Concast West Limited v Ocean King Enterprise Limited [2016] NZHC 1839 (8 August 2016)

Last Updated: 9 September 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-1102 [2016] NZHC 1839

UNDER	the Companies Act 1993
IN THE MATTER OF	an application for orders setting aside a statutory demand
BETWEEN	CONCAST WEST LIMITED Applicant
AND	OCEAN KING ENTERPRISE LIMITED Respondent

Hearing:	8 August 2016
Appearances:	H Lim and M Moon for Applicant N Tabb for Respondent
Judgment:	8 August 2016

_{ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL}

Solicitors:

Forest Harrison (H M Lim/M Moon) Auckland, for Applicant

Natalie Tabb, North Harbour, Auckland, for Respondent

CONCAST WEST LIMITED v OCEAN KING ENTERPRISE LIMITED [2016] NZHC 1839 [8 August 2016]

[1] Concast West Ltd applies to set aside a statutory demand by Ocean King Enterprise Ltd dated 12 May 2016. The demand requires payment of $102,673.17, “being money due and owing unpaid invoices from April 2015-February 2016 plus collection costs and cost of this demand”. Concast West Ltd says that there is a genuine and substantial dispute whether or not the debt demanded is due and owing, and that it has a counterclaim or set-off that exceeds the value of the alleged debt. These are recognised grounds for setting aside a statutory demand under s 290(4)(a) and (b) of the Companies Act 1993.

[2] Concast West Ltd is a property developer. It owns land at 178 McLeod Road, Te Atatu, Auckland, on which it is carrying out a development. Ocean King Enterprise Ltd is an earthworks contractor. It carried out work on the site between April and December 2015. That work appears to have included excavation and disposing of fill from the site, the purchase and supply of metal and also some labour on site, including some work on drilling.

[3] Ocean King Enterprise Ltd’s invoices total $230,261.97. Concast West Ltd

made payments to Ocean King Enterprise Ltd between 8 June 2015 and

20 November 2015 totalling $150,960.32. On my arithmetic, the difference between the total invoices and the amount paid is $79,301.65. That is less than the amount stated in the statutory demand.

[4] On applications to set aside statutory demands, the basic principles are not in dispute. The Court of Appeal conveniently repeated them in AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq). It quoted with approval these principles stated by the Associate Judge at the first instance:¹

As to s 290(4)(a)

(a) The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.

¹ AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, (2015) 23 PRNZ 52 at

[19].

(b) The mere assertion that the dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.

(c) If such material is available the dispute should normally be resolved other than by means of proceedings in the Court’s Companies Act jurisdiction.

As to s 290(4)(b)

(d) Alternatively, an applicant must establish that any counterclaim, cross demand or set-off is reasonably arguable in all the circumstances.

As to both ss 290(4)(a) and (b)

(e) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.

[5] In addition, the court repeated its statement in Industrial Group Ltd v

Bakker:²

[21] We are not persuaded that is the threshold an applicant must meet under s 290(4). Such a threshold would be inconsistent with a statutory scheme which provides for a process summary in nature, with potentially draconian consequences for the unsuccessful applicant and tighter time frames than those applying in the summary judgment jurisdiction. In Industrial Group Ltd v Bakker this Court said:

... the statutory scheme ... for applications to set aside statutory demands [is] a summary proceeding ... The section calls for a prompt judgement as to whether or not there is a substantial dispute ... The test may be compared with the principles in cognate fields such as applications to remove caveats, [and] leave to appeal an arbitrator’s award ... The tight time constraints distinguish the s 290 discretion from that to be exercised on say, a summary judgment application, where the presence of complex legal issues is not necessarily a bar to a remedy. As with leave to appeal an arbitrator’s award, the hearing should, in the normal course, be short and to the point. And the judgment likewise.

[6] As to counterclaims under s 290(4)(b), in Covington Railways Ltd v Uni- Accommodation Ltd the Court of Appeal stated that a company must show “clear and

_{persuasive grounds”.}³

² _{Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413 at [24]- [25].}

³ Covington Railways Ltd v Uni-Accommodation Ltd [2000] NZCA 230; [2001] 1 NZLR 272 (CA) at [11].

Preliminary matters

Late tender of affidavits

[7] At the hearing, Ocean King Enterprise Ltd tendered two affidavits by machine operators who had worked on the job at McLeod Road. By this time, the applicant had already long filed and served its evidence in reply. When the case was called on 10 June 2016 Associate Judge Doogue recorded that all of the affidavits relied on were in, except for any reply affidavits by the applicant. He did not reserve leave to the respondent to file further affidavits and, as I have noted, reply evidence has now come in. The respondent’s explanation for tendering the affidavits late is that the matters covered in the affidavits were relatively narrow and that they go only to corroborate evidence that has been given on its behalf already.

[8] I refused leave for those affidavits. In short, the affidavits were filed well out of time. It is important to adhere to appropriate procedure which is to ensure that when respondents file their evidence the applicant is given an adequate opportunity to reply. It is undesirable to give other parties the opportunity to file evidence late. It is likely to create embarrassment, lead to unfairness, or otherwise lead to further delays. I regard further delay as undesirable for this case. Applications to set aside statutory demands should be determined promptly.

Hearsay evidence

[9] The evidence for the applicant includes an affidavit of Mr Yang, sworn on

26 May 2016 where, at paragraph 13, he refers to a plan by a surveyor said to show the location of piles on the site. The surveyor himself has not given evidence. I consider that there has been adequate opportunity for the surveyor to give evidence. The applicant has not suggested that the surveyor was unavailable in terms of s 16 of the Evidence Act. The plan does not satisfy the requirements for admitting hearsay evidence under s 18 of the Evidence Act. There is nothing about that document to give me any assurance that the plan is reliable. There is no evidence to show that the surveyor is unavailable and I do not consider that there would be undue difficulty or expense in requiring the surveyor to give an affidavit. I accept that there may be

difficulty in obtaining an affidavit from the surveyor within the 10 days after service of the application. Admittedly priority has to be given to filing and serving a primary affidavit in support of the setting aside application. But in this case there was adequate time after the initial affidavit in which to obtain an affidavit by the surveyor.

[10] The same objection goes to Exhibits D and E in Mr Yang’s affidavit of

24 June 2016. That is another plan by the surveyor, and also a letter from an engineer. The same objections apply to their admissibility.

[11] Mr Yang has also put in evidence estimates as to the costs of remedial work. I accept that it is standard practice when claims are made for remedial work to exhibit quotes from other contractors as to the costs for remedial work. I allow that in.

[12] Another unacceptable and inadmissible part of Mr Yang’s reply affidavit is paragraph 19. He deposes that Concast staff raised objections with Ocean King Enterprise Ltd as to the invoices at earlier dates. There is no reason why those people could not have deposed to that. I do not see that there is any reason why they could not have given affidavits themselves as to it. I exclude paragraph 19 of Mr Yang’s reply affidavit as inadmissible hearsay.

[13] There is also an aspect relating to paragraph 7 of the affidavit of Mr Turvey but I will deal with that when I come to the question of the counterclaim.

Allegations as to solvency and insolvency

[14] Mr Turvey’s affidavit contains allegations suggesting insolvency on the part of Ocean King Enterprise Ltd. The solvency or otherwise of Ocean King Enterprise Ltd is not relevant to the merits of this application. Paragraph 13 of his affidavit is irrelevant.

[15] Concast West Ltd also alleges solvency on its part. In its first affidavit in support of the setting aside application, it says that it is the owner of the land at

178 McLeod Road and that the land has a rating value of $2.5 million. That, by itself, is not evidence of solvency. To establish its solvency, Concast West Ltd also needs to give evidence as to its liabilities. It has given absolutely no evidence as to its liabilities. Balance sheet solvency is not by itself relevant on a liquidation application. Rather, cash-flow solvency is what counts. There is no evidence from Concast West Ltd as to its cash-flow solvency. In any event, solvency is not ordinarily by itself a ground for a setting aside application. It is at best no more than

bolstering evidence to show that its application is otherwise well-grounded.⁴

Contract terms

[16] It is necessary to give some background as to the operation of the contract. It is common ground that Ocean King Enterprise Ltd did carry out work for Concast West Ltd between April and December 2015, that it charged $230,261.97 for that work, and to date has been paid $150,960.32. The parties, however, have not troubled themselves with giving evidence as to when any contract between the parties was made, whether the contract was in writing or oral, and what the terms of the contract were. I was advised by counsel that the contract was oral, although I was not told when the contract was entered into.

[17] I am left to draw some inferences:

(a) In the absence of any evidence as to express terms, there is no provision in the contract under which Concast West Ltd was entitled to hold retentions.

(b) In the absence of any evidence that there was an agreed price for the work, it appears that Ocean King Enterprise Ltd was entitled to charge a reasonable price for the work it carried out.

(c) In the absence of any evidence, there is no provision that in default of payment Concast West Ltd was to pay any interest on unpaid sums.

⁴ AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389, (2008) 19 PRNZ 13 at [8].

(d) In the absence of any evidence, there is no provision in the contract under which Concast West Ltd was to pay any debt collection costs incurred by Ocean King Enterprise Ltd. Of course, if Ocean King Enterprise Ltd had sued for the unpaid debt, a court would have a discretion to award interest under the District Courts Act or the Judicature Act. The point I am making is that there is no evidence of contractual terms allowing interest to be charged or debt collection costs to be recovered.

[18] Ocean King Enterprise Ltd inserted this wording into its invoices:

Terms and conditions of sale:

Payment of our service is due within seven days of this invoice unless otherwise agreed. Interest may be charged on overdue accounts from the date payment falls due at 2 per cent interest per Months. The client shall be liable for all cost statement of facts collection and legal fees incurred by Ocean King Enterprise Ltd in recovering amounts payable.

[19] Given the absence of any contractual terms to that effect, the provisions on the invoices have been added after the parties contracted. There is no evidence of any course of dealing between the parties under which it could be considered that this wording had become part of the parties’ contractual terms. It is arguable for Concast West Ltd that under the contract it is not liable to pay contractual interest or to pay debt collection costs.

[20] I have mentioned that because the debt claimed by Ocean King Enterprise Ltd in part includes claims for interest and debt collection costs. It claims $5,575.00 interest and $18,041.52 for debt collecting costs. I find that Concast West Ltd has genuine grounds for disputing its liability for these sums, given that they do not appear to be supported by contract terms on the evidence available at present. I add that even if debt collecting costs were recoverable, I would require to be satisfied as to the reasonableness of the amount claimed - $18,041.52.

Is there a genuine and substantial dispute as to the charges for work carried out?

[21] The real matters in dispute are whether Concast West Ltd has shown either an arguable case for disputing its liability for the balance sum of $79,301.65 and also whether it has shown clear and persuasive grounds for a counterclaim.

[22] In the first affidavit in support of its application, Concast West Ltd exhibited invoices from Ocean King Enterprise Ltd, from September onwards. These invoices have handwritten notes on them which generally say: “Payment on hold. There are not enough supporting documents” with the date of the notation added. The invoices show charges for tasks carried out by Ocean King Enterprise Ltd for the job at

178 McLeod Road. They show the date the work was carried out, the particular machinery used, the hours of work, the rate per hour, and then each invoice shows a charge for the particular day covered. In the affidavit by Ocean King Enterprise Ltd, its director shows all the invoices. In addition, he has attached to each invoice documents which Ocean King Enterprise Ltd contends support the charges made in the associated invoice.

[23] The contest here is as to the position taken by Concast West Ltd, as recorded on its invoices, that there are not enough supporting documents. In short, it is taking the point that Ocean King Enterprise Ltd cannot prove that it carried out all the work for which it has claimed payment. In its affidavit Ocean King Enterprise Ltd exhibited all the invoices with supporting documentation. In its written submission for the hearing, Concast West Ltd presented an analysis of the invoices and the associated documents. This analysis went to show that there was overcharging of

$5,380.00 on invoices and that there was no documentation to support the claims, showing a deficiency of $182,809.30. That was said to show that there was a genuine dispute as to the liability of Concast West Ltd.

[24] In submissions counsel for Concast West Ltd went through the carefully prepared schedule and also a chronology of invoices. As she progressed, it became apparent that there was little substance in the complaints of overcharging and insufficient supporting documentation. For the first invoice, the point was taken that

time records showed that the time spent on the job was 8½ hours for the first 2 days and 9 hours for the third day, whereas the correct time was said to be 8 hours each day resulting in an over-claim of 2 hours. Notwithstanding that apparent over- charging of 2 hours’ work for a total sum of $130.00, it became clear that later Ocean King Enterprise Ltd had, if anything, under-charged the hours it had worked. The

$130.00 was, by itself, trifling.

[25] There were also said to be insufficient supporting documents. When this was examined it was found that there was adequate verification of the charges made. For example, in many cases Ocean King Enterprise Ltd attached dockets for materials from suppliers, showing that quantities of metal had been despatched and taken by Ocean King Enterprise Ltd with the docket identifying the job as “Te Atatu” or “McLeod Road”. The reference to “Te Atatu” was said to be insufficient identification. That is when it became apparent to me that Concast West Ltd was very much into quibbling over matters. There was no evidence that Ocean King Enterprise Ltd was carrying out any work in Te Atatu other than at the site of Concast West Ltd at 178 McLeod Road. Similarly, for an invoice for work carried out in May 2015 (on p 15 of the bundle), objection was taken to claims for delivery of metal although there was adequate supporting documentation.

[26] As counsel progressed, I challenged her to show me any charge by Ocean King Enterprise Ltd which was not in fact supported by documentation. She was unable to do so. Again, the matter was no more than quibbling. As an example, issue was taken with an invoice for work carried out during June 2015. There was a challenge to a charge for 3 hours’ work on 9 June 2015 by reference to a diary – clearly a driver’s diary recording his work on that day. That work showed the driver starting at 7:00am and finishing at 11:30am. That was sufficient to show at least

3 hours’ work. As it happens, at the bottom of the diary note there was a record that a further three loads were taken away from the McLeod Road site by another driver named “Eric”. The diary had been completed by a driver called “Sam”. Ocean King Enterprise Ltd may not have charged for all the work it carried out in the month of June. If anything, Concast West Ltd may have done fairly well by being under- charged for the work that day.

[27] Similarly, there was a challenge to the work recorded in the diary notes on

10 June 2015. The driver concerned had recorded having started work at Dairy Flat. I take “Dairy Flat” to be a reference to the refuse facility at Dairy Flat. It makes sense that material excavated from the site at 178 McLeod Road would be taken to the facility at Dairy Flat. Again, Concast West Ltd quibbled, saying that I could not take such judicial notice for the hours charged for 10 June 2015. There was also a supporting invoice from Ocean King Enterprise Ltd’s sub-contractor, Legand Management Ltd, for work carried out on the same date. Ultimately, counsel did not persist with trying to show that there was no supporting documentation for the invoices by Ocean King Enterprise Ltd.

[28] In submissions in response, counsel for Ocean King Enterprise Ltd referred to some of the supporting documents, showing that that had been signed for on behalf of Concast West Ltd. But not all of the supporting documents carry a signature from someone acting on behalf of Concast West Ltd. The point remains that to the extent that anyone acting on behalf of Concast West Ltd has signed off work sheets, that shows approval for the work recorded and puts that beyond dispute. Equally, I am satisfied that the supporting documents relied on by Ocean King Enterprise Ltd can be used to show that the work claimed for has been carried out.

[29] I cannot see any basis upon which Concast West Ltd could reasonably argue that there is ground for dispute for the work charged for in the invoices of Ocean King Enterprise Ltd. There are some bolstering signs to support that conclusion. Concast West Ltd has not adduced any admissible evidence that during the contract it raised any questions as to the correctness of the amounts for which it had been invoiced. If it intended to be business-like about matters, I would ordinarily have expected that it would have checked the invoices when they came in and raised any queries. Instead, it seems to have made some payments to Ocean King Enterprise Ltd during the contract, although never paying all invoices in full, notwithstanding that there was no provision for retentions. At the end of the contract, when the work has been done, it chose to take the point that documentation may be inadequate.

[30] It has also raised doubts as to its bona fides in disputing the debts by taking a point - before proceedings were issued – that it was not the party that contracted with

Ocean King Enterprise Ltd. It contended that the correct debtor was another company, Concast Construction Ltd. That was not pursued at the hearing, but its resort to deflecting the claim by suggesting that other associated companies may be liable, is consistent with it using delaying tactics.

[31] It is apparent that Concast West Ltd is tight-fisted and reluctant to pay its bills as they fall due, but it has not satisfied me under s 290(4)(a) that there is any reasonable ground on which it can dispute that the work charged for in the invoices of Ocean King Enterprise Ltd was carried out.

Counterclaim

[32] Concast West Ltd alleges that the work that Ocean King Enterprise Ltd carried out was defective: the piles on site were installed in the wrong places. I have excluded as hearsay plans intended to show that the piles were installed in places other than what was required in the building plans. At this stage, the matter is little more than assertion. Concast West Ltd did identify from the work sheets of Ocean King Enterprise Ltd that operators of Ocean King Enterprise Ltd did carry out drilling work. I refer in particular to work sheet records for the period 12 October

2015 to 15 October 2015. The evidence, at the highest, does no more than show that Ocean King Enterprise Ltd did drilling work. It does not show that Ocean King Enterprise Ltd was responsible for choosing the sites for the piles. That is normally a design decision. Ocean King Enterprise Ltd has charged its staff out at $35.00 per hour. That is an understandable charge-out rate for a machine operator, but it is not the kind of charge one would expect to see for structural design work. It is general practice that surveyors are engaged to identify the sites for foundation works. It does not appear that Ocean King Enterprise Ltd was required, as part of its contract, to identify the sites for piles. I would have expected evidence from those who were on site at the time that the piles were drilled to explain how piles were drilled in places now contended to be wrong.

[33] I bear in mind that in terms of the Court of Appeal’s decision in Covington

_Railways⁵ _{that there must be clear, persuasive grounds. At this stage the}

⁵ Covington Railways Ltd v Uni-Accommodation Ltd, above n 3.

counterclaim allegations are little more than assertions. I accept the point made by Ocean King Enterprise Ltd, relying on Clemence Drilling Contractors Ltd v Anglo Pacific International (1998) Ltd⁶ that mere association with something that has gone wrong is not by itself enough to create grounds for a counterclaim. I would expect the evidence to be more persuasive than that presented here for Concast West Ltd to show that it has anything by way of a set off or grounds for abating the price to be paid. I am satisfied that there is not any proper ground for disputing the liability of

$79,301.65.

Adequacy of statutory demand

[34] At the outset of the hearing I raised with counsel for the respondent the adequacy of the statutory demand. I was concerned that that demand did not adequately set out for Concast West Ltd how the alleged debt was made up. It is apparent from the first affidavit in support of the application that Concast West Ltd appreciated that the claim made against it was for work carried out at 178 McLeod Road, Te Atatu. After all, it exhibited invoices totalling $101,875.77 for work carried out from September 2015 onwards. Nevertheless, I consider that there has been some embarrassment to Concast West Ltd in the debt not being adequately identified. To a certain extent, that has been remedied during the proceeding by Ocean King Enterprise Ltd putting in evidence all its invoices with its supporting documentation. Only then did it become clear that there was an adequate basis for the charges made.

[35] I accept also that the statements in the invoices attached to the applicant’s first affidavit that there were not enough supporting documents indicates that it did receive some supporting documents. It therefore had some foreknowledge of the debt claimed against it. Where Concast West Ltd has not been adequately informed is that it did not appreciate that a claim was being made against it for interest and it did not know the amount of the debt collecting costs. Any prejudice to it from that

_{has been addressed by my disallowing those claims.}

6. Clemence Drilling Contractors Ltd v Anglo Pacific International (1998) Ltd, HC Christchurch, M426/01, 21 March 2002, Master Venning.

[36] As to any prejudice from not having the debt fully set out in the statutory demand, that matter can be addressed by an adjustment as to the normal award of costs that would be made. In taking that approach I am applying s 290(5) of the Companies Act:

A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.

Outcome

[37] The irregularities in the statutory demand can be addressed by reducing the amount claimed under the statutory demand to the sum of $79,301.65. With that adjustment, I set aside the statutory demand except for the sum of $79,301.65.

[38] I make an order under s 291 of the Companies Act that Concast West Ltd is to pay to Ocean King Enterprise Ltd the sum of $79,301.65. If payment is not made by the end of 22 August 2016, Ocean King Enterprise Ltd may begin an application for the liquidation of Concast West Ltd.

Costs

[39] Ms Tabb suggested costs on a 1A basis. That is a reduction from normal 2B costs. That reduction is made on account of the clumsiness in the statutory demand. Ms Lim accepted that that would be appropriate. I order costs accordingly. If there is any dispute as to quantum that can be referred to me.

[40] I record that the hearing took one day.

.......................................

Associate Judge R M Bell