Rhinds Company Limited v Beattie Air Conditioning Limited [2016] NZHC 252 (24 February 2016)

Last Updated: 11 March 2016

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2015-409-000599 [2016] NZHC 252

BETWEEN	RHINDS COMPANY LIMITED Applicant
AND	BEATTIE AIR CONDITIONING LIMITED Respondent

Hearing:	15 February 2016
Appearances:	J W A Johnson and G J C Carter for Applicant C M Ruane for the Respondent
Judgment:	24 February 2016

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

_{on statutory demand}

Introduction

[1] The applicant, Rhinds Company Ltd (“Rhinds”), applies to set aside a statutory demand for $148,462.59 issued by the respondent, Beattie Air Conditioning Ltd (“Beattie”). Beattie designs and installs residential, commercial refrigeration and heating, ventilation and air conditioning systems. The applicant provides international cargo services.

The dealings between the parties

[2] In August 2014 Beattie provided Rhinds with a quotation for the supply, installation and commissioning of three cool rooms and a freezer room in premises at Christchurch International Airport. Part of the work involved re-installation of equipment already owned by Rhinds. Rhinds accepted the quotation. The parties accept that the contract is subject to the provisions of the Construction Contracts Act

_{2002 (the Act).}

RHINDS COMPANY LIMITED v BEATTIE AIR CONDITIONING LIMITED [2016] NZHC 252 [24 February

2016]

[3] Beattie effected the installation. In the course of the installation, some variations were agreed to. From November 2014 to February 2015, Beattie made progress claims for the quoted work and variations. A final tax invoice was issued on 18 February 2015. Rhinds did not keep up with payment of the invoiced sums. Beattie issued monthly invoices for interest calculated on the balance in accordance with the quotation.

[4] Beattie chased payment of the balance and was informed at various times from February to May 2015 that Rhinds was involved in a commercial process with Christchurch International Airport Ltd (“CIAL”) which was affecting the ability of Rhinds to pay. Rhinds was clearly looking to obtain funds from CIAL to fund payments.

[5] Rhinds had not taken issue with the quality of Beattie’s work – to the contrary, on 20 February 2015, Brent Paulsen, a director of Rhinds, had recorded in an email to Andrew Beattie, a director of Beattie, that:

As I have stated to you, I have no problem with your work ... and sincerely appreciated the high degree of workmanship and time at which you carried it out.

[6] On 25 May 2015, Mr Beattie sent a text to Mr Paulsen threatening action under the Act following discussions with a lawyer.

[7] In the weeks which followed, Rhinds, in response to further pressing by Mr Beattie, still made no payment but referred to dealings and meetings with CIAL. On 16 June 2015, Mr Paulsen, in a text to Mr Beattie, stated that he was working with CIAL on Beattie’s additions “over and above the quotation” (being an apparent reference to charges for variations). Mr Paulsen sent similar messages in the following weeks. Mr Paulsen referred to discussions which were taking place with CIAL about CIAL’s acquisition of some or all of the units.

[8] In mid-July Mr Beattie threatened legal action failing payment of the amount by 17 July 2015, which, with further delay at the Rhinds end, he extended to 24 July

2015. In a text sent by Mr Paulsen to Mr Beattie on 24 July 2015, the former stated,

“Essentially without all the history the result is CIAL have agreed to pay the bill. They sent a letter today confirming the details of our meetings etc....”

[9] The apparent progress soon halted in late-July 2015.

[10] When 24 July 2015 passed without payment, Mr Beattie, on 28 July 2015, sent an email to Mr Paulsen recording:

Thanks for the update but as I said last week we required payment by the end of last week.

Ring me tomorrow.

I will now refer this to my lawyer as it is well over due and we will be claiming all costs.

[11] The following day, Mr Paulsen responded by email saying:

I have had a conversation with CIAL. They have had the chillers and installation inspected and the report back is very alarming.

There are some serious issues with the installation and the CIAL is now getting a second opinion in an act of fairness. I have offered to fly a consultant in refrigeration down from Akl later this week to get a third opinion.

If what is reported is fact we have a serious problem with your installation, and no further payment will be made until it is resolved.

It’s [sic] looks that CIAL will need to carry out considerable re work if they are to lease them back to ICE, hence bringing them up to Best Practice Operational order.

I will keep you posted.

[12] Mr Beattie immediately responded that, from his standpoint, Mr Paulsen’s email appeared to be another tactic to stall payment. He noted that he was unaware of any issues at that point and had not received any service calls to date. In subsequent emails, Mr Paulsen spoke of forwarding reports on the installation when they were received. He stated that there was a dispute regarding “overruns” which had been brought to Mr Beattie’s attention on several occasions with “concerns itemised”.

[13] In the weeks which followed, Rhinds did not forward to Beattie either details of the overrun concerns or a full report on the installation. Rather, in late-August

2015, Mr Paulsen provided to Mr Beattie what appears to be “Appendix A” to a report by Active Refrigeration entitled “Plant Assessment”. It appears that the report followed an on-site assessment on 12 August 2015 with material collated on 19

August 2015, both dates occurring after Mr Paulsen had said on 29 July that reports on the installation had already been received.

[14] Mr Beattie completed a detailed response to the various assertions in the

Active Refrigeration report, which was sent to Rhinds’ solicitors. On 9 September

2015, Beattie issued its statutory demand, the subject of this proceeding.

The application to set aside the demand

[15] By its application to set aside the statutory demand, Rhinds asserted three grounds, which I summarise:

(a) There is a substantial dispute as to whether or not a debt is owing or due because:

(i) the invoiced work was defective; and

(ii) the invoiced work exceeded the original quoted price.

(b) Rhinds has a significant set-off, by reason of the disputed items, which will significantly reduce any arguable claim of Beattie.

(c) It is inappropriate to use a statutory demand as a debt collection device.

[16] Rhinds filed one affidavit in support of its application, being that of Mr Paulsen. Mr Paulsen explained that the application was made because the statutory demand relates to invoices which are disputed by Rhinds. He exhibited two documents, being the original quotation from August 2014 and the appendix

from the Active Refrigeration report of August 2015. In the final four paragraphs of his brief affidavit, Mr Paulsen deposed:

6. The total amount paid by ICE to Beattie at this point is $376,106.83.

It is accepted by ICE that there were some variations agreed during the course of the installation. However, given the quality of the

installation relative to the original quoted amount, ICE does not

believe that Beattie is entitled to any further payments then [sic] those already made by ICE. The total amount that Beattie is claiming for the contract work is $423,130.98 plus GST. It is also claiming interest on the amount that ICE has refused to pay, making a total sum of $521,805.07.

7. ICE has refused to pay the final invoices that Beattie has issued.

ICE has raised the concerns it has with Beattie regarding the installation of the units. Those concerns have been, for all intents

and purposes, rejected by Beattie.

8. ICE now wishes to deal with this matter via the adjudication process under the Construction Contracts Act. I understand that the total time that process will take is approximately 2 months. Accordingly, if the adjudication process confirms Beattie is entitled to further payment under the contract, then any delay in payment for Beattie will be minimal. It is accepted by ICE that, if Beattie is able to prove its position then it will have a right to claim interest for that period.

9. In summary, ICE is claiming that it should not have to pay the final invoices under the contract due to the defective installation by Beattie. It says that the statutory demand should be set aside.

The opposition

[17] Beattie filed a notice of opposition. It also filed a detailed affidavit of Mr Beattie exhibiting 75 pages of the documentary records of dealings between the parties. I have drawn substantially from that narrative affidavit and the exhibited documents in setting out the above history of dealings between the parties.

Reply evidence

[18] Mr Paulsen filed a reply affidavit. The affidavit clarified some matters. Mr

Paulsen deposed:

(a) On 29 July 2015 he had received from CIAL correspondence setting

out CIAL’s valuation of the chillier and freezer units, including an

assessment of maintenance required. Mr Paulsen explains that Rhinds then engaged Active Engineering to carry out its assessment.

(b) He takes issue with Mr Beattie’s observation that Rhinds had failed to indicate what its concerns were regarding cost overruns, explaining that Rhinds takes the position that the onus is on Beattie to justify the cost overruns.

(c) He is aware that some variations were agreed “on an informal basis” but he is not aware of any documentation regarding the variations. He deposes that he is “unsure whether the variation in contract price is explained by that”.

(d) He gives examples of items charged as variations by Beattie which he says were not covered by exclusions in the original quotation and/or should have been included as part of the quotation.

(e) It is because of Rhinds’ newly acquired knowledge that the work undertaken was defective that Rhinds now has a “far greater degree of scepticism for these variations”.

(f) His view is that Rhinds is not entitled to charge interest on any outstanding balance because of how much Rhinds has already paid and because of the defective work involved.

(g) Whereas Rhinds initially wished to have the issues dealt with through an adjudication process under the Construction Contracts Act, Rhinds now prefers (with this application ready for hearing) to have this application dealt with first.

There is a debt due and owing

[19] By the terms of the contract, payment became due on the 20^th of the month following invoice.¹ Rhinds accepts that Beattie served four payment claims pursuant to s 20 of the Act. Rhinds also accepts that it did not provide a payment schedule to Beattie within 20 working days after the payment claims were served. Section 22 of

the Act provides:

22 Liability for paying claimed amount

A payer becomes liable to pay the claimed amount on the due date for the payment to which the payment claim relates if—

(a) a payee serves a payment claim on a payer; and

(b) the payer does not provide a payment schedule to the payee

within—

(i) the time required by the relevant construction contract; or

(ii) if the contract does not provide for the matter, 20 working days after the payment claim is served.

[20] The Act, through s 23, provides consequences where the payer has become liable for paying the amount claimed and fails to pay that amount (or any part of it) on the due date. Section 23(2) of the Act provides

23. Consequences of not paying claimed amount where no payment schedule provided

...

(2) The consequences are that the payee—

(a) may recover from the payer, as a debt due to the payee, in any court,—

(i) the unpaid portion of the claimed amount; and

(ii) the actual and reasonable costs of recovery awarded against the payer by that court; and

(b) may serve notice on the payer of the payee’s intention to suspend the carrying out of construction work under the construction contract.

1. The parties opted for an express term in relation to the due date for payment in place of the default provision under Construction Contracts Act 2002, s 18.

First and second ground of opposition – a substantial dispute as to whether or not a debt is owing or due and set-off

The scheme of the Act

[21] The Act constitutes a work of law reform, addressing problems which had arisen in the construction industry in relation to payments and dispute resolution. The purpose of the Act is captured in s 3:

3 Purpose

The purpose of this Act is to reform the law relating to construction contracts and, in particular,—

(a) to facilitate regular and timely payments between the parties to a construction contract; and

(b) to provide for the speedy resolution of disputes arising under a construction contract; and

(c) to provide remedies for the recovery of payments under a construction contract.

[22] Against the background of these purposes, the Court of Appeal in Watts & Hughes Construction Ltd v Complete Siteworks Co Limited considered the consequences of not serving a payment schedule by reference to the stated purposes.²

Wild J, delivering the judgment of the Court, said:

[33] The Draconian consequences for Watts & Hughes of not serving a Payment Schedule by 27 March ... are confirmed by two judgments in particular. The first is the decision of this Court in Salem Ltd v Top End Homes Ltd.³ Delivering this Court's judgment Panckhurst J stated:

What is plain is that ss 20 to 23 of the Act are designed to facilitate regular and timely payments between the parties to a construction contract. If a property owner does not respond to a payment claim by serving a payment schedule, then the contractor is entitled to recover the amount of his claim as a debt due. Put colloquially, the payer is under an obligation to pay first and argue later. This, we are satisfied, is the intention of the legislation. No doubt it reflects the philosophy referred to earlier that cashflow is the very life blood of the building

² Watts & Hughes Construction Ltd v Complete Siteworks Co Limited [2014] NZCA 564, (2014)

_{22 PRNZ 397.}

³ Salem Ltd v Top End Homes Ltd CA169/05, 12 December 2005 at [22].

industry. Contractors (and their sub-contractors in turn) are entitled to be promptly paid where they have invoked the payment regime under the Act and the payer has not responded as the Act requires.

[34] Second is the judgment of the High Court in Marsden Villas Ltd v Wooding Construction Ltd.⁴ Toward the end of his judgment Asher J explained:

[111] The non-provision of the payment schedule is one of the crucial hinges of the Act. The structure appears to be that there will be absolute and irreversible consequences resulting from the non- provision of such a payment schedule. This appears to be consistent with the purpose of the Act to facilitate regular and timely payments, and the approach of the Court of Appeal in Canam. In Canam the focus was on the provision of the progress payment claim, rather than the provision of payment schedules. However, it appears to have been the assumption that the severe consequences of the non-provision of a payment schedule in time were absolute.

The significance of s 79 of the Act

[23] Section 79 of the Act provides:

79 Proceedings for recovery of debt not affected by counterclaim, set-off, or cross-demand

In any proceedings for the recovery of a debt under section 23 or section 24 or section 59, the court must not give effect to any counterclaim, set-off, or cross-demand raised by any party to those proceedings other than a set-off of a liquidated amount if—

(a) judgment has been entered for that amount; or

(b) there is not in fact any dispute between the parties in relation to the claim for that amount.

[24] The Act did not provide further definition of the expression “any proceedings for the recovery of a debt” as used in s 79. Those pursuing payment pursuant to a payment claim from an individual might have bankruptcy notices issued. Those pursuing companies might issue statutory demands under s 289 Companies Act

_{1993. Conflicting decisions emerged.}⁵

⁴ _{Marsden Villas Ltd v Wooding Construction Ltd [[2006] NZHC 569; 2007] 1 NZLR 807 (HC).}

⁵ In Volcanic Investments Limited v Dempsey & Wood Civil Contractors Limited (2005) 18 PRNZ

97 (HC), Randerson J holding that “proceedings for the recovery of a debt” in s 79 include the

[25] The issue was resolved by the Court of Appeal in its judgment in Laywood v Holmes Construction Wellington Limited.⁶ The Court of Appeal approved the decision of this Court in Volcanic Investments Limited v Dempsey & Wood Civil Contractors Limited,⁷ over-ruling a conflicting authority. Adopting the conclusion of Randerson J, the Court held that a court is prohibited from giving effect to any counterclaim, set-off or cross-demand except in limited circumstances (defined in s

73 itself) the prohibition arising because “proceedings for the recovery of the debt” in s 79 of the Act include the issue of the statutory demand (and, by direct parallel, a bankruptcy notice). The Court noted:

[63] If the contrary view were to be adopted, the efficacy of the s 73 process would, in our view, be undermined. Parties to construction contracts could refuse to pay an amount ordered by an adjudicator, and resist bankruptcy notices or statutory demands in relation to the debt, on the basis that they had a counterclaim, set-off or cross- demand. The effect of this would simply be to recreate similar problems to those which led to the enactment of the CCA, albeit in a different context.

[26] Accordingly, the authorities, including importantly Laywood establish that s 29 of the Act will generally prohibit a Court from giving effect to any counterclaim, set-off or cross-demand when a statutory demand (or bankruptcy notice) is issued in reliance upon a payment which has become due and owing under the regime of the Act.

[27] The single exception to the s 79 prohibition, as recognised by the Court of Appeal in Laywood, is where the payer has a set-off for a liquidated amount and either judgment has been entered for that amount or there is not, in fact, any dispute in relation to the claim for that amount.⁸ This exception, given the evidence, does not apply in this case. Mr Johnson responsibly did not raise it as a matter to be

_considered.

statutory demand. Compare with Silverpoint International Limited v Wedding Earthmovers Limited HC Auckland CIV-2007-404-104, 13 May 2007 whence Associate Judge Doogue found that the statutory demand procedure was not a proceeding for the recovery of a debt. See also the review of the conflicting authority in Geoff Bayley and Tómas Kennedy-Grant A Guide to the Construction Contracts Act (2^nd ed, Rawlinsons Media Limited, Auckland. 2009) at [24.5.2].

⁶ Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35, [2009] 2 NZLR 243, the

Supreme Court dismissing an application for leave to appeal [2009] NZSC 44, [2009] 2 NZLR

_243.

⁷ _{Volcanic Investments Limited v Dempsey & Wood Civil Contractors Limited, above n 5.}

⁸ Construction Contracts Act, s 79, set out at [23] above.

[28] The evidence given for Rhinds by Mr Paulsen indicates that Rhinds intends to have its claims made the subject of an adjudication under the Act but, for the time being, Rhinds has preferred to suspend steps towards adjudication while it pursues relief by this application.

A further exception to the s 79 prohibition?

[29] In his written synopsis Mr Johnson did not develop submissions as to the existence of a further exception to the s 79 prohibition. It appeared that the single point advanced in writing to overcome Rhinds’ failure to serve a payment schedule was captured in the following words:

...at the time those payment claims were provided by the respondent, the extent of the deficiencies in the respondent’s work were unknown. It is submitted that the relatively high value of the variations to the original contract were only thrown into stark relief once it became clear that the work carried out by the respondent was deficient.⁹

[30] Under the legislation, the fact that a payer becomes aware of possible items of counterclaim or set-off only after the lapse of the period of response to a payment claim, does not undo the liability. It arose through non-payment of the claim and non-provision of a payment schedule and remains. What the payer is left with is its right to pursue claims in relation to any defective work or excessive variations including through the adjudication process if necessary, but not by cutting across the “pay now, argue later” regime.

[31] In his oral submissions Mr Johnson did not particularly develop the written submission which I have quoted, preferring to put the proposition that there is a further exception to the s 79 prohibition on a different basis, which I will come to at [40] below.

[32] Mr Johnson then advanced in his oral submissions the proposition that the case law at most establishes in relation to statutory demands that the s 79 prohibition

⁹ On the evidence, Rhinds has not established a particular difficulty in raising issues as to the value of variations at the time the payment claims were delivered. Even Mr Johnson’s reference to the high value of variations (even if not their full extent) being “thrown into stark relief” at a later point implicitly recognises that possible issues as to the variations were either known to Mr Paulsen or reasonably able to be detected by Mr Paulsen well before July 2015.

will apply where the sum claimed under an unmet payment claim has been the subject of Court adjudication (such as through a debt recovery proceeding under s

23(2) of the Act).

[33] The single authority referred to by Mr Johnson for this proposition is the Court of Appeal’s judgment in Laywood.¹⁰ As Mr Johnson notes, in that case the builders had submitted a final claim under the Act. When the developers failed to pay the final claim the builders referred the matter to adjudication. There was an award which was still unmet. The builders then applied to the District Court under s 73(2) of the Act. Judgment was entered for the builders (after a delay on account of judicial review proceedings).

[34] From this factual background, Mr Johnson submits that the Court of Appeal’s statements as to the s 73 prohibition in Laywood are limited to cases where the contractor has obtained a District Court judgment based on an unmet payment claim.

[35] I reject Mr Johnson’s submission. There is nothing in the judgment of Court of Appeal in Laywood which renders relevant such a factual distinction. The Court of Appeal recognised that the issue of a statutory demand and the issue of a bankruptcy notice are both “proceedings for the recovery of a debt” in terms of s 79 of the Act. The s 79 prohibition expressly applies to s 23 (as well as to ss 24 and 59). The s 79 prohibition therefore applies to all the s 23 consequences of not paying the claimed amount where no payment schedule is provided. The contractor’s right of recovery under s 23, as enhanced by the s 79 prohibition under s 79, applies. That is so, whatever form of “proceeding for the recovery of a debt” the contractor elects to adopt.

[36] Mr Johnson did not refer me to the facts of other decisions dealing with recovery proceedings. Brief research of the case law indicates at least two decisions

_{which are relevant.}

¹⁰ Above at Laywood v Holmes Construction Wellington Ltd, above n 6.

[37] I have already, at [22] above, quoted from the Court of Appeal’s judgment in

Watts & Hughes Construction Limited v Complete Siteworks Company Limited.¹¹

That judgment was on an appeal from a judgment of Associate Judge Smith refusing an application to set aside a statutory demand.¹² The head contractor had failed to pay a progress payment claim or to serve a payment schedule in response. There is no suggestion in the recorded facts that the sub-contractor relied upon anything more than the s 23 consequences of the head contractor’s failure to make payment or to serve a payment schedule.

[38] Wild J, delivering the judgment of the Court, described the consequences for the head contractor by reason of its default in the terms set out at [22] above. His Honour observed that those are “absolute and irreversible consequences resulting from the non-provision of such a payment schedule”.¹³ The Court accordingly found that the head contractor was prohibited from advancing issues as to an underlying dispute which might affect Complete Siteworks’ claim. The Court upheld the

Associate Judge’s judgment and dismissed the appeal.

[39] The decision of the Court of Appeal in Watts & Hughes Construction is to be applied by this Court. On its facts it is directly applicable to the present case and I apply it. The s 79 prohibition under the Act applies in this case – Rhinds must pursue any counterclaim, set-off or cross-demand otherwise than in this proceeding.

Third ground of opposition – use of a statutory demand as a debt collection device

[40] For Rhinds, Mr Johnson submits that Beattie is illegitimately using a statutory demand as a debt collection device.

[41] The single authority cited by Mr Johnson is an oral judgment of Master Faire

(on the papers) in International Airline Training (NZ) Limited v Rohlig New Zealand

_Limited.¹⁴

¹¹ _{Watts & Hughes Construction Limited v Complete Siteworks Co Limited, above n 2.}

12. Watts & Hughes Construction Limited v Complete Siteworks Co Limited [2014] NZHC 1797 [High Court judgment].

¹³ Quoting the judgment of Asher J in Marsden Villas Ltd v Woodend Construction Ltd [2007] 1

_{NZLR 807 (HC) at [111].}

¹⁴ International Airline Training (NZ) Limited v Rohlig New Zealand Limited HC Auckland CIV-

[42] In that case, towards the conclusion of his judgment, his Honour observed:¹⁵

It is quite improper for the [statutory demand] procedure to be used as a debt collection device or as a device to embarrass a party in a situation where there is a contest as to liability for a given debt.

[43] The second half of that observation cannot be questioned – the existence of a substantial dispute as to the debt is the first ground of setting aside a statutory demand under s 290(4), Companies Act 1993.

[44] It is the first proposition (the impropriety of using a statutory demand as a debt collection device) which requires further consideration. The proposition had been further developed earlier in the Master’s judgment in this way:

[13] There is developing a trend where debt collectors use statutory demands as the first step in a process to recover a debt. The statutory demand procedure is not intended as a debt collection device. Its purpose is to provide the evidential foundation to support an application to appoint a liquidator in respect of a company. That follows from s 287 of the Companies Act 1993. One of the persons authorised to apply to appoint a liquidator, by virtue of s 241 of the Companies Act 1993, is a creditor of the company. A creditor, in terms of s 241 of the Companies Act 1993, includes both contingent and prospective creditors. A creditor will be successful if the creditor can show that the company is unable to pay its debts. It is for that purpose that the statutory demand is used. The reason that it is used is because non-compliance, in terms of s 287, presumes that the company is unable to pay its debts. Precise proof of the quantum of debt where a liquidator is appointed is a matter that will ultimately have to be determined by the liquidator of the company. The liquidator’s principal duties are defined in the Companies Act 1993 starting at s 253.

[45] I respectfully decline to follow the International Airline Training decision insofar as it appears to conclude that the issue of a statutory demand becomes improper solely by reason of it being used as a means of debt collection.

[46] The judgment of the Court of Appeal in Laywood recognises that, at least under the Construction Contracts Act, statutory demands and bankruptcy notices are

_{proceedings for the recovery of the debt, which therefore attracts the s 79}

_{2003-404-3464, 23 February 2004.}

¹⁵ At [16].

prohibition.¹⁶ In Laywood the Court of Appeal was required to examine competing approaches to what constitutes a proceeding for the recovery of a debt. As I have noted, the Court ultimately endorsed the approach adopted by Randerson J in Volcanic Investments.¹⁷ To reach that point it had also examined the decision of this Court in Silverpoint International Limited v Wedding Earthmovers Limited in which the Court concluded that the statutory demand is not a proceeding for the recovery of a debt under the Construction Contracts Act.¹⁸ The judgment, as quoted by the Court of Appeal in Laywood, continued:

[83] My conclusion is that while liquidation proceedings are de facto used to exert pressure on [a] company to pay their debts, the end in view and the objective of, such a proceeding is not a “proceeding for the recovery of a debt”. Therefore [a] preliminary step leading up to those proceedings, the issue of a statutory demand, cannot itself be a “proceeding” within the meaning of s 79.

This reasoning, having been quoted, was rejected by the Court of Appeal in

Laywood.

[47] In the light of these conclusions of the Court of Appeal, it is not open to this Court to follow International Airline Training insofar as that decision describes the use of a statutory demand for debt collection purposes as, of itself, improper.

[48] This approach is consistent with that endorsed by Wild J in Apple Fields Limited v The Trustees Executors and Agency Co of NZ Limited.¹⁹ In that case the respondent’s intention in making the statutory demand was to place pressure on the applicant to realise its secured assets and to pay the debt to the respondent. His Honour found that this did not constitute undue pressure as “[t]he legitimate purpose of a statutory demand is to obtain payment of a due debt”.²⁰

[49] In Waikato Business Equipment Limited v Taylor an application to set aside a statutory demand was advanced (relying on s 290(4)(c) of the Companies Act 1993)

_{partly on the ground that the respondent’s sole purpose was to attempt to recover the}

¹⁶ _{Laywood v Holmes Construction Wellington Ltd, above n 6.}

¹⁷ _{Volcanic Investments Limited v Dempsey & Wood Civil Contractors Limited, above n 5.}

¹⁸ _{Silverpoint International Limited v Wedding Earthmovers Limited, above n 5, at [77].}

¹⁹ Apple Fields Limited v The Trustees Executors and Agency Co of NZ Limited (1999) 13 PRNZ

_{387 (HC).}

²⁰ At 395.

debt.²¹ Having found that the evidence did not establish a substantial dispute as to the existence of the debt, Master Faire concluded in relation to the additional ground of the application:

[12] I agree with the comments of Wild J in Apple Fields Ltd v Trustees Executors and Agency Co of New Zealand Ltd 13 PRNZ 387, 395. He said:

The legitimate purpose of a statutory demand is to obtain payment of a debt due.

Accordingly, it cannot be improper for a creditor to make a statutory demand on a debtor in order to apply pressure to realise assets to pay a due debt. It will only be improper if some ulterior purpose that is improper and which might amount to an abuse of the Court’s processes that the Court would be justified in setting a statutory demand aside.

[50] In light of these observations of Master Faire in the Waikato Business Equipment case it may be that the reference in International Airline Training to “a debt collection device” were intended to import some impropriety beyond seeking to recover payment of a debt due.

Outcome – legitimacy of the demand

[51] To adopt the expression used by Wild J in Apple Fields Limited v The Trustees Executors, the purpose of the respondent in the present case, in issuing its statutory demand, was to obtain payment of a debt due.

[52] In Laywood the Court of Appeal, in implicitly recognising that the issue of some statutory demands may involve a degree of impropriety, observed:²²

This is not a case where a creditor has sought to use bankruptcy or liquidation proceedings to recover a small amount from a personal company which can plainly afford to pay it.

[53] The same observation applies in this case. The statutory demand is for

$148,462.59. There is evidence of delays from the outset on the part of Rhinds in making progress payments. There is evidence that Rhinds was for months in

_{negotiations with another party over a transaction or transactions from which Rhinds}

²¹ _{Waikato Business Equipment Limited v Taylor, HC Hamilton M 324-00, 6 June 2001.}

²² Laywood v Holmes Construction Wellington Ltd, above n 6, at [62].

was looking to fund payment of the sums owed to Beattie. Rhinds has not provided evidence as to its solvency. The information available (beyond the presumption of insolvency) suggests that a liquidation proceeding, if commenced, might succeed.

Overall outcome

[54] The applicant has not established a ground on which the statutory demand should be set aside. The application will be dismissed.

[55] It is appropriate that the Court order payment within a specified period on the terms permitted by s 291(1) Companies Act.

[56] It is appropriate that costs be reserved. At the conclusion of oral submissions

I enquired of counsel as to whether it was accepted that an award of costs based on a

2B calculation would be appropriate. Counsel accepted that. In asking the question, I had overlooked the provisions of s 23(2)(a)(ii) of the Act. Thereby one of the consequences of Rhinds not paying the amount claimed in the payment schedule was that Beattie may recover also the actual and reasonable costs of recovery as awarded by the court. In the circumstances I will reserve the determination of costs and disbursements. In that regard counsel are to file and serve memoranda (six page limit), with Mr Ruane’s submissions filed first and Mr Johnson’s within five working days thereafter. As agreed by counsel, I will then determine costs and disbursements on the papers.

Orders

[57] I order:

(a) The application dated 23 September 2015 is dismissed.

(b) The applicant shall pay the debt specified in the respondent’s statutory demand within 10 working days of the date of this judgment and, in default of such payment, the respondent may make an application to put the applicant into liquidation.

_{(c) Costs and disbursements are reserved.}

_{Associate Judge Osborne}

Solicitors:

Wynn Williams, Christchurch

C Ruane, Christchurch