NZ COMMERCIAL PROPERTY MAINTENANCE LIMITED v SOULLIGHT PAINTING & PLASTER LIMITED [2022] NZHC 1401

NZ COMMERCIAL PROPERTY MAINTENANCE LIMITED v SOULLIGHT PAINTING & PLASTERLIMITED [2022] NZHC 1401 [15 June 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-2230[2022] NZHC 1401BETWEEN NZ COMMERCIAL PROPERTYMAINTENANCE LIMITEDPlaintiffAND SOULLIGHT PAINTING & PLASTERLIMITEDDefendantHearing: 10 May 2022Appearances: Matt Taylor for the PlaintiffJulia Leenoh for the DefendantJudgment: 15 June 2022JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR[Application to file a statement of defence out of time]This judgment was delivered by me on 15 June 2022 at 3:00pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:K3 Legal Limited (Julia Leenoh), Auckland, for the PlaintiffMaria Taylor Lawyer, Auckland, for the DefendantCounsel:Matthew Taylor, Barrister, AucklandIntroduction[1] The defendant in this proceeding, Soullight Painting & Plaster Ltd (Soullight)applies to extend the time for it to file a statement of defence and counterclaim againstthe plaintiff, NZ Commercial Property Maintenance Ltd (NZ Commercial).[2] NZ Commercial and Soullight are parties well known to each other. The twohave worked together on various projects since 2015, with NZ Commercial acting asa main contractor, and Soullight as subcontractor. NZ Commercial has now sought toput Soullight into liquidation on the basis of an unpaid statutory demand.Background[3] In August 2020, the parties entered into a construction contract under whichSoullight would conduct painting work at a property at 20–22 Lynton Road,Mt Wellington, Auckland (the HNZC Project). In December 2020, Soullight left thesite. It had not completed its work under the contract. Soullight's position is that itcompleted around 90 per cent of the agreed work.[4] NZ Commercial alleges Soullight's work was incomplete, substandard anddefective. It says it incurred significant costs in bringing in an alternativesubcontractor to complete and remediate the painting work. Soullight, meanwhile,says NZ Commercial brought in the alternative subcontractor to avoid its obligationsto pay Soullight.[5] On 8 April 2021, NZ Commercial's lawyer wrote to Soullight stating that ithad incurred remedial costs with an alternative contractor in the sum of $60,338.50(excluding GST), and costs of materials in the sum of $4,985.22 (excluding GST), tocomplete the work. The letter noted that had Soullight finished the work, it wouldhave been due a payment of $9,000 (excluding GST). It stated that Soullight thereforeowed NZ Commercial $56,323.70 (excluding GST). Soullight did not respond to theletter.[6] NZ Commercial proceeded to serve three statutory demands on Soullight forthe sought amount. The first two statutory demands expired during periods in whichNew Zealand was under lockdown, due to the COVID-19 pandemic.[7] NZ Commercial says this proceeding is founded on the third statutory demand,dated 7 October 2021 and served the following day. Soullight, meanwhile, says it isnot clear the statutory demand was in fact served then. It says service is in issue onthe present application.[8] Soullight has not paid the sum NZ Commercial seeks. On 5 November 2021,NZ Commercial filed an application to put Soullight into liquidation, with noticeserved on Soullight on 22 November 2021.[9] On 21 February 2022, Soullight filed the present application for an extensionof time to file a statement of defence and counterclaim. It rejects the claim that it owesNZ Commercial any money and says instead that it is owed money. It intends tocounterclaim for the money it says NZ Commercial owes it.[10] Soullight also says NZ Commercial's statutory demand is defective and doesnot reflect the parties' obligations to each other. It says further the demand is basedon a prospective damages claim and is accordingly not founded on an immediatelypayable debt. It says NZ Commercial must therefore seek the Court's leave to makethe liquidation application.Application for extension of time to file statement of defence[11] Soullight seeks an order for an extension in time to file a statement of defence.1The grounds on which the order is sought are:2(a) The defendant has an arguable defence which it intends to pursue;(b) There is a genuine and substantial dispute against the debt;(c) The defendant is solvent;1 Application for extension in time to file statement of defence dated 21 February 2022 at [1].2 At [2].(d) There is no prejudice to the plaintiff / respondent in an extension oftime given the plaintiff has not submitted sufficient material beforethe Court to justify the grant of a liquidation order;(e) The overall justice of the case requires the defendant to be given theopportunity to raise its defence given the statutory demand may bedefective due to material misstatements and / or materialmisdescription of the debt referred to in the demand.Affidavit of Myung Jing Song[12] Mr Myung Song, sole shareholder and director of Soullight, has made anaffidavit in support of the application. He deposes that Soullight has been engaged onmultiple painting projects with NZ Commercial in the last seven years. He says theircontractor–subcontractor relationship was atypical because NZ Commercial wouldprovide a quote for scope of works, which Soullight would then either accept or reject.He says all agreements were made orally or in person.3[13] Mr Song says the director of NZ Commercial, Mr Beomkoo Yun, approachedhim in August 2020 to complete work for the HNZC Project. He says Mr Yun provideda paint budget, and that the total budget for the interior and exterior work wasestimated to be $120,329.93. Mr Song says he accepted this budget on behalf ofSoullight and commenced work at the HNZC Project. After arriving at the site,however, Mr Yun asked Mr Song to complete paint jobs that were not part of theoriginal scope of works. Mr Song says he asked Mr Yun for a budget for the additionalwork, which Mr Yun eventually provided. The further budget for the additional taskscame to $15.018.87.4[14] Mr Song deposes that Soullight completed the enlarged scope of works andwas in the process of completing the original scope of works when Mr Yun requestedfurther paint work be completed. He says neither the original nor the enlarged scopeof works provided for these variations. Mr Song deposes he again asked Mr Yun toprovide a further budget for these works. He says Mr Yun confirmed he would do so,3 Affidavit of Myung Jin Song in support of application for extension in time dated 20 February2022 at [3]–[4].4 At [5]–[6].but asked that Mr Song commence work on the variations immediately. Soullight thencompleted the variations work, on faith of the parties' past dealings.5[15] Mr Song says that once the variations work had been completed, he askedMr Yun for the budget and pricing so that Soullight could issue an invoice. He saysMr Yun assured him he would provide the budget once he returned to the office.Several weeks passed, however, with no budget being provided. Mr Song deposes hethen told Mr Yun that Soullight had to be paid for the variations work before theoriginal scope of works could be completed. He says that at this stage 90 per cent ofthe original scope of works had been completed, and all of the work for the enlargedscope of works and variations had been completed.6[16] Next, Mr Song says that Mr Yun contacted him in early December 2020 to tellhim that another paint company would be finishing the project and that Soullightwould no longer be required. He says that this was the point at which the parties'relationship broke down. He says NZ Commercial refused to pay Soullight foroutstanding invoices due and owing to Soullight.7[17] Mr Song says he believes Soullight has an arguable defence againstNZ Commercial's claim. He says there is a genuine and substantial dispute relatingto the debt NZ Commercial claims. He deposes that Soullight completed almost all ofthe contracted works and no issues were ever raised about the quality of itsworkmanship. He says Soullight is entitled to be paid for the variations it completedat NZ Commercial's instructions, and that NZ Commercial has also refused to paySoullight for work it completed on another project.8[18] Mr Song deposes that Soullight is solvent and has a constant stream of revenue.He says it has enough money to satisfy the statutory demand, accounting for the set-offs. Further, he says that at the time he received the statutory demands he did notunderstand the gravity of the situation. He says they were preceded by a letter thatmade incorrect allegations, and he accordingly did not see the statutory demands or5 At [7].6 At [8]–[9].7 At [10]–[11].8 At [12]–[16].the court proceedings as having any standing. He says he regrets his passivity andunderstands he should have taken steps to refute and dispute the documents at the time— that is why he now files for an application to extend time to file a defence.9[19] Mr Song says he does not think the relevant statutory demand was served onhim on 8 October 2021, because the most recent statutory demand he has seen is dated13 July 2021.10[20] Mr Song deposes he believes it would be unfair and unjust for Soullight to beliquidated. It is solvent and NZ Commercial's claim against it is inaccurate andmisleading. NZ Commercial owes Soullight money. Soullight has completed themajority of the contracted works and NZ Commercial has failed to pay. Further,because the works were 90 per cent complete, Mr Song says he does not believe thefigure NZ Commercial has provided as representing completion of the balance of theworks. He says NZ Commercial has not provided any supporting informationjustifying the amounts claimed.11Notice of opposition to application for extension of time to file statement ofdefence[21] NZ Commercial opposes the application for an order extending time forSoullight to file a statement of defence.12 The grounds of opposition are:13a. The debt the subject of the statutory demand is due and owing to therespondent;b. There is no genuine or substantial dispute as to the debt;c. The respondent made written demand for payment of the debt atvarious times throughout 2021, without any response from theapplicant;d. The applicant has no valid counterclaim or set-off against therespondent;9 At [17]–[19].10 At [20].11 At [21]–[24].12 Notice of opposition to application for leave to file statement of defence dated 17 March 2022 at[1]–[2].13 At [3].e. The applicant has not provided any reasonable explanation for itsfailure to file and serve a statement of defence within time;f. The applicant is insolvent;g. It is just and equitable in the circumstances that the applicant companyis put into liquidation;h. The further grounds as set out in the affidavits of Beomkoo Yun andMatthew Kevin Costello filed in this proceeding.Affidavit of Beomkoo Yun[22] Mr Yun has made an affidavit in support of the notice of opposition. Hedeposes the works at the HNZC Project proceeded on a charge-up basis for the firsttwo or three months. He says the contracted work was for interior and exteriorpainting with a total value of $120,396 (excluding GST). Mr Yun says some additionalvariation work was also required throughout the course of the contract, whichvariations were recorded by Mr Song and paid for by NZ Commercial. He saysNZ Commercial paid Soullight for the charge-up work, the contract work and thevariation work.14[23] Mr Yun says Mr Song's reference to "additional" painting work in thehallways, lobbies and data rooms is incorrect — this work formed part of the contractwork. He says additionally that Mr Song was not on site often and that Soullight wasbehind schedule — in turn affecting NZ Commercial's head contract. Mr Yun allegesSoullight's work was substandard, requiring continuous repair and causing delay. Hesays Soullight left the site in December 2020 and did not return.15[24] Mr Yun says Soullight left without completing the works, and what work it haddone had substantial defects requiring remediation. He says NZ Commercial askedSoullight to return to the site to remedy the defective work, but Soullight did not doso. At that point, Mr Yun says, NZ Commercial was left with little option but to engageother contractors to complete the work. He says NZ Commercial followed itscontractual obligations to notify Soullight of the defects and the remedies required.1614 Affidavit of Beomkoo Yun in support of notice of opposition to application for leave to filestatement of defence dated 17 March 2022 at [3]–[7].15 At [8]–[14].16 At [15]–[19].[25] Mr Yun says NZ Commercial incurred significant costs as a result ofSoullight's defective work and default in performance. NZ Commercial thereforewrote to Soullight advising it of the incurred costs and demanding payment of$56,323.72 (excluding GST) — or $64,772.26 (including GST). Mr Yun saysSoullight did not respond to this letter. Consequently, NZ Commercial servedstatutory demands on Soullight on 22 April, 14 July and 8 October 2021. The reasonfor the multiple demands, Mr Yun explains, is that the first two demands were unableto be satisfied in time due to COVID-19 lockdowns. After service of the final statutorydemand, NZ Commercial issued liquidation proceedings. Mr Yun says theproceedings were served on Soullight on 22 November 2021.17[26] Mr Yun says Soullight did not file a defence to the liquidation proceedings, andit was not until 21 February 2022 that NZ Commercial received a response — serviceof the application for an extension of time to file a statement of defence. He saysSoullight's alleged counterclaims are completely without merit — the claimed"additional" painting work formed part of the agreed scope of works; NZ Commercialdid raise issues with Mr Song as to his workmanship; there is nothing to the allegationthat NZ Commercial failed to pay Soullight for its work on another project; and NZCommercial has paid Soullight for its contract work on the HNZC Project.18Affidavit of Matthew Kevin Costello[27] Mr Matthew Costello, project manager at NZ Commercial, has made anaffidavit in support of the notice of opposition. He deposes that his responsibilitythroughout the HNZC Project was to coordinate and manage subtrades engaged byNZ Commercial, including Soullight. He says between December 2020 and February2021, after Soullight had left the site, he provided photographs of the incomplete workand defects to Soullight and asked it to return to complete the project. He says theseefforts were unsuccessful.1917 At [20]–[27].18 At [28]–[40].19 Affidavit of Matthew Kevin Costello in support of notice of opposition to application for leave tofile statement of defence dated 17 March 2022 at [4]–[6].Reply affidavit of Mr Song[28] Mr Song has made an affidavit in reply to Messrs Yun and Costello's affidavits.He deposes that he denies Soullight entered into a written subcontract agreement withNZ Commercial for the HNZC Project, maintaining all instructions and scope ofworks were agreed verbally. He says the total budget for the original scope of workswas $120,396.81 (excluding GST) — correcting an error in his earlier affidavit thatstated the figure as $120,329.93. He says additional works were required throughoutthe course of the project and that these were always recorded as "extra work", separatefrom the original scope of works. While these were generally small tasks that did notrequire a separate budget, Mr Song says there were two lots of substantial additionalwork that the parties agreed on, enlarging the original scope of works. He deposesthese additional works were all by way of verbal instructions.20[29] Mr Song denies that the painting work on the hallways, lobbies and data roomsformed part of the original or enlarged scope of works He says this work was explicitlyadditional, and Soullight completed it because of Mr Yun and NZ Commercial'sassurance that it would be paid for, and because of the parties' previous history andbusiness relationship. He reiterates that he specifically requested Mr Yun provide afurther budget for these works, and that Mr Yun assured him multiple times that onewould be provided. Mr Song says he believes Soullight is entitled to payment for thealleged additional works, as they never formed part of the original or enlarged scopeof works.21[30] Mr Song says he visited the site as required and that he was working onmultiple sites at the relevant time. He says he ensured staff were on site at all times tocomplete the works required and the Soullight only fell behind schedule becauseNZ Commercial kept requesting additional works and because Soullight had to do re-painting works whenever other contractors at the site caused damage. He deniesSoullight's work was substandard, saying there were defect checks every week.Further, he disputes Mr Yun's characterisation of Soullight leaving the site — he says20 Reply affidavit of Myung Jin Song dated 4 April 2022 at [4]–[11].21 At [12]–[21].it left because it had no other choice. It had not been paid for what Mr Song says werethe additional works.22[31] Mr Song deposes it was usual for NZ Commercial and Soullight to agreeverbally and work on projects together without formal documentation. He says that ishow the parties did business for seven years. He says the HNZC Project was the same.As well, he disputes that the incomplete works, cleaning, substantial defects and paintstains were caused by Soullight. He attributes these to the negligence of othercontractors and poor project management. While acknowledging NZ Commercialasked Soullight back to the site to complete remedial works, he reiterates that Soullightwas in no position to do so for so long as NZ Commercial refused to pay for theadditional works. And he says that despite NZ Commercial's conduct, Soullight'smanager, Mr Guan Ho Kim, returned to the site on four separate occasions to cleanthe excess paint.23[32] Mr Song disputes that NZ Commercial incurred costs to the extent that itclaims. As well, he says he does not believe the statutory demand was correctly issued.Taking into account the figures he claims each party owes the other, Mr Song says theamount of the statutory demand can be set off and that NZ Commercial continues toowe Soullight money. In any event, he says he thought the statutory demandsSoullight received were defective in that they contain material misstatements andmisdescriptions of the contended debts.24[33] Mr Song denies any issues as to workmanship were raised while Soullight wasat the site. He says these issues were only raised after it left, and despite that weeklydefect checks were carried out during the time it was there. He maintains there is anoutstanding payment owed by NZ Commercial to Soullight in relation to a project atHauraki Primary School. He says the balance due from NZ Commercial to Soullightis $21,000 for the additional works at the HNZC Project and $3,800 for theHauraki Primary School.2522 At [22]–[24].23 At [25]–[32].24 At [33]–[43].25 At [48]–[53].[34] Finally, Mr Song reiterates that Soullight is solvent and that it has enoughmoney in its bank account to operate.26Reply affidavit of Mr Kim[35] Mr Kim has also made an affidavit in reply to Messrs Yun and Costello'saffidavits. He supports Mr Song's contention that the scope of works on theHNZC Project was verbally agreed between Mr Yun and Mr Song, and that it was notunusual for Soullight to begin works before being provided with a formal budget. Hesays he disagrees that Soullight carried out substandard work and that NZ Commercialengaged other contractors to complete remedial works on Soullight's works. He saysfrom the first week of December 2020 until 11 December 2020, both Soullight andother subcontractors were working on the HNZC Project. He says some of these othersubcontractors were instructed to do further paint works on items Soullight had alreadypainted.27[36] Mr Kim says the photographs attached to Mr Yun's affidavit show defects thatwere caused in the additional works completed by the other subcontractors, not workscompleted by Soullight. He says he noticed a different subcontractor applyingadditional paint to paint work Soullight had already completed, but this additionalpaint was the incorrect specification in that it was the wrong brand and colour. Hesays he alerted the other subcontractor to his concerns because he was worriedNZ Commercial would allege wrongdoing on Soullight's part. He says his concernswere vindicated and additional painting works by the new subcontractor had to be re-done.28[37] Mr Kim says he believes it was Mr Costello's responsibility, as projectmanager, to manage the painting subcontractors and to provide the correct paintingspecifications. He says he believes Mr Costello's lack of knowledge and limitedattendance at the site resulted in the defects the new painting subcontractors caused.26 At [54].27 Reply affidavit of Guanho Kim dated 4 April 2022 at [8]–[13].28 At [14]–[16].Mr Kim also says he sought on multiple occasions that NZ Commercial provide abudget for the variation works, but this was never provided.29[38] Mr Kim deposes that there were a lot of difficulties while working on theHNZC Project. He alleges Mr Costello did not properly carry out his responsibilitiesas project manager and that he was rarely on site. He says the poor projectmanagement made working conditions difficult for Soullight. He says no one fromNZ Commercial attended the weekly progress meetings between all contractors to theHNZC Project. Due to Mr Costello's absences from the site, Mr Kim says, he wouldhave to communicate with him by way of instant message.30[39] Mr Kim says Mr Costello sent him photographs of "incomplete works" and"substantial defects" but maintains Soullight did not cause the defects. He says defectchecks occurred every week and were to protect subcontractors from being blamed forworks not completed by other contractors. He says that while Soullight was on site, itcompleted any required remedial work at no further cost, irrespective of whetherSoullight caused the relevant defect. He says Soullight did this in good faith and onthe strength of Mr Song and Mr Yun's previous friendly relationship.31[40] Mr Kim says Mr Costello messaged him in January 2021 asking that Soullightremedy defects at the site. He says this was after Soullight had already left the siteand other painting subcontractors had been on site for a month. He reiterates his beliefthat Mr Costello gave inadequate instructions to the other painting subcontractors andthat this resulted in the defects. He says that he visited the site personally four timesbetween 18 and 22 December 2020 to clean excess paint that Mr Costello hadidentified, and confirms that much of this excess paint was unrelated to the paintingworks done by Soullight.3229 At [17]–[21].30 At [22]–[28].31 At [29]–[31].32 At [32]–[35].Supplementary affidavit of Mr Yun in reply[41] Mr Yun has made a supplementary affidavit in reply to Mr Song and Mr Kim'sreply affidavits. He deposes to his belief that their reply affidavits are incorrect andare a retrospective attempt to overcomplicate a simple dispute. He says Mr Song'sstatements as to the agreed scope of work are demonstrably wrong. He says Mr Songmiscalculated the amount of paint to be applied. He says he disagrees that he everreassured Mr Song he would send a further budget for the alleged additional works,and that he never prepared such budget because that work had already been priced intothe existing budget. He says Soullight's invoice for $21,000 (plus GST) for the allegedadditional works is not credible in any way.33[42] Mr Yun says Mr Song's affidavits raise, for the first time, allegations thatSoullight had to undertake painting works from damage caused by other contractorsat the site. He says NZ Commercial has no knowledge of this alleged issue, and thatit was never raised by Soullight at the time. He says that if the allegation is true,however, that it would be an issue for the head contractor. He also disputes Mr Song'sallegations that NZ Commercial mismanaged the project, saying NZ Commercial haslost money on the project because of Soullight's defaults and the consequent costs ofremediation.34[43] Mr Yun disputes Mr Song's claim that Soullight completed 90 per cent of thecontract works and all of the variation works. He says Soullight has been paid $110,00out of the contract price of $120,396 (excluding GST), and for additional variationworks totalling $29,841.71 (excluding GST). But he says Soullight actuallycompleted far less work than claimed. He says Soullight did not apply varioustopcoats and most areas required some form of remedial work.35[44] Mr Yun also disputes Mr Song's claim that NZ Commercial engaged othersubcontractors before Soullight left the site. He says other subcontractors wereengaged only when Soullight failed to perform its contractual obligations, and that33 Supplementary affidavit of Beomkoo Yun in reply to affidavits of Guanho Kim and Myung JinSong sworn on 4 April 2022 dated 26 April 2022 at [4]–[15].34 At [16]–[18].35 At [19]–[20].NZ Commercial would not have had to engage other subcontractors and incurremedial costs but for Soullight's default. And Mr Yun says he had no idea howMr Song arrives at the figure of $38,060.33 that he says Soullight is owed.36Supplementary affidavit of Mr Costello in reply[45] Mr Costello has also made a supplementary affidavit in reply to Mr Song andMr Kim's reply affidavits. He deposes that he agrees with the content of Mr Yun'ssupplementary affidavit as to calculation of the paint to be applied. He says Mr Songwas not on site at the HNZC Project very often, so he largely dealt with Mr Kim. Hesays neither Mr Kim nor Mr Song told him that they had to re-do work as a result ofdamage by other contractors. Further, he says it was obvious from his visualinspection and from the photos he took that the work was substandard and the defectswere caused by Soullight.37[46] Mr Costello says he is unsure why Mr Song says that Soullight was notengaged to complete all paint works. He says this is incorrect, and that Soullight wasin fact engaged to complete all paint works as NZ Commercial's subcontractor. Hesays it was only once it became apparent in early December 2020 that Soullight wasfailing to perform its obligations, would not finish the project and that its work wassubstandard, that NZ Commercial engaged other painting subcontractors.38[47] Mr Costello says Mr Kim's suggestion that he ordered the wrong paint for theapartment doors is incorrect. He says NZ Commercial supplied the finishing scheduleto Soullight, and Soullight ordered and applied paint in connection with those items.He says that had Mr Kim read the painting specification, he would have seen whatpaint was actually required. Mr Costello disagrees that he instructed Mr Kim to applythe incorrect paint, and says he never gave incorrect painting specifications to the newsubcontractors. He maintains Soullight's work had to be redone because it wasdefective and substandard.3936 At [24]–[29].37 Supplementary affidavit of Matthew Kevin Costello in reply to affidavits of Guanho Kim andMyung Jin Song sworn on 4 April 2022 dated 26 April 2022 at [4]–[5].38 At [7].39 At [11]–[15].[48] As to Mr Kim's allegations about Mr Costello's infrequent attendance at thesite, Mr Costello says he attended site meetings when required or requested. He sayshe did not attend every weekly meeting because NZ Commercial's attendance was notnecessary. He says he did not closely manage the painters and only gave them briefinstructions because it was Soullight's responsibility to manage its own employees andcontractors, not NZ Commercial's.40[49] On Mr Kim's return visits to the site to clean excess paint, Mr Costello says itwas paint that Soullight had applied incorrectly. He says the fact 11 workers spentfour days cleaning the paint just goes to show the extent of the issue.41Soullight's submissions[50] Ms Julia Leenoh, for Soullight, submits there is a range of underlying disputesbetween the parties relating to the HNZC Project. First, the scope of works is indispute. Secondly, the extent to which Soullight completed the contract works is notagreed. Thirdly, it is unclear whether, and to what extent, Soullight's works weredefective. Fourthly, the nature of Soullight's discontinuance of work is disputed.Finally, it is disputed what amounts (if any) are due and owing to, and from, each ofthe parties.42[51] Ms Leenoh says this is a case where there are significant conflicts of evidenceand credibility issues, requiring a full trial. She submits further that there is asubstantial dispute as to whether the debt the subject of NZ Commercial's statutorydemand is due.43[52] Ms Leenoh submits Soullight's delay in filing its proposed statement ofdefence is not significant in the circumstances, given the parties' continued discussionsrelating to the debt and Soullight's firm position it does not owe NZ Commercial anymoney. She says Soullight believed the matter could be resolved by discussion anddid not think further steps in court would be necessary. She submits further that there40 At [18]–[21].41 At [22]–[23].42 Defendant / Applicant submissions seeking an extension in time to file statement of defence dated26 April 2022 at [18]–[19].43 At [20]–[23].is no material prejudice to NZ Commercial in allowing the extension, as the issues thisproceeding raises need to be resolved, NZ Commercial has been on notice for sometime that Soullight disputes the claimed debt, and liquidation is a drastic step forNZ Commercial to take in recovering the alleged debt.44[53] Ms Leenoh submits the overall justice of the case requires Soullight be giventhe opportunity to raise its defence. She says use of the statutory demand procedureas a debt collection device is an abuse of process. It is instead intended to be used toestablish insolvency — a prospective debt such as one comprising a claim for damagesdoes not justify the issue of a statutory demand. That the alleged debt is onlyprospective means NZ Commercial requires the Court's leave to apply for an orderthat Soullight be put into liquidation. It has neither sought nor been granted suchleave.45[54] Ms Leenoh also submits the extension of time should be granted becauseSoullight is demonstrably solvent and can therefore rebut the presumption that it isunable to pay its debts.46[55] Concluding, Ms Leenoh submits that an extension of time should be grantedto allow Soullight to raise its defence, as the overall interests of justice require this.She submits Soullight seeks 2B costs against NZ Commercial on the basis that it hasimproperly used the statutory demand process as a debt collection device in abuse ofthe Court's processes.47NZ Commercial's submissions[56] Mr Matt Taylor, for NZ Commercial, submits there are three main elements toconsider when determining whether an application to file a defence out of time. First,the Court is to consider whether the applicant has an arguable defence that it is not44 At [23]–[28].45 At [29]–[35], citing International Airline Trading (NZ) Ltd v Rohlig New Zealand Ltd HCAuckland CIV-2003-404-3464, 23 February 2004 at [16]; Procorp International Ltd v MaximaxLtd HC Auckland M787-IM99, 2 September 1999; Re Prime Link Removals Ltd [1987] 1 NZLR510 (HC) at 512; and Precinct Properties Holdings Ltd v Golden Tower NZ Ltd [2019] NZHC3225 at [6]–[8].46 At [36]–[38], citing AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389, (2008)19 PRNZ 13 at 16.47 At [39]–[40].liable for the whole amount demanded. Secondly, it is to consider if there is a genuineand reasonable explanation of the inability to comply with the required timeframe.Thirdly, leave should not be granted if the applicant is insolvent.48[57] Mr Taylor says Soullight has raised a proposed defence in only the most basicof forms, and that its proposed counterclaim, even if proven, does not exceed thedemanded sum. He says Soullight's arguments lack an evidential basis whencompared with the contemporaneous documentation and Soullight's previousstatements. He submits that in this respect, Soullight's affidavit evidence has littlecredibility.49[58] Mr Taylor submits that liquidation proceedings should be acted on morepromptly than ordinary proceedings; a liquidation is likely to affect not only theapplicant creditor but the commercial community in general. He submits thatSoullight's explanation for the delay lacks substance. There was no genuine mistakeabout the time for compliance. Mr Song's explanation that he "did not understand thegravity of the situation" because the letter made "totally incorrect allegations" is anunacceptable and inadequate excuse and does not justify the Court granting anindulgence.50[59] Mr Taylor says Soullight is incorrect to say there would be little prejudice toNZ Commercial if the application is granted and that NZ Commercial had been put onnotice of a dispute prior to the application. He says there was in fact no notice givenof any dispute until the present application was filed. Given the lack of a genuineexplanation for delay, he submits, the application should fail.51[60] Mr Taylor says that even if an applicant has an arguable defence, it also has toprove solvency. He says strong evidence needs to be adduced to that effect, and thatSoullight has not done so. He submits that Mr Song has only produced a screenshot48 Submissions on behalf of respondent in opposition to defendant's application seeking an extensionof time to file a statement of defence dated 3 May 2022 at [16].49 At [20]–[53].50 At [54]–[58], citing Matthew Mini Coaches Ltd (in liq) v Scotch Myst Ltd [2019] NZHC 3015 at[45]–[47]; and Auckland City Council v Stonne Ltd HC Auckland CIV-2007-404-4208, 30November 2007 at [50]–[51].51 At [59]–[60].of a bank account balance showing available funds of $12,164.50. Mr Taylor says thisquite clearly does not meet the required threshold — no bank accounts, profit and lossstatements, trading records or statements of assets and liabilities have been provided.No verifying evidence from an accountant has been adduced. He says, therefore, thatSoullight has not discharged its evidential onus and that insolvency can be inferred.52[61] Summarising, Mr Taylor says Soullight had provided no genuine reason fordelay. It is presumed to be insolvent. Its proposed grounds of defence are meritless.Any question as to the exact quantum of NZ Commercial's demand would be bestaddressed in a proof of debt claim with a liquidator, rather than in a defence to thisproceeding. If the liquidator genuinely considers Soullight to have a counterclaim, heor she can pursue this on behalf of the company.53Legal principles[62] Rule 31.20 of the High Court Rules 2016 provides that a person who does notfile a statement of defence or appearance within the time prescribed may not appear atthe hearing without an order extending the time granted on an interlocutory applicationunder r 31.22 or the special leave of the Court.[63] Rule 31.17 provides that a statement of defence in liquidation proceedingsmust be filed within 10 working days after the date on which the statement of claimwas served. Leave will not be granted to file a defence out of time unless an arguabledefence can be shown on the papers.54 In principle, then, the test to be applied is thesame as in an application to set aside a statutory demand.5552 At [60]–[65], citing Fresh Cut Flower Wholesalers Ltd v Living and Giving Gift Co Ltd (2001) 16PRNZ 173 at [9]; Matthew Mini Coaches Ltd (in liq) v Scotch Myst Ltd, above n 50, at [37]–[41];and Auckland City Council v Stonne Ltd, above n 50, at [46].53 At [66]–[67].54 Fresh Cut Flower Wholesalers Ltd v Living and Giving Gift Co Ltd, above n 52, at [9].55 Orme v Parkway Investments Ltd HC Hamilton M149/00, 7 May 2001 at [15]. Broadly stated,factors relevant to setting aside a statutory demand include whether a genuine substantial disputeexists as to the underlying debt, whether the company appears to have a counterclaim, set-off orcross-demand and whether the demand ought to be set aside on other grounds. See CompaniesAct 1993, s 290; Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 301; and AAI Ltd v92 Lichfield Street Ltd (in rec & liq) [2015] NZCA 559, (2015) 23 PRNZ 52 at [22].[64] Leave should not be granted if the applicant is insolvent, and the applicantshould be able to provide a reasonable explanation for its failure to file its statementof defence in time.56 In summary, as Associate Judge Doogue has said:57Thus there are three matters to consider:a) Is there an arguable basis that defendant is not liable?b) Is the defendant insolvent?c) Has the defendant advanced a reasonable explanation for its failure to fileand serve its statement of defence.[65] Grant of extension of time is an indulgence, as the Court rules are designed toensure the speedy resolution of liquidation proceedings.58 An applicant must providea proper factual foundation upon which the Court can exercise its discretion to grantthe indulgence.59 The ultimate consideration informing the exercise of the discretionis the overall justice of the case.60Analysis[66] The issues which are to be determined in this proceeding are:(a) does Soullight have an arguable basis that the debt on which the statutorydemand is based is the subject of a substantial dispute?(b) has Soullight advanced a reasonable explanation for its failure to file andserve its statement of defence within the required timeframe?(c) is Soullight insolvent, and what is the effect of s 288(5) of the CompaniesAct 1993 in relation to the statutory demand?(d) in the overall interests of justice should leave be granted to Soullight?56 Auckland City Council v Stonne Ltd, above n 50, at [20]. See also Khurana Trustee Ltd v CastleBackpacker K Road Ltd [2021] NZHC 1315 at [19]–[25].57 At [21].58 Eversons International Ltd (in liq) v Bionutrient Customs Ltd [2020] NZHC 2989 at [19].59 Body Corporate 166208 v York Trustees [2018] NZHC 593 at [30].60 Eversons International Ltd (in liq) v Bionutrient Customs Ltd, above n 58, at [21], citing BodyCorporate 62870 v Health Distributors (Holdings) Ltd [2018] NZHC 1717 at [8].[67] I will deal with each of these issues in turn.Does Soullight have an arguable basis that the debt on which the statutory demand isbased is the subject of a substantial dispute?[68] The disputes between the parties, to the extent they exist, relate to:(a) the exact scope of works agreed to for the HNZC Project between theparties;(b) what works were completed by Soullight and what works remainedincomplete at the time the works stopped;(c) whether there are any defective works, and how they are to be quantified;(d) how the contract came to an end;(e) based on the findings above, what amounts, if any, are due and owing toeach of the parties?Scope of works[69] NZ Commercial submits that the scope of works relates to the interior andexterior painting of the entire HNZC Project, which is a six storey apartment complexwith five units on each storey, with the exception of a small amount of additional work.[70] Soullight submits that the scope of works relates only to interior painting ofthe five units on each storey, and exterior painting which included the breezeway anddid not include additional painting work that was instructed.[71] The budget document both parties refer to is uncertain. The document appearsto list quantities of paintwork at an estimated rate which is handwritten.NZ Commercial says the works were budget based on 4,494 square metres, based onwall area. However, Soullight says the agreement was reached based on floor area ofeach unit on each storey. NZ Commercial says that an estimation of area based onfloor area of the units is inherently improbable.Works completed by Soullight[72] NZ Commercial says that Soullight did not finish the HNZC Project, but it isunclear to what extent works were not completed. Soullight says it completed 90 percent of the scope of works that was agreed between the parties, as well as additionalwork which was not paid for. NZ commercial says, with the exception of additionalwork which has been paid for, no further additional works were agreed nor completed.Whether there were defective works and how they are to be quantified[73] NZ Commercial says the works completed by Soullight were defective and thatit incurred costs to complete the scope of the works. Soullight says it did not carry outdefective work, and the defects referred to in NZ Commercial's affidavit relate toworks completed by other subcontractors unrelated to Soullight.How the contract came to an end[74] NZ Commercial says Soullight improperly walked off the site. Soullight saysit had no other choice but to leave the site as it was not being paid for work that it hadcompleted. Soullight says that additional works had been instructed and completed infull, yet payment was not forthcoming.[75] Soullight asserts that it had a statutory right to receive progress payments forworks completed under the Construction Contracts Act 2002. NZ Commercialsubmits that Soullight's invoices did not comply with s 20 of the ConstructionContracts Act and therefore the provisions of the Act are inapplicable.[76] In relation to Soullight's right to receive progress payments under theConstruction Contracts Act, there have not been put before the Court invoices fromSoullight that comply with s 20 of the Act, and so I do not find any basis forMs Leenoh's assertion that Soullight held a statutory right to the relevant payment.What amounts, if any, are due and owing to each of the parties[77] NZ Commercial says it is owed money from Soullight. Soullight says it isowed money from NZ Commercial. NZ Commercial has demonstrated in evidencethat an amount of $20,000 claimed related to invoice 366057 has in fact been paid andSoullight has conceded this.61 NZ Commercial has also established that an amountreferred to in Mr Kim's reply affidavit of $11,000 (excluding GST) was in fact paid toSoullight but was not related to the HNZC Project. Soullight maintains that the sumof $38,000.33 was not paid under the original scope of works,62 and that $21,000(excluding GST) is owing by NZ Commercial for variation works.63 Soullight alsomaintains $3,800 is owing by NZ Commercial in relation to another project.64[78] NZ Commercial submits that Soullight's record-keeping was poor andSoullight does not seem to be aware of what payments were made and when.Mr Taylor submits that this goes to the credibility of Soullight and its evidence anddisputes in respect of the debt.[79] Mr Taylor submits that Soullight's evidence is based on matters raised for thefirst time in the affidavit evidence and which lack an evidential basis when comparedwith the contemporaneous documentation and previous statements by Soullight. Hesubmits Soullight has taken a "scattergun" approach to raising disputed issues and hasraised as many issues as it could think of, and accordingly the evidence has littlecredibility.[80] In relation to this issue, in conclusion, it is my view that there is evidence ofmaterial disputes between the parties relating to the debt on which the statutorydemand is based.Has Soullight advanced a reasonable explanation for its failure to file and serve itsstatement of defence within the required timeframe?[81] As a preliminary matter in relation to this issue, there has been some disputeabout when the statement of claim was served on Soullight. NZ Commercial filed twosupplementary affidavits from Mr Simran Jeet Singh. The first affidavit, sworn on10 March 2022, confirms service of the statutory demand upon Soullight on 8 October2021. The second affidavit, also sworn on 10 March 2022, confirmed service of the61 Reply affidavit of Myung Jin Song, above n 20, at [53].62 At [37].63 At [38].64 At [39].notice of proceeding, statutory demand and verifying affidavit on Soullight on22 November 2021. These affidavits dealt with the issue of service of the proceedings,and accordingly the delay is from 22 November 2021 until February 2022, whenSoullight applied for leave to file the statement of defence out of time.[82] Ms Leenoh submits that the delay is not significant in the circumstances, giventhe parties' continued discussions throughout relating to the debt. She submits thatSoullight has disputed it owed any money to NZ Commercial, and the parties haddiscussions regarding the dispute and Soullight sought more information from theoutset to explain the debt being claimed. Although this information was notforthcoming at the time, Soullight believed discussions with NZ Commercial wouldcontinue with an ultimate view to resolve matters between them, and was under theimpression further steps in the Court would not be necessary.[83] The explanation offered in Mr Song's affidavit in support of the application isthat at the time he received the statutory demand he did not understand the gravity ofthe situation. He says they were preceded by a letter that made incorrect allegations,and he accordingly did not see the statutory demands or the Court proceedings ashaving any standing.[84] Mr Taylor submits that this explanation for the delay is inadequate and shouldnot justify granting leave.[85] My view in relation to the explanation for the delay is that the excuse is barelyadequate. Mr Song's expectation that, despite the court documents he was receiving,the matter would be sorted out without reference to the courts, is lent some credibilityby the long course of dealings between the parties. From Ms Leenoh's submission,these dealings were frequently face to face meetings with verbal discussions.6565 Defendant/Applicant submissions seeking an extension of time to file a statement of defence,above n 42, at [4].Is Soullight insolvent, and what is the effect of s 288(5) of the Companies Act inrelation to the statutory demand?[86] It is well established that the use of the statutory demand procedure as a debtcollection device is an abuse of the Court's process. As Master Faire (as he then was)observed:66[16] statutory demands should only be issued in cases which areappropriate, that is, where there is a genuine basis for establishing theevidential foundation so that an application can ultimately be made to appointa liquidator. It is quite improper for the procedure to be used as a debtcollection device or as a device to embarrass a party in a situation where thereis a contest as to liability for a given debt.[87] The statutory demand procedure is intended to be used to establish apresumption of insolvency and not to recover commercial debts.67 Ms Leenoh hassubmitted that the Court has often found that a claim for damages not converted intoa judgment debt will not be considered a "debt" due that would justify the issue of astatutory demand, because it would be considered a prospective debt at best. For thisproposition, she relies on Re Prime Link Removals Ltd68 and Precinct PropertiesHoldings Ltd v Golden Tower NZ Ltd.69[88] Ms Leenoh submits that the sum claimed under NZ Commercial's statutorydemand is not a debt that is immediately payable but a damages claim that isconsidered prospective. As has been discussed above, there are disputes about theextent to which Soullight completed the works, the extent to which there are defectsin the works completed by Soullight, and the extent to which it was necessary forNZ Commercial to engage other contractors to carry out remedial or completion worksin respect of the painting. The amount claimed in the statutory demand is related tocosts incurred by NZ Commercial in the remedial and completion work whichNZ Commercial says was necessary due to defaults by Soullight.[89] Ms Leenoh points to s 288(5) of the Companies Act, which provides that:66 International Airline Trading (NZ) Ltd v Rohlig New Zealand Ltd, above n 45, at [16].67 Procorp International Ltd v Maximax Ltd, above n 45.68 Re Prime Link Removals Ltd, above n 45, at 512.69 Precinct Properties Holdings Ltd v Golden Tower NZ Ltd, above n 45, at [6]–[8].An application to the court for an order that a company be put into liquidationon the ground that it is unable to pay its debts may be made by a contingentor prospective creditor only with leave of the court; and the court may givesuch leave, with or without conditions, only if it is satisfied that a prima faciecase has been made out that the company is unable to pay its debts.Consequently, Ms Leenoh submits that because NZ Commercial's statutory demandis based on a prospective damages claim and is not an immediately payable debt, leaveof the Court was necessary to issue the statutory demand. NZ Commercial has notapplied for nor obtained leave of the Court.[90] Soullight did not apply to set aside the statutory demand under s 290 of theCompanies Act. Notwithstanding the statutory demand has not been set aside, thedefective basis on which it has been issued, namely being based on a claim fordamages which is a prospective debt only and without leave of the Court as requiredunder s 288(5) of the Companies Act, in my view weighs significantly in Soullight'sfavour for the granting of leave in balancing of the interests of justice between theparties.[91] As to evidence of solvency produced by Soullight, this is limited to ascreenshot of a bank account of the company. Mr Taylor submits, and I think correctly,that the evidence Soullight would have been expected to produce would have beenaccounts, profit and loss statements, trading records or statements of assets andliabilities that show its solvency. In addition, he points out that no evidence from anaccountant has been provided to verify the documentation whatsoever.[92] Mr Taylor submits that Precinct Properties Holdings Ltd would bedistinguished as a case in which, quite clearly, the sum demanded was a damagesclaim. The claim had not been properly quantified or made out. He submits that inthe present instance, NZ Commercial is not a prospective or contingent creditor, noris the claim a prospective damages claim. It has incurred actual costs as a result ofSoullight's breach and/or default. There is no uncertain future event upon which theliability may be founded, and upon which NZ Commercial's loss may be furthercrystallised. He submits that the loss has been suffered and the damages have beenquantified — NZ Commercial has incurred costs of $64,772.25 (including GST).[93] In addition, Mr Taylor submits that r 31.20 is not an alternative means of settingaside the statutory demand. He relies on McDonald v Amba Holdings Ltd,70 where theapplicant filed an out-of-time application to stay liquidation proceedings (pursuant torr 1.19 and 31.11 of the High Court Rules) in which the underlying debt was disputed.Associate Judge Johnston considered that such an application was an abuse of processas the applicant could have applied to set aside the statutory demand at the time, andwas subsequently seeking to rely on grounds under s 290 in its out of time applicationfor a stay. In other words, he considered that it was at least arguable that r 31.11 wasnot to be used as an alternative route to apply to set aside a statutory demand on thebasis of a disputed debt.[94] In the present instance I do not regard the defects in the issue of the statutorydemand resulting from NZ Commercial being a prospective creditor and theapplication of s 288(5) of the Companies Act as being an alternative means of settingaside the statutory demand. The statutory demand remains in place. The defects inthe issue of the statutory demand are relevant in weighing the interests of overalljustice between the parties, when the Court is considering whether to grant leave toSoullight to file its statement of defence.In the overall interests of justice, should leave be granted to Soullight?[95] Returning to the principles set out at [64] and [65] above, in summary:(a) Soullight has established grounds for a dispute of the debt on which thestatutory demand is based;(b) Soullight's explanation for the delay in filing the statement of defenceis not a particularly satisfactory explanation (although, having regardto the extensive course of dealings between the parties, it does havesome credibility); and(c) the evidence of Soullight's solvency is not extensive.70 McDonald v Amba Holdings Ltd [2019] NZHC 3380.[96] Having said this, in my view the overall interests of justice between the partiesis in favour of granting leave to Soullight. In my view, it is unjust for Soullight to beput into liquidation without the ability to raise defences when the statutory demandupon which the liquidation application is based is in relation to a prospective debt only,and effectively invalidly issued without leave of the Court pursuant to s 288(5) of theCompanies Act. To have the draconian consequences of liquidation of the companybased on an unproven claim for damages is an unjust result.Result[97] I make the following orders:(a) Soullight is granted leave to file a statement of defence.(b) Soullight is awarded costs on a 2B basis...Associate Judge Taylor