Hearing:	30 May 2001
Coram:	Gault J Doogue J Goddard J
Appearances:	P W Michalik for appellant D M Lester for Respondent
Judgment:	30 May 2001

JUDGMENT OF THE COURT DELIVERED BY GAULT J

[1] This appeal is against the judgment of Master Thomson delivered in the High Court at Wellington on 19 February 2001. The Master dismissed an application by the appellant Alfex Doors and Windows Ltd (Alfex) to set aside under s290(1) Companies Act 1993 a statutory demand made on it by the respondent Alutech Windows & Doors Ltd (Alutech). Section 290(4) reads:

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.
[2] The statutory demand required payment of the sum of $76,644.67. The background is that Alutech supplied aluminium joinery to Alfex in a period ending on 26 June 1999 to enable Alfex to perform a contract to supply and install joinery into buildings known as St Pauls Apartments for the head contractor Ebert Construction (Ebert).
[3] The statutory demand relates to the balance of Alutech’s quoted price that remains unpaid. Alfex has refused payment maintaining that the terms of its contract with Alutech incorporate the terms of its head contract with Ebert which entitle it to “retentions” and to liquidated damages for late supply of drawings and windows. In an affidavit in support of the application to set aside Mr Pratt, a director of Alfex, stated:

The reconciliation attached at “K” shows that, if there were no retentions in issue, and if there were no question of liquidated damages, Alutech would be entitled to receive $56,153.73, not the $76,644.67 claimed in its statutory demand.

[4] In light of that statement Alutech, before the Master, sought to maintain the statutory demand only to the extent of $56,153.73. The focus then was on whether in terms of s290(4) Aflex “appears to have a counterclaim, set-off or cross-demand” which would reduce the amount demanded below the prescribed amount of $1,000, and if so whether the discretion to set aside the demand conferred by the use of “may” in the empowering provision should be exercised to set aside the demand.
[5] In a concise judgment the Master addressed these issues as follows:

Mr Pratt for the applicant in his first affidavit says $75,000 is claimed against Alutech both as a contractual deduction and/or as a set off for failure to perform in due time. The claim is not particularised. That is important because Mr Pratt says “the cause of the late completion of the metal windows section of the works was, in major part, the late supply of drawings for approval, and manufactured windows for installation by Alutech”.

Clearly whether or not the applicant is entitled to claim $75,000 against the respondent would depend upon the terms of the contract and as there is no written contract between the two, there is real room for dispute as to whether the claim for $75,000 can be passed on to the respondent. The onus of establishing the terms of the contract so as to entitle the applicant to a set off is on it. On the evidence before the Court it is not in a position to resolve that dispute. Certainly the Court cannot be confident that the applicant “appears” to have a set off as required by s290 4(b) if for no other reason than that the set off has never been quantified as between applicant and respondent. Given that situation it seems to me that this is a case where the Court should address the discretion given by the use of the word ‘may’ in s290(1) and (4).

Clearly the Court is not obliged to set aside a statutory demand even if it finds any of the grounds set out in s290(4) are established. In this case I propose to exercise my discretion against setting aside the demand as to the sum of $56,153.73 because:

1. The applicant acknowledges that whatever the terms of contract that sum is due.
2. The terms of contract are clearly arguable because they were not committed to writing so that the Court cannot find that the applicant ‘appears’ to have a set off. Further, any set off has not been properly particularised.
3. The dispute between Ebert and the applicant is now some 19 months old. The applicant has not told the Court if it has in fact resolved its dispute with Ebert and if not how it is to be resolved. If it has not been resolved then it should have told the Court, and the respondent, what steps it was taking to resolve it.
4. Where an applicant seeks to set aside a statutory demand it is usual to give evidence of solvency. That has not been done here.

[6] Mr Michalik developed four grounds of appeal. On the first ground he submitted that the Master had wrongly construed the acknowledgement by Mr Pratt that, but for the retentions and the liquidated damages, the sum to which Alutech would be entitled would be $56,153.73 as a “concession” that that sum is due. He argued that because Alfex is entitled to make the retentions their sum ($37,000) is not owing and is not due. This error of fact, he submitted, formed an essential foundation for the Master’s judgment which must therefore be set aside.
[7] The second and third grounds of appeal were that the Master erred in law in two respects. It was submitted that the Master placed on Alfex an inappropriate onus to establish an entitlement to set off its claims, and that he did not approach the exercise of his discretion on a proper basis. It was said that the discretion not to set aside when one of the grounds in s290(4) is established is a limited one to be invoked only in special circumstances not present in this case. The fourth ground was a general one that the Master’s decision is contrary to reason and justice.
[8] It is a feature of this case that Alfex has chosen to rest on assertions of its contractual rights without providing the factual foundation for those assertions. It is said that the oral acceptance of the quote from Alutech for the supply of joinery occurred in circumstances which resulted in the incorporation of the terms of the written contract between Alfex and Ebert – presumably to the extent they may be applicable. It is those terms that are said to entitle Alfex to retain part of the amount charged for the joinery and to recover liquidated damages from Alutech.
[9] The affidavit evidence of Mr Pratt asserts that moneys due to Alfex from Ebert have been retained and that Ebert has claimed liquidated damages of $75,000 against Alfex which claim is unresolved. The stance taken on the part of Alfex is that so long as its dispute with Ebert is unresolved it is entitled to retain part of the purchase price of the joinery supplied by Alutech and need not pay the balance until it is established that it is not liable to Ebert for the claimed liquidated damages because, if it is so liable, it will have a claim against Alutech. That claim will arise, according to Mr Pratt, because “the late completion was at least partly due to late completion of the metal windows section of the works” which was caused “in major part” by the late supply of drawings and windows by Alutech.
[10] There have not been put before the Court the written contractual provisions relied upon, nor any quantification of the claim Alfex will assert against Alutech. The evidence does not state, and without the alleged contractual provisions we cannot ascertain, the purpose of the retentions. We are simply invited to infer that Alfex is contractually entitled to continue to hold part of the purchase price against contingent claims brought by the head contractor and that such retentions will not be payable while matters between Alfex and Ebert are unresolved, however long that may continue. On this basis, it is said that the retained sum of $37,000 is not due to Alutech.
[11] The Master made no specific finding that the sum retained was the subject of a substantial dispute as to whether it is “owing or is due”. He treated the matter on the basis that those moneys, and the balance up to the figure of $56,153.73, were the subject of the claimed set off or counterclaim. It is not clear to us whether that was the manner in which the case was presented to him. However, we think that was a reasonable approach. At this stage, now nearly two years after delivery of the last of the goods concerned, with no quantified claim made upon Alutech, and with no clear basis for retention having been shown, it was realistic to regard the retained moneys as due and unpaid but held subject to a contingent claim. Viewed that way the retention moneys are not separate from, but are linked to, the potential liquidated damages claim. Indeed, as the Master noted, the letter from Alfex to Alutech dated 5 July 1999 advised simply that “progress payments to your company are being withheld pending confirmation of the application of Liquidated Damages to the Contract for late handover”.
[12] We do not consider the Master misunderstood the evidence of Mr Pratt. It might be said that, taken out of context, passages in the judgment indicate more, but the Master clearly understood the Alfex position as is apparent from this passage in the judgment:

The applicant argues that it is entitled to retain the debt due, and which it accumulated by deducting claimed retention moneys, from the respondent’s invoices, because the head contractor, Eberts, on 5 July 1999 lodged a claim for liquidated damages against the applicant.

[13] The submissions directed to the “onus” said to have been imposed on Alfex by the Master, do not help the appellant. Whatever level of proof expected of Alfex as applicant to set aside the demand, it must have been taken by the Master to have been satisfied, at least to the extent necessary to warrant moving to the residual discretion not to set aside, which he exercised.
[14] Because of the view we take of the case, we do not need to dwell on the discretion. It is sufficient to say that, where grounds for setting aside under s290(4) are clearly made out, it will be a rare case in which, in exercise of the residual discretion, the application is refused. The circumstances of each case will call for consideration. We content ourselves in this case with the brief note that Mr Michalik did not persuade us that any of the four matters taken into account by the Master were irrelevant or improper considerations.
[15] For our part, however, we prefer to deal with the matter without reaching the residual discretion. Employing the generally accepted threshold of a “fairly arguable basis”: United Homes (1998) Ltd v Workman CA68,69,70/01, judgment 25 May 2001, we are not satisfied that Alfex presently has any counterclaim set-off or cross-demand within the statute. The unquantified claim of “liquidated damages” plainly is contingent on the outcome of the unresolved dispute between Alfex and Ebert. Mr Michalik accepted that it is not possible to set-off or claim in respect of contingent indebtedness, as recognised in Body Corp s66289 v Rua Developments Ltd High Court M328/96, Hamilton Registry, Master Faire, to which we were referred.
[16] There is before the Court no sufficient basis for Alfex to continue to retain part of the purchase price against unquantified contingent claims of the kind in question. We are not therefore satisfied that there has been shown a substantial dispute whether or not that part of the debt is due.
[17] In taking those views we are not, as contended by Mr Michalik imposing a requirement that the debtor actually prove its claims to hold the retentions or to a set-off or counterclaim. But we do require more, on material matters, than mere assertion unaccompanied by a sufficient evidential foundation to enable the Court to satisfy itself that there is an arguable case.
[18] The appeal, therefore, is dismissed.
[19] The respondent is entitled to costs which we fix at $3,500 together with disbursements including travel and any accommodation expenses of counsel fixed, if necessary, by the Registrar.

Solicitors
Morrison Kent, Wellington, for Appellant
Saunders & Co, Christchurch, for Respondent