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Court of Appeal of New Zealand |
Last Updated: 1 May 2020
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BETWEEN |
MEGA PROJECT HOLDING LIMITED Appellant |
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AND |
OREWA DEVELOPMENTS LIMITED Respondent |
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Hearing: |
19 March 2020 |
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Court: |
Cooper, Courtney and Stevens JJ |
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Counsel: |
G P Blanchard QC and T Nelson for Appellant S L Robertson QC for Respondent |
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Judgment: |
23 April 2020 at 12.30 pm |
JUDGMENT OF THE COURT
A The appeal
is allowed and the cross-appeal is dismissed.
____________________________________________________________________
REASONS OF THE COURT
(Given by Stevens J)
Introduction
[1] Mega Project Holding Ltd (Mega) and Orewa Developments Ltd (Orewa) are property developers who were planning and undertaking residential subdivisions on their respective properties in Orewa, north of Auckland. The properties both adjoin West Hoe Heights, which runs between them and was required to be upgraded for the developments to proceed. In December 2016, Mega and Orewa entered into a Heads of Agreement to share the costs of the roading work (the contract).
[2] Essentially, Orewa was to carry out the roading work and Mega was to pay Orewa half the costs. Orewa carried out the roading work and asked Mega to pay its half share. Numerous requests were made for Mega to pay its share of the costs. Mega gave no response to these requests and to date has made no payment.
[3] On 11 December 2018 Orewa served a statutory demand on Mega under s 289 of the Companies Act 1993 requiring payment of $1,452,803.62 said to be “for roading construction costs adjoining the land belonging to you at West Hoe Heights Orewa, pursuant to a written agreement made on or about 5 December 2016 between you and the creditor”.
[4] Mega applied to the High Court to set aside the statutory demand under s 290 of the Companies Act, contending there was a “substantial dispute” as to the debt under s 290(4)(a). The relevant principles under that section are well-settled. The applicant must establish the existence of a substantial dispute. Material short of proof is required and the mere assertion that a substantial dispute exists will not suffice. Affidavit evidence alone will usually be insufficient to resolve disputed questions of fact, particularly when issues of credibility arise.[1]
[5] Mega contended that a substantial dispute about the debt existed because Orewa had not met various conditions set out in the contract. Mega had to be given certain information and Orewa had to receive from Mega certain approvals before the roading work began. Instead, Orewa carried out the roading work without providing the required information and without obtaining Mega’s approval.
[6] The application to set aside the statutory demand came before Associate Judge Bell in the High Court.[2] Even though the Associate Judge held there was a genuine and substantial dispute about contractual liability,[3] he declined to set aside the statutory demand. He found that the same debt was undisputedly due to Orewa on the basis of restitution. He concluded Orewa was entitled to claim the sum of $1,284,122.94, being half of the reasonable value of the services supplied, but without any entitlement to interest.[4]
[7] Mega has appealed against the refusal of the Associate Judge to set aside the statutory demand and the consequential orders that he made.[5] Mega contends that as there is a substantial dispute regarding its liability to pay Orewa under the contract, the Court should grant an order setting aside the demand because the requirements of s 290 of the Companies Act have been satisfied. It submits the Associate Judge erred in not setting aside the statutory demand because the debt is subject to an arbitration agreement. In the alternative, it says the Associate Judge should not have upheld the statutory demand on the basis of restitution as the debt is covered by the contract. Finally, it submits the Associate Judge should not have accepted the sum of $1,284,122.94 as the reasonable value of the roading work.
[8] Orewa has cross-appealed against the Associate Judge’s conclusion that there was a genuine and substantial dispute regarding contractual liability.
[9] At the hearing of the appeal, Mr Blanchard QC for Mega advised the Court that Mega now accepted it had a liability to Orewa to pay a fair and reasonable amount for the roading work. What Mega wished to see happen was a reference of the relevant supporting documentation to an impartial quantity surveyor who would determine the amount payable to Orewa. We return to this issue below.
Factual background
The contract
[10] In cl 2.5 of the contract the parties recognised the mutual benefit of the roading work being carried out and shared equally between them. The nature and scope of the work was also described. Orewa was required under the provisions of its resource consent to undertake such roading work. At the time of entering into the contract it was anticipated that similar requirements would fall upon Mega once its resource consent was granted. Thus as described in cl 1.1, the roading work was that required under the provisions of the respective resource consents:
... to the extent that they are common to both parties’ generally from and including the proposed new roundabout on West Hoe Heights and Road 1 along the realigned West Hoe Heights to and including the new roundabout/road end at Road 3, as shown in the Plans and Specifications.
[11] Orewa was required to obtain certain approvals from Mega in respect of the roading work. To facilitate the obtaining of approvals, Orewa was to provide a significant amount of documentation to Mega. The nature of the required documentation is apparent from cl 3.1 as follows:[6]
3 WEST HOE HEIGHTS ROAD WORKS
MEGA approvals
3.1 ODL will as soon as practicable after the date of this agreement, provide the following documentation to MEGA, this documentation will be subject to MEGA approval which shall be provided within 15 working days and shall not unreasonably be withheld;
3.1.1 The Development Programme which provides the following:
(a) A construction commencement date, targeted to be November 2016.
(b) A construction completion date, once the ODLcontractor has been appointed.
(c) Key milestone dates for the design, regulatory consenting, tendering, procurement and construction of the West Hoe Heights road Works.
3.1.2 A list of preferred consultants and contractors which ODL proposes to use for the West Hoe Heights road Works. MEGA acknowledges CKL Limited as engineers and surveyors, Property & Project Consulting Ltd (Kevin Marsh) as project coordinator, Kingstons as quantity surveyors and subject to satisfactory cost negotiations, Dempsey Wood as contractor.
3.1.3 Confirmation that the Plans and Specifications meet the agreed design, the ODL Resource Consent and the requirements of Auckland Transport and any other Authority.
3.1.4 It is agreed the road levels previously agreement between Mega Project Holding Limited and Harrison and Grierson Consultant will be generally accepted by the parties with adjustments to reflect current agreement on alignment and final levels.
3.1.5 The Cost Estimate including costs for Consents, consultants and contractors which will be used as the basis to proceed with this agreement is subject to final costs on completion of the Works.
3.1.6 Final costs for the West Hoe Heights road Works which MEGA will pay a 50% share of.
3.1.7 Approval by Auckland Transport for the West Hoe Heights road Works.
3.1.8 All Consents and their conditions that are relevant to the West Hoe Heights road Works.
3.1.9 Tender and Construction Contract Documents that are relevant to the West Hoe Heights road Works.
[12] Mega says that Orewa failed to comply with the requirement to provide the documentation listed in cl 3.1. Mega also relies on cl 3.2 which, it contends, was breached by Orewa:
3.2 ODL will not commence West Hoe Heights road Works until the following requirements are met:
3.2.1 MEGA has given its written approval to the estimated costs of the West Hoe Heights road Works; and
3.2.2 ODL has engaged a contractor for the West Hoe Heights road Works using the approved Tender and Construction Contract Documents.
3.2.3 It is acknowledged that MEGA will provide written approval to this agreement within 15 working days or otherwise extended by agreement.
It is acknowledged that for the West Hoe Heights road Works, ODL may, subject to satisfactory cost negotiations, use the same contractor which ODL has engaged for other works on the ODL development.
If MEGA does not approve the costs of the West Hoe Heights road Works, the parties will jointly appoint an impartial quantity surveyor or other suitable professional to determine the fair and reasonable costs of the West Hoe Heights road Works which reflect the objective of this agreement and both parties will be bound by that decision.
[13] Clause 3.3 sets out an obligation on Orewa concerning all roading costs for which Mega is responsible, to ensure they are “separately identifiable and itemised in all terms of engagement, contracts and invoices with sufficient detail for those costs to be verified by a suitably qualified Quantity Surveyor acting impartially”.
[14] The requirement upon Orewa to construct the roading work is set out in cl 3.4, while the obligation on Mega to pay its equal share of the costs (plus interest where payment is late) arises under cls 3.9 to 3.12:
Construction Costs
3.9 MEGA will pay ODL its share of the costs of the West Hoe Heights road Works provided that:
They have previously been approved by MEGA under clause 3.1.4 and are within the Cost Estimate and any variations to the costs that have previously been approved by MEGA.
If there is any disagreement on costs, the parties will jointly appoint an impartial quantity surveyor or other suitable professional to determine the fair and reasonable costs of the West Hoe Heights road Works which reflect the objective of this agreement and both parties will be bound by that decision.
3.10 Payment shall not be made by MEGA earlier than when payment is due to the contractor or consultants.
3.11 ODL will provide MEGA a tax invoice for MEGA's contribution to the costs together with supporting documentation from consultants and contractors.
3.12 If a party does not pay to the other any money that is due under this agreement, interest will be payable at the default rate of 10% per annum on the unpaid amount from the due date for payment until actual payment.
[15] Clause 5.1 provides that, if there is a dispute which the parties cannot resolve by negotiation or arbitration, it will be determined by a single arbitrator. That clause is not well drafted. Counsel on both sides made submissions as to its meaning and effect upon the statutory demand process. However, we have found it unnecessary to determine either of these issues. We return to this matter below.
What happened?
[16] The late Mr Liangren Li (who died in 2018) was a director of Orewa. For its development, Orewa used a project manager, Property and Project Consulting Ltd (PPC). One of its directors, Mr Kevin Marsh, swore an affidavit for Orewa in opposition to the application by Mega to set aside the statutory demand. Orewa used CKL Surveys Ltd (CKL) as its engineer. Mr Samuel Jackman, CKL’s engineering manager, swore a late affidavit that was admitted without objection. The contractor who carried out the roading work for Orewa was Dempsey Wood Civil Ltd.
[17] Mega used Mr Greg Richardson of Crang Civil Ltd as its engineering consultant. Mr Jerry Zhu, a director of Mega, said in affidavit evidence given in the High Court that Mega did not receive any of the information required under cl 3.1. He also said Mega was not asked for, and did not give, its written approval under cl 3.2.1. Orewa did not offer any evidence in the High Court that it did provide Mega with the documentation or other information stipulated under cl 3.1. Neither did Orewa suggest that Mega had given its written approval under cl 3.2.1.
[18] Despite the fact it had not received written approval from Mega under cl 3.2.1 or provided the information stipulated in cl 3.1, Orewa began the roading work.
[19] Mr Marsh, on behalf of Orewa, gave evidence about a meeting at the offices of CKL on 30 October 2017. By this time the roading work had already started. Apart from Mr Marsh, those present at the meeting were Mr Jackman, Mr Richardson and Mr Zhu. Mr Marsh says Mr Zhu did not take issue with the fact roading work had already started, nor did he object to the fact Dempsey Wood was the contractor carrying out the roading work. Neither Mr Zhu nor his consultants raised any question about tendering the work out. Mr Marsh said that Crang Civil (for Mega) had already agreed the rates of work for Dempsey Wood. On 2 November 2017 Mr Marsh sent an email to Mr Richardson and Mr Zhu (and others) about what was discussed at the meeting.
[20] Mr Zhu did not mention the meeting of 30 October 2017 in his first affidavit. In his reply affidavit he said he did not recall such a meeting and did not agree it took place. The Associate Judge, rightly we consider, found otherwise:[7]
I accept however that the meeting did take place and he did attend, not only because of Mr Marsh’s email recording the meeting, but also because of a late affidavit by Mr Jackman of CKL (admitted without objection) confirming with supporting documents that the meeting took place on 30 October and was attended by Messrs Richardson, Jackman, Zhu and Marsh. His supporting documents include a cost estimate he prepared for the meeting with a 50/50 sharing of costs and showing Dempsey Wood as the contractor.
[21] Mr Marsh’s email of 2 November 2017 was headed “ODL - Mega Cost Share Arrangement”. Mr Marsh referred to the discussion about the “West Hoe Heights road and services work”. The purpose of the email was to run over “the process we discussed so we can finalise the costs schedule, and so we can get an account to Mega for the work completed to date”. Mr Marsh added:
Essentially the process [will] be as follows:
[22] In early February 2018 Mr Jackman of CKL emailed Mr Richardson (with a copy to Mr Marsh) about the cost share for the common works to advise the finalisation of the schedule which would be sent through very shortly. It was anticipated this would “need review by Mega/Crang”. The email signalled the imminent submission of the first payment claim for payment by Mega for roading work completed to date. On 16 February Mr Jackman wrote to Mr Richardson providing further information including a draft version of the common works cost share estimate schedule and a draft common works overview plan. Mr Jackman added:
These are referenced as draft as we expect further discussion will be needed for final agreement on the cost share works. Upon your initial review, will send separately details of our measure-ups and workings. Please note that the allowances and scope of common works are as per those that we discussed in October 2017.
Notwithstanding the above, as you are aware ODL have advanced much of West Hoe Heights formation during our Stage 3 construction works and therefore in line with the ODL/MPL cost share agreement include the first progress payment claim for the amount of $231,420.36 plus GST. Accordingly, please find attached:
• Progress Payment 1 covering letter
• Progress Payment 1 payment schedule showing MPL amount due.
[23] On 25 March 2018 Mr Richardson emailed Mr Marsh as follows:
I have passed this onto Jerry [Zhu] for payment and confirmed I’m happy with all the [quantities] and numbers. I am meeting with him on Tuesday so will relay any queries from his end.
[24] There was no response regarding Mega until Mr Richardson emailed Mr Marsh on 28 May 2018 explaining that Mr Zhu was in China. Mr Richardson said he would arrange a meeting with Mr Zhu as soon as possible once he was back in the country.
[25] As the Associate Judge found, Mr Zhu was not forthcoming with any payments or comments.[8] Orewa’s claims for payment were met by silence.
[26] In respect of the payment claims made by Orewa we conveniently adopt the findings of the Associate Judge:
[14] While the detailed schedule showing how the first claim was calculated has been put in evidence (others have not been), the evidence shows that schedules were sent to Crang Civil. An email of Mr Marsh on 18 June 2018 recorded that claims 1 and 2 had been supplied to Crang Civil with supporting schedules. When the third payment claim was made, CKL provided a folder with additional information to support the claim. When the final claim was sent on 22 November 2018, documents were provided setting out how the claim was calculated. In short, every payment claimed by Orewa Developments Ltd was supported by a detailed schedule setting out how it was calculated. Mega could obtain advice from Crang Civil about the payment claims.
[27] In the face of the long silence from Mr Zhu and Mega, Orewa sought to enforce the debt. On 11 December 2018 Orewa served the statutory demand for $1,452,803.62 which was in terms plainly relying on a contractual claim to enforce the debt said to be owed to it by Mega for “roading construction costs adjoining the land belonging to you at West Hoe Heights Orewa, pursuant to a written agreement made on or about 5 December 2016 between you and the Creditor”.
[28] Mega’s response also relied on the contract. Mega’s solicitors sent an email to Orewa’s solicitors asserting various breaches of contract by Orewa and invoking the agreement to arbitrate in cl 5.1. Mega also filed an originating application seeking to set aside the statutory demand.
The High Court judgment
[29] Mega argued there was substantial dispute as to whether or not the debt was owing to Orewa.[9] This was because Orewa had not given Mega the documentation and other information under cl 3.1, had not sought or obtained Mega’s written approval to the estimated costs under cl 3.2.1, and had not otherwise met the contractual conditions for payment.
[30] The application to set aside was supported by an affidavit by Mr Zhu in which he stated that Mega’s position was that:
Mega does not owe ODL any sum for contribution to the costs of the works but, without prejudice to that claim, might be willing to pay its contribution to the fair and reasonable costs of the works, once determined.
[31] Despite that position, Mr Zhu accepted in the High Court that the roading work was carried out. As the Associate Judge found, Mr Zhu did not suggest that any of the work was “defective, late, incomplete, or that his company had been charged for work that was not part of the project”.[10]
[32] The Associate Judge concluded that some parts of the contract were “drafted untidily”.[11] But despite such untidiness he found it was clear Mega could not be required to pay for the roading work until the contract had been carried out (cl 3.10). Also work under the contract could not start until Mega had given its approvals under cls 3.1 and 3.2.
[33] The Associate Judge found Orewa did not supply all the information under cl 3.1 and Mega did not give its written approval under cl 3.2.1. Nor did Mega approve the costs under clause 3.9. Rather, Orewa relied upon what occurred at the meeting on 30 October 2017. The Associate Judge said that this gave rise to a waiver argument, adding:[12]
If Mega had led Orewa Developments Ltd to believe that it would not require compliance with the conditions in the agreement, those conditions would be waived and Mega could not rely on non-satisfaction of those conditions as a defence. The evidence at present does not support any waiver argument. While Mr Zhu attended the meeting in October 2017, there is nothing in the evidence to suggest that he advised Orewa Developments Ltd.’s representative that Mega waived the requirement for approval of costs in the agreement. Indeed, the evidence suggests that there were discussions with a view to establishing what the costs would be, but the matter went no further than that. Moreover, work had already started. It is arguable for Mega that on the evidence of what was discussed at the meeting in October 2017, Mega had not waived its rights to require satisfaction of the conditions under the agreement.
[34] Orewa also submitted that Mega was subject to an estoppel which precluded it from contending the debt was contestable for non-satisfaction of conditions.[13] In this case, Orewa said, there was an estoppel by silence, being one aspect of the modern law of estoppel. On this issue the Associate Judge concluded:
[21] Proving the estoppel requires Orewa Developments Ltd to show that it was aware of the conditions in the contract requiring it to obtain the approval of Mega for the costs of the road works and it was prepared to provide all the other documentation required under cl 3.1 and to obtain its approval, but Mega led it to believe, by some action, representation or omission that it was not required to go through those preliminary steps and because of what Mega did, it did not satisfy the conditions before starting work. It is arguable for Mega that the evidence is consistent with something entirely different. That is, Orewa Developments Ltd does not seem to have been concerned about the terms of the agreement at all except that it was aware that it could recover half the costs of the road works from Mega. ...
[35] On the question of estoppel by silence, the Associate Judge found the claim that Mega was under a duty to speak (a claim of estoppel by silence) was contestable. Noting that a duty to speak will be rare between commercial parties dealing at arm’s length, the Associate Judge considered it was arguable for Mega that it did not have to advise Orewa of its obligations under the agreement but could hold its hand to see if Orewa complied with the conditions. It followed that the estoppel response was contestable. [14] On that basis the Associate Judge found that there was a genuine and substantial dispute as to contractual liability.
[36] But despite that conclusion, the Associate Judge went on to consider whether Mega owed Orewa a non-contractual debt.[15] On that basis, he found Mega was liable to pay Orewa the sum of $1,284,122.94, being the reasonable value of the services supplied. This finding relied on a principle of “free acceptance” as part of the law of restitution or unjust enrichment.[16] The Associate Judge held there was no reason why Orewa could not use the statutory demand procedure to enforce its non‑contractual debt.[17] The outcome therefore was that the statutory demand was sound for the sum of $1,284,122.94, being the reasonable value of the roading work, without any allowance for interest.[18]
Key issue on appeal
[37] We consider the analysis of the Associate Judge should have concluded at finding there was a genuine dispute about Mega’s obligation to pay under the contract, resulting in an order setting aside the statutory demand. In summary, this is because, as Mr Blanchard for Mega submitted, the statutory demand was made relying on the contract and Mega had no notice of a restitutionary or other non‑contractual claim. On this approach the aspects of the High Court judgment dealing with restitution are not relevant to the disposition of the appeal. Ms Robertson QC for Orewa submitted the Associate Judge was entitled to make the findings that he did on restitutionary liability and that Mega was unable to demonstrate any unfair prejudice from its lack of notice of a restitutonary claim. She says that as Mega must be liable on some basis, if it denies contractual liability it must accept liability in restitution. In our view, the fact the claim was made relying on the contract, in addition to the lack of notice to Mega of a restitutionary claim, sufficiently disposes of the issue and there is no need to examine these aspects of the High Court judgment further.
[38] The key issue raised by the cross-appeal, as noted above, is whether the Associate Judge was correct in finding that there was a substantial dispute under the contract. Mega opposed the cross‑appeal and sought to uphold the High Court judgment on that issue. On appeal, Mega challenged the Associate Judge’s refusal to set aside the statutory demand, for the reasons we have noted. In short, Mega submitted that as the debt was covered by the contract, restitution was not available. It further submitted that the statutory demand should have been set aside as the debt was covered by the arbitration agreement in cl 5.1.
[39] As the main issue for determination is the existence of a substantial dispute as to whether or not the debt is owing under the contract, it is necessary to assess the submissions of the parties under the cross‑appeal.
Submissions of cross‑appellant (Orewa)
[40] For Orewa, Ms Robertson relied on two separate, but related, strands of argument. She accepted Orewa did not provide the documentation set out in cl 3.1 prior to the commencement of the roading work. However, she submitted such non‑compliance did not prevent Orewa from claiming payment under the contract because either:
- (a) the contract was varied at the meeting of 30 October 2017; or
- (b) Mega is estopped from relying on Orewa’s non‑‑compliance with the conditions of the contract to avoid paying its share of the costs of the roading work.
[41] The variation of contract argument is based on the proposition that the parties agreed to proceed as per Mr Marsh’s email of 2 November 2017, the key passages of which are summarised at [21] above. Ms Robertson referred to Mr Marsh’s affidavit evidence that at the 30 October 2017 meeting Mr Zhu never took issue with the fact Orewa had started some of the roading work. Moreover, Mr Marsh’s follow‑up email expressly refers to that point and, importantly, Mr Marsh deposed an agreement reached at the meeting as to how the costs were to be apportioned and recovered.
[42] Ms Robertson relied on Mr Marsh’s evidence that Mr Zhu did not raise any objection to Orewa’s contractors, Dempsey Wood, carrying out the roading work and that Dempsey Wood’s rates of work had been agreed by Crang Civil. Ms Robertson submitted Mr Zhu could not add to Mr Marsh’s evidence about the 30 October 2017 meeting or give contrary evidence. Mr Zhu already said he did not recall the meeting taking place and disputed he was present. The evidence was that the meeting did occur and that Mr Zhu was present, facts accepted by the Associate Judge.
[43] Ms Robertson contended that the contract, as varied, was fully performed by Orewa in the manner described at [21]–[22] above. Accordingly, it followed that Orewa was entitled to insist on performance by Mega by way of payment of the four invoices rendered, together with interest as provided for in the contract.
[44] The estoppel argument was said to be based on equitable estoppel as incorporating the doctrine of estoppel by acquiescence. Ms Robertson submitted commercial parties dealing at arm’s length may have a duty to speak where it is necessary to correct a misunderstanding arising from communications between them and where the silent party is aware that the other is acting on the mistaken assumption.[19] A duty to speak may be more strongly indicated where the knowledge of the true situation is solely in the domain of the silent party.
[45] In terms of the factual basis for estoppel, Ms Robertson submitted it must have been apparent to Mega, from the time of the 30 October 2017 meeting, that Orewa was proceeding with the shared roading work believing Mega would meet its share of the costs in accordance with the process set out in Mr Marsh’s email of 2 November 2017. Ms Robertson submitted the tenor of the email is that the work would continue on the basis set out and Mega that would meet its share of the costs. Mr Marsh concluded the email by inviting Mega to let him know if he had missed anything or misinterpreted the discussion. There was no response.
[46] Ms Robertson submitted that at no stage until after the service of the statutory demand did Mega raise with Orewa any dispute, either in relation to the schedules sent to Crang Civil for review or invoices rendered. Mega never suggested to Orewa that it did not intend to pay its share of the costs. Orewa could not have known there was any possibility that Mega might not pay unless Mega spoke up. Mega did not do so.
[47] Accordingly, Ms Robertson argued it was unconscionable for Mega to lead Orewa to believe it would meet its share of the costs at the meeting of 30 October 2017. Mega then stood by from October 2017 to December 2018 while Orewa completed the roading work at significant cost. Only when faced with the statutory demand did Mega raise technical arguments about compliance with the written contract to avoid meeting its share of the costs.
Submissions of cross‑respondent (Mega)
[48] In response to the cross‑appeal, Mr Blanchard submitted that there was a substantial dispute regarding the alleged variation and the estoppel argument. Mr Blanchard also referred to the wording of Mr Marsh’s email of 2 November 2017, emphasising its focus on “process”. In the absence of any reply from Mega to this email, Mr Blanchard relied on the following findings of the Associate Judge, namely: “the evidence suggests that there were discussions with a view to establishing what the costs would be, but the matter went no further than that” and “while there were discussions in October 2017 as to costs, nothing more came of them”.[20]
[49] Mr Blanchard submitted even on Orewa’s brief account of the 30 October 2017 meeting, Orewa had to provide a schedule of rates and quantities for the shared costs by 3 November 2017 and had to provide significant further information. It did not do so. Moreover, when Mr Jackman on behalf of Orewa emailed Mr Richardson on 16 February 2018 attaching a draft cost share estimate schedule, the email recorded: “These are referenced as draft as we expect further discussion will be needed for final agreement on the cost share works”. Despite the above requirements and the draft nature of the cost share estimate, Mr Jackman included the first payment claim in his email of 16 February.
[50] With reference to Orewa’s estoppel claim, Mr Blanchard noted it was advanced on the basis the contract variation claim was rejected. He submitted the estoppel argument relied on two facts:
- (a) at the 30 October 2017 meeting Mega led Orewa to believe Mega was going to meet its share of the costs of the roading work (a misrepresentation allegation); and
- (b) Mega’s silence in response to the email of 2 November 2017 and subsequent correspondence created a belief that: (i) the process in the 2 November 2017 email had been agreed; and (ii) Mega no longer required compliance with the other provisions of the contract, a claim based on a duty to speak to correct a mistake on the part of Orewa.
[51] Mr Blanchard submitted there was a substantial dispute about estoppel because:
- (a) there was a factual dispute about what occurred at the 30 October 2017 meeting;
- (b) Mega did not create a belief or expectation on the part of Orewa that the contract was varied. It did not owe a duty to speak and correct any mistaken belief on the part of Orewa; and
- (c) it was not reasonable for Orewa to rely on an expectation or belief of the kind suggested.
Our analysis
[52] When considering whether, under s 290(4) of the Companies Act the court is “satisfied” as to the existence of a substantial dispute whether or not the debt is owing or due, we have applied the guidance outlined by this Court in AAI Ltd v 92 Litchfield Street Ltd (in rec and in liq) where Winkelmann J stated: [21]
[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 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.
(Footnote omitted.)
[53] On the question of whether a court is “satisfied” about the necessary state of affairs in s 290(4)(a) to (c), we consider that this calls for the exercise of an evaluative judgement by the court and it is inapt to import notions of the burden or standard of proof.[22]
[54] The resolution of the application to set aside the statutory demand turns on whether there is a substantial dispute about Mega’s liability under the contract. That in turn depends on what occurred at the meeting of 30 October 2017. What, if anything, was agreed? Did the parties agree to vary their written agreement of December 2016? And did what occurred at the meeting, and thereafter during 2018 (as demands for payment were sent by Orewa to Mega), amount to an estoppel?
[55] The evidence before the High Court about the 30 October 2017 meeting was sparse. Only three witnesses provided affidavit evidence. One of those affidavits (Mr Jackman’s) was filed late. It seems there were at least four persons at the meeting, namely, the three deponents and Mr Richardson. Mr Zhu made no mention of the meeting in his first affidavit. Once Mr Marsh deposed he was there, Mr Zhu replied saying: “I cannot recall this meeting. I do not agree it took place.” Mr Jackman said Mr Zhu was at the meeting. Unsurprisingly, the Associate Judge found Mr Zhu was present.[23]
A variation of contract?
[56] Rather than describing in any detail what actually took place at the meeting, Mr Marsh in his affidavit pointed to his email of 2 November 2017 and said it referred to “the agreement reached at the meeting as to how those costs were to be apportioned and recovered”. But when the email itself is analysed, it appears that any agreement reached was limited to the process discussed so the parties could “finalise the costs schedule”. The process itself appeared to involve nine steps which, importantly, still required review by at least Mr Richardson of Crang Civil.
[57] In light of this and the other evidence we have reviewed, we accept there is a substantial dispute as to the nature and terms of the variation of contract contended for by Orewa. As the Associate Judge found, there were discussions between the parties with a view to establishing what the costs would be, but the matter went no further than that.[24]
[58] We agree with Mr Blanchard that the evidence currently available suggests the following:
- (a) Mr Zhu attended the meeting with Mr Richardson, Mr Jackman and Mr Marsh.
- (b) Mr Zhu did not, as Mr Marsh deposed, take issue with the fact Orewa had already started the roading work.
- (c) The parties discussed the cost sharing agreement.
- (d) From what transpired after the meeting, Mr Zhu:
- (i) did not raise any objection to Dempsey Wood carrying out the roading work; and
- (ii) there was no response to any of Orewa’s demands for payment under the cost sharing agreement.
[59] Orewa relied heavily on the contents of Mr Marsh’s 2 November 2017 email. The email refers broadly to “OBL - Mega Cost Share Arrangement” and specifically mentions only “the process we discussed so we can finalise the costs schedule”. Given that the contract (in cl 3.1) required Orewa to provide much more documentation than just a costs schedule, this casts real doubt on what was, or was not, agreed at the meeting. Even the subsequent emails do not assist, as they appear to relate to a gradually developing proposal (regarding the costs of the roading work), rather than complying with the terms of an agreed variation of contract.
[60] One possible view of the 2 November 2017 email is that it recorded what was an attempt at the 30 October 2017 meeting to put some additional flesh on the “Cost Estimate” referred to in cl 3.1.5. If that was its purpose, it would not necessarily be inconsistent with, or constitute a variation or waiver of, any of the other sub-clauses in cl 3.1. Examples include documentation relating to the Development Programme (cl 3.1.1). If there was no concluded variation of contract, nor a waiver of all other relevant contractual conditions, Mega would retain its ability to contend Orewa was in breach, giving rise to various legal consequences flowing therefrom. The legal effect of these breaches, in the currently known circumstances of the case, could be a complex question and require further evidence to resolve.
[61] For the above reasons, on Orewa’s first argument we are satisfied there is a substantial dispute as to both the existence of a variation of contract and the terms of it. Accordingly, this gives rise to a substantial dispute as to whether or not the debt is owing or due.
Estoppel
[62] There is no dispute as to the legal principles. Both Mega and Orewa accept that the following elements are required to establish estoppel:[25]
- (a) a belief or expectation by Party A has been created or encouraged by words or conduct by Party B;
- (b) to the extent an express representation is relied upon, it is clearly and unequivocally expressed;
- (c) Party A reasonably relied to its detriment on the representation; and
- (d) it would be unconscionable for Party B to depart from the belief or expectation.
[63] For present purposes we accept that a belief or expectation can be created or encouraged by silence. Silence may give rise to an estoppel in this way either (i) because it amounts to a genuine misrepresentation itself; or (ii) because the silent party was under a duty to speak.[26] In the latter case, the silence operates as a cause of the other party’s reliance on its own mistaken belief.[27] Generally, a duty to speak will be rare between commercial parties dealing at arm’s length.[28]
[64] The question of whether Mega is estopped from relying on strict compliance by Orewa with cls 3.1 and 3.2 of the contract turns, again, on what happened at the meeting of 30 October 2017. We have already held the evidence of the meeting is incomplete and, given the summary nature of the statutory demand process, rather unsatisfactory. It is therefore a short step to find that there is a substantial dispute as to the true facts surrounding the first two elements Orewa must prove to establish an estoppel. What belief or expectation Orewa had arising from the meeting is far from clear. The same is true of the nature and scope of any express representation said to have been made by Mega. To this extent we agree with the finding of the Associate Judge that the arguments as to estoppel are “not so strong that there cannot be any dispute as to [Orewa’s] contractual liability”.[29]
[65] We consider an even more significant issue arises in relation to whether it can be said that Orewa reasonably relied to its detriment on any representation made by Mega at the 30 October 2017 meeting. One interpretation of the relevant contractual conditions is that, irrespective of what took place at the meeting, Orewa was required to do the roading work itself under the terms of its own resource consent.[30] This view is supported by cl 2.4 of the contract which provides:
2.4 It is agreed the levels detailed by ODL for the finished road levels and design are agreed and MEGA will design their sub divisional works to the agreed heights. If required MEGA will incorporate the West Hoe Heights road Works in its application for the MEGA Recourse Consent with the intent that the West Hoe Heights road Works will be common to both the ODL Resource Consent and the MEGA Resource Consent.
[66] It follows that there is a substantial dispute as to whether, whatever representations were made at the meeting, Orewa relied on such representations in carrying out the roading work. Given the subsequent behaviour of Mega (in keeping silent throughout most of 2018) Orewa may well be able to establish a degree of unconscionability on the part of Mega. But any such conduct by Mega does not inform Orewa’s own contractual and other obligations (such as obligations under its resource consent). We are therefore satisfied that there is a substantial question as to whether Orewa could establish an estoppel. These conclusions, and the limited factual material currently available, lead us inexorably to be satisfied that there is a substantial dispute about estoppel and, consequently, whether or not the debt is owing by Mega under the contract.
Exercise of discretion
[67] Under s 290(4) of the Companies Act the court, when considering whether to set aside a statutory demand, is given a discretion. The court “may” grant an application to set aside a statutory demand if it is satisfied of any of the matters specified. This Court examined the proper approach to the exercise of the discretion in Manchester Securities Ltd v Body Corporate 172108.[31] Having noted the limited number of cases where the discretion had been considered, the Court held it was unnecessary to attempt to formulate any test for the exercise of what it described as a “residual discretion”. Nevertheless, it would clearly be in only “a rare case where the discretion is exercised against setting aside a statutory demand where a genuine and substantial dispute has been shown”.[32] We agree with that approach.
[68] In this case the exercise of the discretion is overlaid by another discretion which needs to be considered. Section 290(7) of the Companies Act provides that an order under s 290 may be made subject to conditions.
Should any conditions be imposed?
[69] Despite Mr Zhu’s equivocation in his first High Court affidavit, Mega now accepts it has a legal liability to pay an equal share of the fair and reasonable costs incurred by Orewa in constructing the roading work. The contract provides a number of ways in which the total cost might be determined, including arbitration under cl 5.1. Another is for the parties to “jointly appoint an impartial quantity surveyor or other suitable professional” to determine the fair and reasonable costs of the roading work under cl 3.2.
[70] In response to a question from the Court about how the reasonableness of Orewa’s claim for the costs of roading work might be determined, Ms Robertson participated in discussions with Mr Blanchard about the procedure for the appointment of an impartial quantity surveyor as contemplated by cl 3.2 of the contract. Counsel helpfully provided the Court with an agreed procedure that might be used for that purpose and could be made a condition of any order setting aside the statutory demand.
[71] Ms Robertson also raised for the first time in oral submissions the prospect that the Court should, if minded to set aside the statutory demand, require Mega (also by way of condition under s 290(7) of the Companies Act) to pay the sum of $1,284,122.94 plus interest (or a substantial portion thereof) into an independent trust account. Mr Blanchard resisted that suggestion as being both too late and inappropriate.
[72] These matters raise two issues regarding the imposition of conditions for setting aside the statutory demand. First, whether to avoid further disputation as to what option is used, we should impose a condition which provides a process for the prompt determination of this issue. Second, whether we should accede to Ms Robertson’s submission that a further condition be imposed requiring Mega to pay an amount into an independent trust account pending the determination of the fair and reasonable costs payable. We will address each issue in turn.
[73] The question of the imposition of conditions under s 290(7) was considered by this Court in Provida Foods Ltd v Foodfirst Ltd.[33] There the Court emphasised a statutory power to impose conditions should not be construed as permitting the imposition of conditions in “an unfettered or open-ended manner”. Rather, any conditions imposed “should relate to and be for the purpose of ensuring that the order setting aside the statutory demand is appropriately made and implemented in the circumstances of the particular case”.[34] This Court exercised the power, ordering an amount to be paid into the High Court, in Sisson v Commissioner of Inland Revenue.[35] We also mention the judgment of the High Court in QDC Developments Ltd v Trustees of the Boss Properties Trust where Associate Judge Gendall opined that an order can be made requiring a disputed amount or part of such an amount to be paid into court pending resolution of the dispute, “[i]n order to encourage the parties to engage in dispute resolution and/or to take and pursue substantive claim proceedings without delay”.[36]
[74] Turning then to the question of a condition requiring the parties to engage in a process of dispute resolution, we agree with Ms Robertson’s submission that the chronology from 2 November 2017 to early December 2018 demonstrates a persistent pattern of non-engagement on the part of Mega. When correspondence was sent by Orewa to Mr Zhu and his agents, including the four claims for payment, it was at all times greeted by silence. If Mr Zhu and Mega had any concerns about the costs of the roading work with which Orewa was proceeding, they did not raise any queries, nor did they identify a single specific issue with any of the four claims or the supporting information provided. The inference that Mr Zhu was seeking to delay making payment to Orewa is both available and compelling.
[75] In those circumstances, we consider it proper that any order setting aside the statutory demand should be made subject to a condition requiring the parties to engage in the appointment of an impartial quantity surveyor on the terms already agreed by the parties. Details of such terms are out below. If there is any dispute as to the application of, or compliance with, such conditions, it is to be referred to the High Court for determination.
[76] Finally, we deal with the late request by Orewa that Mega pay a substantial portion of the debt into an independent trust account pending determination by the quantity surveyor of the amount of costs for roading work payable by Mega. It seems clear from the authorities to which we have referred (at [73] above) that the Court has the power under s 290(7) to impose such a condition.
[77] Mr Blanchard stated in argument that Mega had unsold property. That may well be so but the question remains: is it encumbered? And if so, to what extent? Further, what impact would such a condition have on the priorities of all creditors of Mega?
[78] Had the issue of such a condition arisen before the hearing of the appeal, it is likely there would have been evidence required as to (at the very least) Mega’s ability to pay an appropriate amount or to otherwise provide security to protect the interests of Orewa.
[79] There is no such evidence and we are unwilling to speculate on what the factual position may be. Rather, we consider that Orewa should review the matter after delivery of this judgment, and as the dispute resolution process proceeds. If it becomes apparent that such an order is necessary or desirable, Orewa can make an application to the High Court supported by affidavit evidence.
Other matters
[80] The way in which we have decided the appeal means that it has not been necessary to determine several issues. Examples include the grounds raised by Mega that the High Court erred because:
- (a) the statutory demand ought to have been set aside as the debt is subject to an arbitration agreement; and
- (b) the Associate Judge accepted the amount claimed by Orewa as the reasonable value of the work as part of the restitutionary claim.
[81] As the appeal developed, both arguments have become redundant. The parties accepted that a different mode of dispute resolution (to arbitration under cl 5.1) was appropriate. And we have directed that conditions supporting this approach be made under s 290(7) of the Companies Act. Second, the fair and reasonable value of the roading work will be determined by the quantity surveyor.
[82] The remaining question is interest. Orewa raised this matter in the cross‑appeal, if the Court were to rule that the statutory demand ought to be upheld. Orewa submitted the rate agreed in the contract by the parties, namely, 10 per cent as set out in cl 3.12 should apply. These submissions were opposed by Mega. We do not consider it necessary or appropriate to determine the dispute about interest at this stage. Any outstanding question about interest can be resolved pursuant to the contractual provisions for dealing with such issues if they cannot be agreed following negotiation or mediation.
Result
[83] The appeal is allowed and the cross-appeal is dismissed.
[84] There is an order setting aside the statutory demand served on the appellant pursuant to s 289 of the Companies Act and dated 11 December 2018 for $1,452,803.62.
[85] The order setting aside the statutory demand is subject to the following conditions:
(a) Within 10 working days of the delivery of this judgment the appellant and the respondent (together “the parties”) are to agree on an impartial quantity surveyor (QS) under cls 3.2, 3.3 and 3.9 of the contract.
(b) If the parties cannot agree, they are to refer the matter without delay to the New Zealand Institute of Quantity Surveyors, requesting the selection of a QS without delay.
(c) The appellant is to provide to the respondent and the QS all of the documents held by it that are required to be provided under cls 3.1, 3.3 and 3.11 of the contract, and all documents referred to in the 2 November 2017 email from Mr Marsh to Mr Richardson, together with any other documents reasonably required by the QS, within 10 working days of appointment of the QS.
(d) As soon as reasonably possible, the QS is to determine the fair and reasonable costs of the roading work in accordance with cls 3.2, 3.3 and 3.9 of the contract.
(e) As provided by cls 3.2, 3.3 and 3.9 of the contract, the parties will be bound by the decision of the QS.
[86] Any question of the application of, or compliance with, the terms of the conditions in [85] above is to be referred to the High Court.
[87] As requested by counsel at the hearing, the costs and disbursements of and incidental to the appeal, the cross‑appeal and the hearing in the High Court are reserved.
[88] If agreement cannot be reached by the parties on all aspects of costs, counsel may file brief memoranda of no more than three pages.
Solicitors:
Winston Wang & Associates,
Auckland for Appellant
Dawsons Lawyers & Notaries, Auckland for
Respondent
[1] Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
[2] Mega Project Holding Ltd v Orewa Developments Ltd [2019] NZHC 866 [High Court judgment].
[3] At [22].
[4] At [33]–[34].
[5] At [39].
[6] We observe that cls 3.1.3 and 3.1.4 are not truly documentation but rather a record of issues agreed between the parties. We also note that in the contract Orewa is referred to as ODL.
[7] High Court judgment, above n 2, at [12].
[8] At [13].
[9] Companies Act 1993, s 290(4)(a).
[10] High Court judgment, above n 2, at [10].
[11] At [17].
[12] At [18].
[13] At [19].
[14] At [22].
[15] At [23]–[34].
[16] At [25].
[17] At [35]–[36].
[18] At [37].
[19] Citing Official-Assignee v Kingston Developments Group Ltd [2016] NZCA 415, (2016)17 NZCPR 531 at [119].
[20] High Court judgment, above n 2, at [18] and [21].
[21] AAI Ltd v 92 Litchfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338.
[22] R v Hughes [2008] NZCA 546, [2009] 3 NZLR 222 at [49] citing R v Leitch [1998] 1 NZLR 420 (CA) at 428.
[23] High Court judgment, above n 2, at [12].
[24] At [18].
[25] Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44].
[26] Purewal BS & JK Ltd v Connell Street Ltd [2012] NZCA 42, (2012) 13 NCCPR 108 at [60]–[67]; Official Assignee v Kingston Developments Group Ltd, above n 19, at [114]–[126]; and James Every-Palmer “Equitable Estoppel” in Andrew Butler (ed) Equity & Trusts New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [19.5.2].
[27] Piers Feltham and others Spencer Bower: Reliance-Based Estoppel (5th ed, Bloomsbury Professional, London, 2017) at [1.94].
[28] Every-Palmer, above n 32, at [19.5.4]. See Lam v Ausintel Investments Aust Pty Ltd (1989) 97 FLR 458 (NSWCA) at 475.
[29] High Court judgment, above n 2, at [22].
[30] This is a defined term in the contract and includes consents arising from five resource consent applications dated 17 July 2015.
[31] Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455.
[32] At [49].
[33] Provida Foods Ltd v Foodfirst Ltd [2012] NZCA 326, (2012) 21 PRNZ 546.
[34] At [78].
[35] Sisson v Commissioner of Inland Revenue [2017] NZCA 326 at [88].
[36] QDC Developments Ltd v Trustees of the Boss Properties Trust HC Wellington CIV‑2010‑485‑1761, 1 December 2010 at [27].
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