THE BUCHAN GROUP NEW ZEALAND PTY LIMITED v GORGE H DEVELOPMENT LIMITED [2023] NZHC 1516

THE BUCHAN GROUP NEW ZEALAND PTY LIMITED v GORGE H DEVELOPMENT LIMITED [2023]NZHC 1516 [19 June 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-897[2023] NZHC 1516UNDER the Companies Act 1993BETWEEN THE BUCHAN GROUP NEW ZEALANDPTY LIMITEDPlaintiff / RespondentAND GORGE H DEVELOPMENT LIMITEDDefendant / ApplicantCIV-2022-404-898BETWEEN THE BUCHAN GROUP NEW ZEALANDPTY LIMITEDPlaintiff / RespondentAND STOKE GROUP LIMITED (formerly theREDWOOD GROUP LIMITED)Defendant / ApplicantCIV-2022-404-902BETWEEN THE BUCHAN GROUP NEW ZEALANDPTY LIMITEDPlaintiff / RespondentAND EAST LINK LIMITEDDefendant / ApplicantHearing: 25 May 2023Appearances: Paul Murray/K M Paterson for the ApplicantsMorgan Brady for the RespondentJudgment: 19 June 2023JUDGMENT OF ASSOCIATE JUDGE C B TAYOR[Interlocutory applications for leave to appeal andan order for stay of proceedings]This judgment was delivered by me on 19 June 2023 at 3:00pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarTABLE OF CONTENTSParagraphIntroduction [1]Background [3]Legal principles [6]Analysis [8]The merits of the appeal – arguable error of law or facts? [10]Genuine and substantial dispute in respect of the invoices due and payable ?[12]Conclusion in relation to genuine and substantial dispute in respect ofthe invoices due and payable [17]Defective payment claims [19]Conclusion in relation to the payment claims [27]Statutory demands are an abuse of process [30]Conclusion in relation to an abuse of process [34]The importance of the appeal [36]Conclusion in relation to the importance of the appeal [41]Stay of the proceedings and advertising [43]Result [45]Orders [46]––––––––––––––-Introduction[1] The applicants, Stoke Group Limited (formerly known as Redwood GroupLimited ) (Stoke), Gorge H Development Limited (Gorge) and East Link Limited(East), have applied for leave to appeal against the judgment of the Court deliveredon 16 December 20221 (the Judgment) and for an order staying the proceedings.[2] Buchan Group New Zealand Pty Ltd (Buchan), the respondent, opposes theapplication for leave to appeal and stay of the proceedings.Background[3] Buchan provided architectural services to Gorge, East and Stoke. AnthonyGapes is the sole director and shareholder each company.[4] Buchan issued statutory demands to each of Gorge, East and Stoke on 18 May2022. The statutory demands all expired, unremedied, and no applications were madeto set them aside. On 10 June 2022, Buchan filed liquidation proceedings againstGorge, East and Stoke.[5] On 27 June 2022, Gorge, East and Stoke brought applications to restrainadvertising and stay the liquidation proceedings. Buchan opposed and on16 December 2022 the Court gave the Judgment in favour of Buchan dismissing theapplication to restrain advertising and stay the proceedings.Legal principles[6] The requirement for leave to appeal has been described as a "filteringmechanism" to ensure that unmeritorious appeals or appeals against interlocutory1 Buchan Group Pty Ltd v Gorge H Development Ltd [2022] NZHC 3462.orders are of no great significance to either of the parties or, more generally, do notunnecessarily delay the proceeding.2[7] In Greendrake v District Court of New Zealand,3 the Court of Appealrecognised the following considerations as relevant on an application for leave toappeal:(a) a high threshold exists;(b) the applicant must identify an arguable error of law or fact;(c) the alleged error should be of general public importance warrantingdetermination or otherwise of sufficient importance to the applicant tooutweigh the lack of general or precedential value;(d) the circumstances must warrant incurring further delay;(e) the ultimate question is whether the interests of justice are served bygranting leave.Analysis[8] In considering whether to grant the application for leave, two questions ae tobe determined:(a) The merits of the appeal, i.e. is there an arguable error of law or fact?(b) The importance of the appeal and issues of delay.[9] I deal with each of these issues in turn.2 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].3 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].The merits of the appeal – arguable error of law or fact?[10] Ms Paterson, for the applicants, submitted that the arguable errors of law thatled to dismissal of the applications were:(a) The applicants had not discharged the onus of showing there is agenuine and substantial dispute in respect of the invoices alleged to bedue and payable;(b) the payment claims under the Construction Contracts Act 2002 (CCA),apart from those which Buchan acknowledged are not valid, are validpayment claims and are debts due under s 23(2)(a)(i) of the CCA; and(c) there is not sufficient evidence before the Court that the issue of thestatutory demands is an abuse of process.[11] Each of these matters is discussed below.Genuine and substantial dispute in respect of the invoices due and payable?[12] Ms Paterson acknowledges that Buchan is entitled to rely on the presumptionof insolvency of the applicants following the unremedied statutory demands, with theonus falling on the applicants to establish a genuine and substantial dispute as to theirliability to pay. She submits that the applicants' case is that the Payment Arrangementand Updated Payment Arrangement (which were in place for the relevantdevelopments, and applied to the invoices claimed in the proceedings) give rise to agenuine and substantial dispute that the invoices underlying the statutory demandsissued to the applicants are not due and payable.[13] Ms Paterson submits that the Judgment erred in finding there was notsufficiently cogent evidence of the Payment Arrangement or the Updated PaymentArrangement to establish that the invoices underlying the statutory demands were notdue and payable. She submits cogent evidence, short of actual proof that the debt isnot payable, is required and she relies on the following evidence:(a) There had been no written agreement recording the terms of theengagement between the parties;(b) Mr Gapes' evidence regarding the Payment Arrangements which, insummary, was that:(i) invoices were issued and payment would be drip-fed until theproject went live;(ii) all invoices might not necessarily be due and payable, either:A. following the global wash-up and after the project went live;orB. in some instances were not payable if the project did notproceed; andC. in some instances, payments would have been made beforea project was funded.[14] Ms Paterson points to Mr Gapes' evidence of the Payment Arrangements inoperation for other developments where Buchan provided services, and which wereconsistent with the Payment Arrangement citing the following examples:(a) in relation to the project known as "The Alex", the first drawdown camethrough in late March 2019. For the period from 31 August 2017 to28 February 2019, Buchan invoiced $255,830.43 and of that amount,as at 28 February 2019, Buchan had been paid $93,232.67. For theperiod 28 February 2018 to 28 February 2019, the amount owing toBuchan fluctuated close to or over $100,000 and the outstanding$162,5978.76 was cleared on 28 March 2019;(b) in the project known as the "Timaru MegaCentre" the first drawdowncame through in February 2021. For the period from 25 September2020 to 14 February 2021, Buchan rendered invoices totallingapproximately $322,000. None of the invoices were paid until fundingcame through in February 2021 when all but approximately $2,700 waspaid over the period 15 to 23 February 2021;(c) in relation to the Gorge Project and Te Rakau Project, it was acceptedthat Gorge had paid some invoices but had not paid the outstandinginvoices. However, the project had not been financed and no furtherpayments were made. The same was the case for the East Link project,and Ms Paterson submits that these are consistent with the PaymentArrangement.[15] Ms Paterson also submits that the applicants rely of the absence of anyevidence from Buchan, and the fact that Buchan did not comment on the PaymentArrangement or the Updated Payment Arrangement. She submits therefore thatMr Gapes' evidence in relation to the Payment Arrangements remains unchallenged.She submits in these circumstances the applicants put sufficiently cogent (andunchallenged) evidence of the Payment Arrangement and the Updated PaymentArrangement before the Court, the Payment Arrangements raise a genuine andsubstantial dispute.[16] Ms Brady for Buchan, on the other hand, submits that the Court correctlyconcluded that there were no genuine or substantial dispute that the invoicesunderlying the statutory demands are not due and payable or that there was anagreement that some of the debts would be written off. She submits that the applicantshave fallen short of providing cogent evidence that the debts are not due and payablefor the following reasons:(a) There is no documentary evidence to support the Payment Arrangementand it is a mere assertion by Mr Gapes. She makes the point that if thePayment Arrangements were in place as alleged by Mr Gapes, there isan expectation there would be some reference to them in emailcorrespondence or elsewhere but no such reference exists.(b) She disputes that Mr Gapes' evidence is unchallenged and submits thatthe Payment Arrangement was challenged by Mr Guild and Mr Shaw,whose evidence was that in the course of dealing between the partieswas that regular invoices and payment claims were issued with monthlyreminder statement showing the sums were overdue. No issues wereraised by the applicants/Mr Gapes with the reminder notices, whichwould be expected if the payments were not due. Reminder noticescontinued to be sent after the alleged Updated Payment Arrangementwas entered into.(c) There is no evidence of any write-offs if the project did not proceed andif a debt was written off, it would be expected there would be somewritten communication confirming this - but there is not.(d) The alleged Payment Arrangement "in operation" for otherdevelopments at "the Alex" and "the Timaru MegaCentre" is neithersupported by documentary evidence nor relevant to this dispute. Thosedevelopments were undertaken by unrelated companies to theapplicants and at best they show that Buchan previously tolerated tardypayment of invoices.(e) The Payment Arrangement was raised for the first time in reply anddoes not show any write-offs of debt and, to the contrary, shows thedebts were accepted. She submits Mr Gapes accepted that none of the$20,000 were made.Conclusion in relation to genuine and substantial dispute in respect of the invoicesdue and payable[17] I am of the view that the applicants have not presented cogent evidence of thePayment Arrangement and the Updated Payment Arrangement for the followingreasons:(a) while the payment patterns show the payments are drawn out onprojects for various periods, this is equally consistent with Buchanaccepting slow payments from the applicants as it is consistent with thePayment Arrangement and the Updated Payment Arrangement being inplace. It is not implausible that Buchan might accept slow payments inthe context of an ongoing and apparently substantial businessrelationship with Mr Gapes;(b) Ms Brady has pointed to the fact that if there were write-offs of debt,then these write-offs would not have been included in the PaymentArrangement but in fact they were. The evidence of acceptance of thedebts by Mr Gapes, and the absence of objections from Mr Gapes tothe reminders for what were stated as "overdue debts", is allinconsistent with the Payment Arrangements and Updated PaymentArrangements being in place;(c) the absence of any documentary evidence referring to the PaymentArrangements and alleged debt write-offs.[18] Accordingly, I am of the view that no arguable error is shown in the Judgmentin this respect.Defective Payment Claims[19] The statutory demands issued to Stoke were for invoices associated with thefollowing projects:(a) Stafford project (invoices 21253, 21297);(b) Palmerston North LFR project (invoices 21359, 21458);(c) Bowen project (invoices 21054, 21153);(d) Morningside Drive project (invoices 21360, 21758);(e) Gapes' residence (invoice 21755); and(f) Invoices 20779, 20919, 21001, 21051, 21052 and the remainingamount for invoice 21150 for the Ardmore project.[20] Of these invoices, invoices 21054, 21153, 21253, 21297, 21359 and 21360were held in the Judgment to the valid payment claims under the CCA.[21] Ms Paterson submits that the payment claims do not comply with s 20 of theCCA and that the Judgment erred in finding that the errors regarding the due date forpayment, the lack of clarity under s 20(2)(f) of the CCA, and the fact the invoices wereissued to "Redwood Group" (not "Redwood Group Limited") are insufficient toinvalidate the claims.[22] Ms Paterson makes the following submissions in relation to the invoices:(a) Two time periods stated in the invoices – 14 days and the 20th of thefollowing month – the fact that two time periods are stated makes thecase distinguishable from the decision in CMP Construction Ltd vAluminium Technology Ltd.4 She submits that the uncertainty causedby the two dates is not trivial when taken alongside the other areas ofnon-compliance.(b) In breach of s 20(2)(f) of the CCA, the terms of the invoices do notmake it clear that the invoices are payment claims under the CCA. Shesubmits that the terms of the invoices stating that the invoices are onlypayment claims if "any of the services/works to which this tax invoicerelates, constitute 'construction works' (as defined under s 6 of theConstruction Contracts Act 2002)" do not state they are made under theCCA, and leave it up to the payee to determine whether they are apayment claim or not. She submits the fact that Buchan were issuinginvoices and payment claims for architectural services for projectscauses further uncertainty as to whether the invoices are paymentclaims under the CCA. She submits that there is little difference4 CMP Construction Ltd v Aluminium Technology Ltd [2013] NZHC 2481.between the invoice and the "payment claims", all of which were forBuchan's architectural services.(c) The invoices were issued to "Redwood Group". The Redwood Groupincludes entities other than the applicants. This discrepancy createsuncertainty.[23] Ms Paterson submits that, when taken together, the Judgment erred in findingthe errors do not create any substantial uncertainty as to the work being claimed orthat they are claims under the CCA or that they are claims against Stoke. Thecombination of deficiencies is sufficient to raise a substantial issue over their validityas payment claims under the CCA.[24] Ms Paterson further submits that if the invoices are not payment claims thenthe invoices are not debts due under s 23(2)(a)(i) of the CCA and accordingly paymentwas only due pursuant to the Payment Arrangement and the Updated PaymentArrangement. Consistent with the Payment Arrangement:(a) while the first invoices for the Bowen project was paid, the two laterinvoices were not as the project is in the early concept stages and didnot go live. Accordingly, an original drip-feed contribution is all thatwas paid;(b) Mr Gapes' invoice is yet to be agreed;(c) the Morningside Drive project is never going to happen and thepayment of those two invoices has not been made.[25] Ms Brady, on the other hand, submits that the Judgment is correct in findingthat the payment claims issued by Buchan (save for those expressly acknowledged asinvalid) are valid payment claims and compliant with s 20 of the CCA. She submitsthe alleged errors raised by Stoke in relation to the payment claims are "mere technicalquibbles", referring to the CMP Construction decision,5 and do not invalidate the5 Above, n 4.claims, whether considered on their own or taken together. She submits Stoke was notconfused about the date for payment but complied with neither of the dates forpayment. The valid payment claims attach the mandatory form, which clearlydemonstrates Buchan was making a payment claim.[26] Ms Brady also points to the decision in Cambria Commercial 2009 Ltd vPetley6 where the Court took the view that where there is no error in substance orconfusion created by a mistake, and that error or mistake is taken up in defence of apayment, that is the encapsulation of a "technical quibble".Conclusion in relation to the payment claims[27] In my view the Judgment did not err in finding that the relevant invoices werevalid payment claims under the CCA. I agree with Ms Brady's submission that theerrors, even taken together, are all technical quibbles and the applicants would havebeen well aware of the payments being claimed as payment claims under the CCA.[28] I adopt the words of Associate Judge Doogue in Loveridge Ltd v WatsonHughes Construction Ltd7 (referred to in the Cambria Commercial decision) wherethe Judge said:My view is that, in broad agreement with that approach, if a reasonablereading of the document as a whole would convey the required information,differences in terminology will not be important.[29] Accordingly, my view is that the Judgment did not err in respect of the findingthat the relevant invoices were relevant payment claims under the CCA and the debtsare recoverable pursuant to s 23(2) of the CCA.Statutory demands are an abuse of process[30] Ms Paterson submits that the Judgment erred in finding there was not sufficientevidence before the Court that the issue of statutory demands is an abuse of process.6 Cambria Commercial 2009 Limited v Petley HC Palmerston North, CIV-2011-454-457,7 December 2011 at [51].7 Loveridge Limited v Watson Hughes Construction Limited HC Tauranga, CIV-2011-470-275,29 September 2011 at [22].[31] Ms Paterson submits that from Mr Gapes' perspective, the reason behindissuing the statutory demands are directly in issue and the affidavit provided byMr Guild in respect of the proceeding against Stoke does to deny the allegation nordoes Mr Guild respond to the allegation. This is in contrast to the affidavits ofMr Bruce Shaw in respect of Gorge and East Link proceedings. She submits thereforethat in the Stoke proceedings at least, there is evidence that the statutory demands wereissued to put undue pressure on the applicants.[32] On the other hand, Ms Brady submits that the Judgment is correct to find thatthe issue of the statutory demands were not an abuse of process. She submits thatthere is no "Redwood Group" and Mr Gapes has opted to incorporate stand-alonecompanies for each of his developments. Accordingly, the issue of the statutorydemand in circumstances where substantial sums of money are owed by one companyto another is a perfectly normal step and is not an abuse of process.[33] In addition, Ms Brady points to the fact that Mr Gapes has deposed that theapplicants are no longer trading and that Coronet Villas Ltd and the TimaruMegaCentre GP Limited plan to bring their own claims against Buchan. Accordingly,she submits there can be no undue pressure brought by the issuing of a statutorydemand to a company which is no longer trading.Conclusion in relation to abuse of process[34] In my view, the Judgment was correct in finding there was insufficientevidence of abuse of process put before the Court. Really, the only evidence wasMr Gapes' assertions that the proceedings were brought to bring pressure in relationto claims against Buchan by the companies with which he is associated. An equallyplausible explanation is that, as Mr Gapes is no longer using Buchan's services,toleration of slow payments by the applicants during the ongoing relationship came toan end and Buchan was now pursuing payments of outstanding debts in the normalcourse of business.[35] Accordingly, in my view the applicants have not established that the Judgmenterred in this respect.The importance of the appeal[36] Ms Paterson submits that the appeal is sufficiently important to the applicantsto outweigh any lack of general or precedential value. She submits that if leave is notgranted, Buchan will advertise the proceedings which will prejudice the applicants.She submits that, given the impact on the applicants, the circumstances and nature ofthe proceedings warrant incurring further delay. In the meantime, Buchan's positionis not prejudiced. She submits the liquidation proceeding will remain on foot and, ifsuccessful, time periods for any liquidator to seek recoveries remain unchanged.Accordingly, in the circumstances, the interests of justice are served by granting leave.[37] Ms Brady, on the other hand, submits that the applicants accept that no mattersof general or public importance arise from the Judgment. She submits there is no realimportance to the proposed appeal to the applicants. She submits the applicants areno longer trading and therefore will be likely wound-up. She points out that Mr Gapeshas incorporated a new company called "Redwood Group Limited" and has renamedthe company formerly known as Redwood Group Limited (which is the applicant inthis proceeding) to the Stoke Group Ltd. Consequently she submits that if Mr Gapesthought there would be prejudice by advertisement of these liquidation applications,he would not have named his new company "Redwood Group Limited".[38] Further, Ms Brady submits that Mico Developments Limited, another companycontrolled by Mr Gapes, was recently placed in liquidation. Accordingly, she makesthe point that if Mr Gapes is concerned that a company associated with him has beenplaced in liquidation, that has already happened.[39] Ms Brady submits that Buchan will be prejudiced by further delay. Buchanhas other debts owed by Redwood and the applicants have provided no evidence theyhave funds to meet the debts that form the basis of the statutory demands or the costsaward. She notes that the costs award from the application to restrain advertising hasnot been paid and Buchan has incurred further costs from this application, and willincur further costs in dealing with any appeal.[40] Finally, she submits that the lack of general precedential value is notoutweighed here by the importance of the appeal to the applicants. The circumstancesdo not warrant any further delay and is not in the interests of justice to grant leave.She submits that in the circumstances, where there is no evidence that there are fundsin the applicant companies, it is in the interests of justice for letting the liquidationprocess continue without further delay.Conclusion in relation to the importance of the appeal[41] In my view, the circumstances of the appeal do not warrant granting leave andthe further delay. I note, in particular, Ms Brady's submissions that the applicants haveput forward no evidence as to their ability to make payment of the outstandingdemands and given the applicants have ceased trading, it would seem advertisementof the liquidation proceedings would not cause significant harm to the commercialreputations of the applicants.[42] Accordingly, I am of the view that the importance of the application to theapplicants does not outweigh any lack of general or precedential value, andaccordingly should not be granted on this basis.Stay of the proceedings and advertising[43] The applicants also seek a stay:(a) of the proceedings pending a determination of their application forleave to appeal and, if leave is granted, until the determination of theappeal;(b) of advertising of the proceedings pending determination of theirapplication for leave to appeal and, if leave is granted, until thedetermination of the appeal.[44] By minute dated 9 June 2023, I ordered that advertisement of the proceedingsis restrained, and the proceedings are stayed, in each case pending determination ofthis leave to appeal application made by the applicants.Result[45] As a result of the conclusions I have reached at [27]. [34] and [41] and [44],I am of the view that the application for leave to appeal and to stay the proceedingsshould be dismissed.Orders[46] I make the following orders:(a) The applicant's application for leave to appeal the Judgment and,subject to [46](b), for an order staying the proceedings is dismissed.(b) Buchan shall not advertise the proceedings or take any further steps inthe proceedings for a period of 20 working days following the date ofthis judgment.(c) My preliminary view is the Buchan, as the successful party, is entitledto costs against the applicants on a 2B basis plus disbursements.Counsel are directed to endeavour to agree costs within 20 workingdays of the date of this judgment, failing which counsel for Buchan isto file a memorandum as to costs (not to exceed five pages) within10 working days of expiry of the 20 working day period and counselfor the applicants is to file a memorandum in reply (not to exceed fivepages ) within 5 working days of receipt of counsel for Buchan'smemorandum. A decision on costs will then be made on the papers...Associate Judge TaylorSolicitors:Paterson Legal Limited (K M Paterson), Newmarket, Auckland, for the ApplicantsTompkins Wake (Morgan Brady) , Hamilton, for the RespondentCopy for:Paul Murray, Barrister, Akarana Chambers, Auckland, for the Applicants