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High Court of New Zealand Decisions |
Last Updated: 22 June 2023
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2022-404-001228
[2022] NZHC 2980 |
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BETWEEN
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ECTCH LIMITED
Applicant
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AND
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DENNIS & LEO BRADY CONSTRUCTION LIMITED
Respondent
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Hearing:
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1 November 2022
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Appearances:
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S Moore for Applicant
J M Glover for Respondent
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Judgment:
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14 November 2022
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JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 14 November 2022 at 4.30 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date..............................
ECTCH LTD v DENNIS & LEO BRADY CONSTRUCTION LTD [2022] NZHC 2980 [14 November 2022]
Introduction
[1] ECTCH Ltd1 applies to set aside a statutory demand pursuant to s 290 of the Companies Act 1993. ECTCH says that there is a substantial dispute as to whether the amount set out in the demand is due and owing. The contract at issue is a construction contract subject to the Construction Contracts Act 2002.2
[2] ECTCH is a property developer. The respondent, Dennis & Leo Brady Construction Ltd,3 is a construction contractor.
[3] The payment claims, the subject of the statutory demand, were sent by email by Brady Construction to the address accounts@eco-smart.nz.4 Brady Construction says that this was the standard email address it used to communicate with ECTCH in relation to invoices and payment claims.
[4] The key issue to determine is whether those payment claims were validly served in accordance with s 80 of the CCA and regs 9 and 10 of the Construction Contracts Regulations 20035 (service by email). ECTCH says that there was no valid service because the payment claims were not served at the email address stated in the relevant residential building contracts.
[5] No payment schedules were received from ECTCH within the statutory period. If the payment claims were validly served, then ECTCH cannot contend that there is a substantial dispute as to whether the amount in the statutory demand is due and owing. That is because of the “pay now, argue later”6 philosophy of the statutory scheme of the CCA and, in particular, s 23.
1 ECTCH.
2 CCA.
3 Brady Construction.
4 The accounts email address.
5 The regulations.
Factual background
[6] Brady Construction specialises in residential construction contracts. In 2019 and 2020 it worked with Eco-Smart Homes Auckland Ltd, now called ECTCH,7 in relation to various residential development projects in the Auckland and Franklin areas. In January 2020, Mr Ritesh Mani became the sole director and shareholder of ECTCH.
[7] Each of the relevant contracts contained the following clause:
Every notice given under this Building Contract (including Construction Contracts Act payment claims) will be sufficiently given if served at the address for service recorded in the Building Contract (except when written notice has been provided of a change of address). The parties also agree that information or notice may be provided using the parties’ email address recorded in this Building Contract.
[8] The email address recorded in the contracts is that of Mr Mani, namely ritesh@nzpropertyexpo.com. ECTCH says that this was the only valid email service address. It was not used to serve the disputed payment claims in this case.
[9] By November 2020, Brady Construction says that it was owed $915,947.45 by ECTCH. This is said to relate to invoices issued from May 2019 to September 2020. Brady Construction says that the invoices had not been queried and ECTCH (then Eco-Smart) had been paid by the ultimate purchasers in respect of the work.
[10] At the end of 2020, Brady Construction made demand on ECTCH (then Eco- Smart) in respect of the unpaid invoices. On 10 November 2020, a letter of demand was sent to Eco-Smart’s registered office.
[11] On 1 December 2020, the letter was re-sent to the email address ritesh@nzpropertyexpo.com.
[12] On 14 December 2020, a follow-up email was sent to the same email address noting the previous failure to respond and indicating that if no response was received the following day, Brady Construction would issue a statutory demand.
7 Eco-Smart Homes Ltd changed its name on 8 July 2021.
[13] A further follow-up email was sent by Brady Construction on 15 December 2020. On 16 December 2020, a response was received from ECTCH’s solicitors seeking further time in which to respond.
[14] On 18 December 2020, ECTCH’s counsel replied saying that the invoices referred to in the letter of demand were not “payment claims” under the CCA.
[15] Brady Construction accepts that its invoices did not qualify as payment claims under the legislation.
[16] In 2022, Brady Construction re-issued the invoices as payment claims which were sent by email to the email address accounts@eco-smart.nz (the accounts email address). Brady Construction says that this was the standard email address that it had used to communicate with ECTCH in relation to invoice and payment claims. The following payment claims were sent:
(a) 31 payment claims relating to eight different properties were sent to ECTCH on 18 March 2022. Each payment claim was sent individually. They were sent by email through Brady Construction’s accounting system, Xero;
(b) 30 payment claims relating to 13 different properties were sent to ECTCH on 25 March 2022. Each payment claim was sent individually by email through Brady Construction’s accounting system;
(c) 13 payment claims relating to five different properties were sent to ECTCH on 8 April 2022. Each payment claim was sent individually by email through Brady Construction’s accounting system.
[17] Brady Construction says that invoices sent to the accounts address previously had been paid without issue. It says that it used that email address for matters relating to accounts.
[18] No payment was received in relation to Brady Construction’s payment claims that were sent in March and April 2022. Brady Construction did not receive any payment schedules from ECTCH.
[19] On 28 April 2022, the solicitors for Brady Construction wrote to ECTCH’s solicitors advising that ECTCH had not provided a payment schedule by the due date and that therefore all invoices were payable in full without set-off or deductions (s 22 of the CCA). Mr Mani says that the payment claims first came to his attention upon receipt of that letter.
[20] By letter dated 9 May 2022, ECTCH’s counsel responded contending that the payment claims had not been served properly. It was contended that payment claims relating to 11 of the properties should have been served by post to a physical address in Rotorua or by email at ritesh@nzpropertyexpo.com. It was also contended that the payment claims relating to a further four properties should have been served by post to physical addresses in Auckland or by email at ritesh@nzpropertyexpo.com, and that the appropriate service address and/or email for payment claims relating to other properties was still being confirmed but the address used was not appropriate.
[21] On 25 May 2022, ECTCH issued payment schedules in respect of the payment claims. Brady Construction says that these are out of time.
[22] On 6 July 2022, Brady Construction issued a statutory demand against ECTCH in the sum of $915,947.45.
Relevant legal principles
[23] Section 290 of the Companies Act 1993 reads:
Court may set aside statutory demand
(a) made within 10 working days of the date of service of the demand; and
(b) served on the creditor within 10 working days of the date of service of the demand.
(a) there is a substantial dispute whether or not the debt is owing or is due; or
(b) the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c) the demand ought to be set aside on other grounds.
[24] The following principles apply to s 290 applications:8
(a) An applicant seeking to set aside a statutory demand is in a similar position to a party seeking to oppose an application for summary judgment or an applicant seeking to remove a caveat;9
(b) The applicant must show that there is a genuine and substantial dispute as to whether the debt is due. Mere assertion of a dispute is not sufficient. Material short of proof is required to support a claim that the debt is disputed;
8 AAI Ltd v 92 Lichfield Street Ltd [2015] NZCA 559, [2016] NZAR 1338.
(c) Where affidavit evidence conflicts, the Court should not attempt to resolve the conflict in the context of an application to set aside a statutory demand, particularly when issues of credibility arise.10 The Court should also be cautious of resolving complex legal issues due to the tight time constraints in such applications;11
(d) If there is an arguable dispute, the demand should be set aside, and the dispute resolved in a more appropriate context.12
Analysis and decision
Issue – Can consent to using the accounts email address be inferred?
[25] Section 80 of the CCA provides:
Service of notices
Any notice or any other document required to be served on, or given to, any person under this Act, or any regulation made under this Act, is sufficiently served if –
(a) the notice or document is delivered to that person; or
(b) the notice or document is left at that person’s usual or last known place of residence or business in New Zealand; or
(c) the notice or document is posted in a letter addressed to the person at that person’s place of residence or business in New Zealand; or
(d) the notice or document is sent in the manner (if any) prescribed in regulations made under this Act.
[26] Regulation 913 provides that in addition to the modes of service specified in s 80, any notice or other document is sufficiently served if it had been sent by email and the requirements of reg 10 are met.
[27] Regulation 10 provides that a notice or document may be sent by email if the information in the notice or document is readily accessible so as to be usable for subsequent reference, and the person to whom the information is required to be served
10 AAI Ltd v 92 Lichfield Street Ltd, above n Error! Bookmark not defined., at [19].
11 CBC Construction (Auckland) Ltd v Auckland Concrete Ltd [2019] NZHC 1104 at [7].
12 Industrial Group Ltd v Bakker, above n Error! Bookmark not defined., at [24]–[25].
13 Construction Contracts Regulations 2003.
or given consents to the information being given in an electronic form. Importantly, consent to receive any information by email can be inferred from a person’s conduct.14
[28] The provisions of s 80 are not mandatory nor exclusionary.15 Previous decisions have held that reg 9 is to be applied in a practical manner; if a document is served on a party in a different way to s 80 and the evidence satisfies the Court that the document has come to the attention of the party, then that is sufficient proof of service.16
[29] Here, there is no dispute that there was express consent to service by email. However, ECTCH says that it only ever consented to service at Mr Mani’s email address (i.e. specified in the residential contracts) and there is no basis for inferring consent to the use of the accounts email address that was actually used. The critical issue I have to address is whether it is reasonably arguable that consent to that particular email address cannot be inferred.
[30] As noted above, in summary applications of this kind the Court should not attempt to resolve conflicts in affidavit evidence, particularly where issues of credibility arise. However, the Court is not bound to accept uncritically every statement in an affidavit, and it is for the applicant to demonstrate that the dispute is a real and not insubstantial one.17
[31] The evidence originally filed by ECTCH in support of its application contains very limited and cursory evidence on the critical issue of service. The first affidavit of Mr Mani dated 19 July 2022 says only:
[6] On 28 April 2022, the respondents’ solicitors wrote to the applicant’s solicitors to say that the respondent was re-issuing payment claims it had previously sent to the applicant ...
14 Regulation 10(2)(b).
15 West City Construction Ltd v Edney (2005) 17 PRNZ 947 (HC) at [35]; Marsden Villas Ltd v Wooding Construction Ltd [2006] NZHC 569; [2007] 1 NZLR 807 (HC) at [93].
16 Marsden Villas Ltd v Wooding Construction Ltd, above n Error! Bookmark not defined.Error! Bookmark not defined., at [93].
17 Green & McCahill Holdings Ltd v Ara Weiti Development Ltd [2022] NZCA 218 at [83], referring to Eng Mee Yong v Letchumanan [1979] UKPC 13; [1980] AC 331 (PC) at 341. See also Barrett v IBC International Ltd [1995] 3 NZLR 170 (CA) at 175; AAI Ltd v 92 Lichfield Street Ltd, above n Error! Bookmark not defined., at [22].
[7] I was unaware that the respondent had issued payment claims to the applicant until after I received the letter.
[32] There was no evidence from ECTCH about what happened at the time the payment claims were sent in March/April 2022. Notably too, there was no evidence that ECTCH did not receive the payment claims, only that Mr Mani himself was unaware of them until after 28 April 2022.
[33] By contrast, the affidavit of Mr Leo Brady, for the respondent, contains substantial evidence on the question of service. Mr Brady says that invoices sent in 2019 and 2020 were re-issued as payment claims in 2022 and were sent by email to accounts@eco-smart.nz, which was the standard email address that Brady Construction used to communicate with ECTCH in relation to invoices and payment claims. He also says that invoices sent to that same email address previously had been paid without issue. He further noted that Brady Construction used the same email address for matters relating to accounts.
[34] The reply evidence from Mr Mani, dated 2 September 2022, did not challenge Brady Construction’s evidence in relation to any of these key points. In fact, it does not address the issue of service at all.
[35] In the applicant’s written submissions dated 18 October 2022, counsel contended that the accounts email address was monitored by ECTCH’s in-house accountant, who worked part-time, despite the fact that the email sign-off is “accounts team”. It was further contended that the payment claims, or at least their significance, were overlooked. However, as Ms Glover for the respondent pointed out, at the time those submissions were filed there was no evidence to support these assertions.
[36] In an obvious attempt to address this problem ECTCH filed a memorandum dated 31 October 2022 (the day before the hearing) seeking leave to file an affidavit of Ms Anusha Konala, the accounts manager for ECTCH. The affidavit was affirmed on 21 October 2022. In an attempt to explain why the affidavit was filed late, Ms Konala stated at [7] of the original affidavit:
[7] I had resigned from my role [accounts manager employed by ECTCH] on 31 March 2020 but returned on 1 June 2020. During that period of non-
employment, I was not available to draft the necessary affidavit. However, I have now been available since my re-employment.
[37] At the commencement of the hearing, counsel for ECTCH advised that he had received instructions that the date 1 June 2020 in [7] above was incorrect. The Court was advised that the correct date is June 2022. In this case the year date, whether 2020 or 2022, is significant. If Ms Konala did return to work on 1 June 2020 then there could be no legitimate reason for any delay in the filing of her affidavit since she would have been employed at the time of the critical events and presumably available to give evidence.
[38] At the hearing I granted leave to ECTCH to file an amended affidavit, changing the date to 1 June 2022. I also ruled that I would accept the late filing of the affidavit. However, as Ms Glover submitted at the hearing, the change in date raises further questions about the reliability of Ms Konala’s account.
[39] Ms Konala says that she received email invoices from the respondent on 18 March 2022, 25 March 2022 and 8 April 2022 respectively. Attached to those emails were the payment claims. Ms Konala says that these were not new invoices, that she recognised them as historic disputed ones and simply filed them away as disputed invoices. However, and critically, Ms Konala does not explain how it is that she received these emails in her capacity as accounts manager when, according to the then proposed date change, she was not at that time employed by ECTCH. She refers to the period March – April 2022 as a period of “non-employment”.
[40] As matters transpired, no amended affidavit has been filed. The Court did not receive any notification from the applicant as to the status of the amended affidavit by the deadline of Friday, 3 November 2022. Instead, and in response to a query from the Court, counsel for the applicant filed a further memorandum dated 8 November 2022 advising as follows:
[41] In her affidavit Ms Konala also asserts that Mr Mani directed that all formal correspondence was to be sent to him for action. She says that even if she had noticed the payment claims terms, she would not have known the importance of them as she is not trained to process payment claims. I note, however, that there is no direct evidence from Mr Mani as to whether he has directed all such formal correspondence be sent to him personally for action.
[42] In all the circumstances, I find that I should place little weight on the evidence of the applicant. It is far from satisfactory and I have real concerns about its reliability and/or probative value. I do note, however, that it is not disputed that the payment claims were sent by Brady Construction to the accounts email address, that it was received at that address and that the accounts manager understood them to be invoices.
[43] On that basis, I turn to address the critical issue of whether consent to use the accounts email address can be inferred.
[44] The test is an objective one. I adopt the approach of Associate Judge Paulsen in Melbourne Ltd v Bartlett Concrete Placing Ltd, where his Honour held:18
Inferential reasoning involves the making of a conclusion based on existing information, data or evidence. The process is probabilistic and must be tested against the relevant applicable burden and standard of proof. What I must determine is whether a reasonable person having all the background knowledge of the parties would conclude that Melbourne had given its consent to receiving the payment claims by email. That requires consideration of the identities of the parties, their prior dealings, the manner in which they communicated with each other in the past, the content of those communications, and the context in which all of this occurred.
[45] The circumstances of this case are similar to that of Melbourne Ltd v Bartlett Concrete Placing Ltd. ECTCH and Brady Construction are commercial parties and parties to construction contracts of significant value. They have had dealings with each other since at least 2019. The various dealings, including the sending of invoices and the querying of payments, were conducted by email. The standard email address
18 Melbourne Ltd v Bartlett Concrete Placing Ltd [2022] NZHC 1786 at [37].
used for these communications was the accounts email address. In response to invoices sent by email to that accounts address, Brady Construction had on previous occasions been paid in full. Previous emails between the parties from the accounts address expressly refer to Ms Konala, the sender of the email, as the accountant for the company.
[46] In the circumstances, the accounts email address was the logical and reasonable address to use for the service of the payment claims. I am satisfied that ECTCH’s consent to the receipt of payment claims by email at the accounts email address can and must be inferred from its conduct (reg 10(2)(b)). It is not reasonably arguable that consent cannot be inferred.
[47] I reject Mr Moore’s submission that a distinction can properly be drawn between payment claims (with their significant “draconian” consequences) and invoices and correspondence. It is reasonable to expect that both invoices and payment claims would be taken seriously by the accounts department of ECTCH. Statutory demands can be served by email at an address “that is used by the company” (s 388(1)(d) of the Companies Act 1993).19
[48] I also reject the submission of ECTCH that to find inferred consent here would open the door to contractors exploiting relaxed service requirements to obtain “payment by ambush” for disputed debts. Here, there was no ambush. As explained by Mr Brady, there was a history of negotiation and correspondence in relation to the disputed invoices. The explanation for the delay in re-issuing the payment claims is a reasonable one (i.e. concerns about ECTCH’s solvency) and the 74 invoices sent in March and April 2022 were all sent individually and through Brady Construction’s Xero accounting system to ensure that any payments received were recorded.
[49] There is no evidence, and in particular no evidence from Mr Mani, contradicting Brady Construction’s claims that the accounts email address was the standard email address used for communication in relation to invoices and payment claims. If, as contended, Mr Mani had directed that all formal correspondence, including payment claims, were to be sent to him (or at least he was to be copied in),
19 See Upright Scaffolding Ltd v Pinnies Painters & Plasterers [2019] NZHC 1495.
then it is reasonable to expect that Mr Mani should have given that evidence. The very best that ECTCH can rely upon is the contention of Ms Konala (whose evidence is on its face not reliable) that it was “fairly typical” to “carbon copy” Mr Mani by way of the “service address” (i.e. ritesh@nzpropertyexpo.com).
[50] In terms of the principal objective of service generally, I note that Ms Konala, referred to in the evidence as the company accountant and in her own affidavit as “the accounts manager”, did receive the disputed invoice emails. She acknowledges she recognised they were invoices, although she says she thought they were historic disputed ones. It is surprising that she says that she did not open the underlying payment claims (a blue button had to be clicked on to view the invoice). It is equally surprising, for an accountant working in the construction industry, that she did not understand what a payment claim was. However, even if those contentions are correct (I cannot reach a conclusion at this stage), they are not determinative of the issue of whether it is reasonably arguable that consent cannot be inferred. A reasonable person would conclude that in the circumstances here there was a clear and reasonable expectation that service of the payment claims at the accounts email address would bring notice of the payment claims to the relevant company personnel. The email address was not a peripheral one and nor was it the email of a junior staff member. I note that under s 387 of the Companies Act 1993, legal proceedings can be served on an employee of a company at the company’s head office. The expectation is that the documents will be brought to the attention of the appropriate people.20
[51] The cases relied upon by ECTCH can readily be distinguished. Buchanan Construction Ltd v Watson21 concerned a contract for work on a residential property and the recipient of the email, Ms Watson (the individual homeowner), had no experience in the building industry. There was also no evidence that she had received the email at issue. The facts of this case are otherwise.
[52] Likewise, Dempsey Wood Civil Ltd v Concrete Structures (NZ) Ltd22 is quite a different case. In that case, no address for service was specified in the contractual
21 Buchanan Construction Ltd v Watson [2018] NZDC 4570.
22 Dempsey Wood Civil Ltd v Concrete Structures (NZ) Ltd [2022] NZHC 168.
documents, but the previous eight payment claims were sent to an email address for the accounts department at Dempsey Wood, as well as to a particular project manager. The ninth, and disputed payment claim, was sent solely to the individual project manager, who said that he overlooked it until the time for raising a payment schedule had expired. In that case there was no actual notice and the standard practice of sending emails to the accounts department had not been adhered to. It is a case of a payment claim “slipping through” as Ms Glover submitted. This is not such a case.
[53] For all these reasons I conclude that service of the disputed payment claims was validly carried out in accordance with s 80 of the CCA and regs 9 and 10 of the regulations because consent to the use of the accounts email address can be inferred. The contrary position of a lack of consent is not reasonably arguable. ECTCH has therefore failed to establish, under s 290 of the Companies Act 1993, that there is a substantial dispute as to whether the amount set out in the statutory demand is due and owing.
Result
[54] The application by ECTCH to set aside the statutory demand is dismissed.
[55] As to costs, I am of the preliminary view, having succeeded, that Brady Construction, the respondent, is entitled to costs and on an actual and reasonable basis in accordance with s 23(2)(a)(ii) of the CCA, plus disbursements.23 If agreement cannot be reached then memoranda (no more than three pages) are to be filed and served within 14 days.
Associate Judge P J Andrew
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