WEST VILLAGE CAPITAL PARTNERS LTD v ACROW LTD [2019] NZHC 1035

WEST VILLAGE CAPITAL PARTNERS LTD v ACROW LTD [2019] NZHC 1035 [22 May 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-002648[2019] NZHC 1035UNDER Section 20 of the Companies Act 1993IN THE MATTER OF an application to set aside a statutorydemandBETWEEN WEST VILLAGE CAPITAL PARTNERSLIMITEDApplicantAND ACROW LIMITEDRespondentHearing: 7 May 2019Appearances: J Q Wilson and G R Garcia for ApplicantA L Harlowe for RespondentJudgment: 22 May 2019JUDGMENT OF ASSOCIATE JUDGE P J ANDREWIntroduction[1] The applicant, West Village Capital Partners Ltd (West Village), is thedeveloper of a 153-unit residential apartment complex on the corner of Cook Streetand Union Street in the Auckland CBD known as the "Union Green Apartments".West Village entered into a fixed lump sum contract with Ebert Construction Ltd(Ebert) to build the Union Green Apartments. Ebert was placed into receivership inJuly 2018 and into liquidation in October 2018.[2] The respondent, Acrow Ltd (Acrow), is an equipment rental company that hiresout propping and scaffolding. It had a contract with Ebert to provide essentialscaffolding services for the Union Green Apartments.[3] West Village seeks to set aside a statutory demand issued against it by Acrow,pursuant to s 290(4)(a) of the Companies Act 1993. The statutory demand relates tothree invoices issued by Acrow for what it says was the provision of essentialscaffolding services provided to West Village while it searched for a new constructioncompany following the collapse of Ebert.[4] West Village contends that there was no contract of any kind between it andAcrow that entitles Acrow to payment of the invoiced sums. It says there is asubstantial dispute as to whether the alleged debt represented by the invoiced sums isowing.[5] Acrow contends that West Village triggered a contractual continuity guaranteerequiring Acrow to continue to provide scaffolding services. Acrow claims thatpursuant to the continuity guarantee West Village was obliged to pay for such serviceson the same rates as Ebert. Alternatively, it is claimed by Acrow, that in the absenceof the continuity guarantee applying, the parties nevertheless reached a bindingagreement that West Village would pay for ongoing scaffolding services provided byAcrow.[6] The critical issue I must determine is whether there is a genuine and substantialdispute that West Village has any contractual liability for the debt.Relevant legal principles[7] The Court's jurisdiction to set aside a statutory demand is contained in s 290(4)of the Companies Act 1993. That section reads:290 Court may set aside statutory demand(4) The court may grant an application to set aside a statutory demand ifit is satisfied that –(a) there is a substantial dispute whether or not the debt is owingor is due; or(b) the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less theamount of the counterclaim, set-off, or cross-demand is lessthan the prescribed amount; or(c) the demand ought to be set aside on other grounds.[8] The Court of Appeal has recently confirmed the principles the Court shouldapply in exercising this jurisdiction.1 The principles are:(a) The applicant must show that there is arguably a genuine andsubstantial dispute as to the existence of the debt.(b) The mere assertion the dispute exists is not sufficient. Material shortof proof is required to support the claim that the debt is disputed.(c) If such material is available, the dispute should normally be resolvedother than by means of proceedings in the Court's Companies Actjurisdiction.(d) It is not usually possible to resolve disputed questions of fact onaffidavit evidence alone, particularly when issues of credibility arise.[9] The Court of Appeal also stated:[22] It is important to keep in mind the words of the statute. What theapplicant must show is that the dispute it raises has substance; the applicant1 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559 at [17]. See also CarrollCivil Ltd v Texco Drilling and Piling Ltd [2019] NZHC 260 at [19].must explain to the Court what the dispute is; and the dispute so shown mustbe a real and not a fanciful or insubstantial dispute. The Court must bear inmind that it is operating in the summary jurisdiction with the accompanyingdisadvantages that brings for any applicant. The Court must also keep in mindthe requirement that what is intended to be a summary hearing should not beconverted into a full-blown trial.(Footnotes omitted).Factual background[10] On 17 August 2016, West Village and Ebert entered into the head contract forthe construction of the Union Green Apartments. In May 2017, Ebert and Acrowentered into a sub-contract agreement in respect of the provision by Acrow ofscaffolding services.[11] On 19 May 2017, Acrow provided a sub-contractor's continuity guarantee infavour of West Village.[12] Clause 3.3.1 of the specific conditions of the sub-contract between Ebert andAcrow required that a continuity guarantee be provided.[13] Clause 1 of the continuity guarantee (of 19 May 2017) provides:THE Subcontractor hereby covenants that in the event of the employment ofthe Contractor being determined under the Building Contract, theSubcontractor will, if required by the Principal, complete its portion of theContract Works under the same conditions and for the same consideration asoriginally agreed between the Contractor and the Subcontractor. The Principalshall only be liable for payments under such arrangement accruing as from thedate of issue of the requirement by the Principal to the Subcontractor.[14] Ebert hired propping, scaffolding and construction frames from Acrow. Thisincluded "Doka" formwork, which is a panel formwork system that connects to formramps and walls, amongst other things.[15] Ebert was placed into receivership on 31 July 2018 and subsequently placedinto liquidation on 3 October 2018. On 9 August 2018, Ebert's receivers advised WestVillage that Ebert would not perform the head contract.[16] The propping, scaffolding and construction frames owned by Acrow remainedat the Union Green site when Ebert left that site on 10 August 2018.[17] In late December 2018, West Village entered into a new head contract withDominion Constructors Ltd (Dominion) to complete the development.[18] On 15 August 2018, Acrow delivered a letter to West Village advising that ithad been informed by the receivers of Ebert that control of the Union Green site hadbeen returned to MyLand Partners (NZ) Ltd (Myland Partners). West Village receivesmanagement and support services from MyLand Partners and some of the criticalcorrespondence and documents at issue are between Acrow and MyLand Partners.[19] In the letter of 15 August 2018, Acrow advised that it required payment of$207,668 plus GST in order to leave its equipment on the site. Acrow advised that ifMyLand Partners were unable to make the payment, Acrow would make arrangementsto begin removal of its assets on 21 August.[20] West Village replied by a letter dated 20 August 2018. The letter stated thatwhile Ebert had abandoned the construction site the construction contract had not, bythat stage, been terminated. West Village advised that it was looking to procureDominion as the new contractor. The letter went on to state that "if Dominion is thehead contractor, it will likely wish to use Acrow's propping given the connectionsbetween Acrow and the Dominion Group. If that is not the case, then the proppingwill need to be removed in an orderly way in the context of installing replacementpropping".[21] On 22 August 2018, Acrow's solicitors sent a letter to West Village. Theyadvised that the propping could be removed with no residual health and safety risksand that refusing to allow Acrow to enter the site and uplift the equipment so that WestVillage could use it for the purposes of continuing the development without paymentwould be unlawful and specifically an act of conversion. Acrow demanded that WestVillage either make payment as set out in its earlier letter of 15 August oraccommodate Acrow in entering the site and uplifting the equipment.[22] West Village replied on the same day via its solicitors, Bell Gully. West Villagedenied any conversion. The letter further stated:We are instructed that the equipment remains where it was installed under thehireage contract. Now that Ebert has abandoned the site, the equipment isavailable to collect subject to ensuring any health and safety issues areaddressed. We refer to WVCP's letter to Acrow dated 20 August 2018.[23] The parties then engaged with one another on the removal of the equipment.[24] On 23 August 2018, Mr Gough, on behalf of Acrow, emailed Mr Moinfar ofMyland Partners advising that he had been to the site that day to make arrangementsfor Acrow to remove the equipment and that Acrow was in the process of finalisingthe plan for the removal of the equipment. During that site visit, Mr Gough says thathe discussed not only what scaffolding would be removed but also what scaffoldingwould remain, as well as the pricing of the remaining services.[25] On 28 August 2018, Mr Callum Rae (a contractor employed by MyLandPartners), sent a document which he described in his covering email as "thescaffolding take off" to Mr Chris Moller (a quantity surveyor from Russell PropertyGroup, who was assisting Dominion). The document was headed "Union GreenScaffold Review".[26] On 29 August 2018, Bamford Consultants produced a "Preliminary ReviewBackpropping Stripping with Current Construction Status" diagram. Mr Raeforwarded the backpropping plan to Mr Moller on the same date. Later that same day,Mr Rae forwarded that document, together with the "scaffolding take off" document,to Mr Gough of Acrow. Amongst other things, Mr Rae asked for Acrow to confirmthat it wished for the site to be open on Saturday (1 September 2018) and requested aplan for the dismantling of the equipment and certain other confirmations.[27] The document referred to as the "scaffolding take off", attached to Mr Rae's29 August 2018 email (a document of significance and which Acrow relies upon), isheaded "Union Green Scaffold Review" and specifically refers to scaffolding itemsthat are to remain under the heading "Items in bold to stay".[28] Acrow sent a summary of its pricing to Dominion on 29 August 2018.Dominion was, at that time, in negotiations to become the head contractor to WestVillage.[29] On 14 September 2018, Acrow sent three invoices addressed to MyLandPartners via a MyLand email address. This included:(a) Invoice 497950 (dated 14 September 2018) for "Scaffold & DokaEquipment Continuation of Hire" for the period 10 August to 31 August2018;(b) Invoice 497948 (dated 14 September 2018) for "Hire ScaffoldSeptember as per MyLand Partners email 29/8/18" and "Rental of DokaFramework as per MyLand Partners email 29/8/18"; and(c) Invoice 497949 (dated 14 September 2018) for "Hire Scaffold Octoberas per MyLand Partners email 29/8/18" and "Rental of Doka FormworkOctober as per MyLand Partners email 29/8/18".[30] In September 2018, there was communication between Mr Blacklock ofMyLand Partners and Ms Barrington of Acrow about the invoices. Acrow says that atno stage did MyLand Partners, on behalf of West Village, dispute the invoices.[31] Following a formal demand on 6 November 2018, Acrow served the statutorydemand on 15 November 2018, demanding payment of three invoices.Analysis and decision[32] In analysing the critical issue of whether there is a substantial dispute aboutWest Village's contractual liability for the debt, I first address the question of thecontinuity guarantee and secondly, whether contractual liability arises on some otherbasis.The continuity guarantee[33] In contending that no contract for the hire of the scaffolding equipment aroseunder the continuity guarantee, West Village submits:(a) In order for the continuity guarantee to apply, the employment of thecontractor must be determined and the Principal must require the sub-contractor to complete its portion of the contract works under the sameconditions as under the sub-contract; and(b) The Principal is only liable for payments accruing "from the date ofissue of the requirement by the Principal to the sub-contractor".[34] West Village contends that there was both no requirement issued to Acrow andno determination of the employment of the contractor (Ebert).[35] Acrow contends that the continuity guarantee was triggered by West Villageon 29 August 2018 by the sending of the email of Mr Rae of the same date togetherwith the attachments (both the scaffolding report and "to be read in conjunction withthe Bamford Consultants back-propping review") sent to Mr Gough of Acrow. Theemail was sent following a walk around the site by representatives of the respectiveparties and discussions about pricing. The attachments to the email are said to clearlyset out what items were to remain and what was to be removed.[36] Acrow says that the requirement issued by West Village went beyond the 592square metres propping highlighted in the Bamford Consultants report and requiredextra equipment such as ramps, walls and lift charts. This was to allow for an interimmeasure of continuation services allowing for site inspections from Auckland Council,engineers and others. The items which had been agreed would remain were not solelythose which the parties were required to leave in-situ because of the requirements ofthe Health and Safety at Work Act 2015. This is all said to represent a clearrequirement issued by West Village that Acrow was to continue to provide certainagreed scaffolding items and a commitment by West Village (as the guaranteeprovides) to pay for the ongoing services.[37] Acrow further argues that earlier correspondence between the parties(including the exchange of letters on 21 and 22 August 2018) was not an outrightrejection by West Village of Acrow's services. Rather, what had been agreed was thesuspension of further discussions until West Village could confirm that Dominionwould become the new head contractor.[38] On the evidence before me, I find that the applicant, West Village, hasestablished that there is arguably a genuine and substantial dispute as to whether thecontinuity guarantee was triggered by it. There is a genuinely triable claim that WestVillage did not issue a requirement under the guarantee but rather, in obviouslydifficult circumstances, was focused on seeking a replacement contractor as soon asreasonably practicable. There were clearly discussions about scaffolding remainingin place and those discussions may not have been confined to issues of health andsafety. However, against the backdrop of the correspondence between the solicitors(and in particular the Bell Gully letter of 22 August 2018 expressly disavowing anycontractual or other liability for the equipment) it is clearly arguable that a more formalrequirement might reasonably have been expected, not the relatively informalcommunications of 29 August 2018. In any event, there is a dispute on the evidenceas to whether matters extended beyond health and safety.[39] The perspective of Mr Gough on the communications of 29 August 2018 areentirely understandable and plausible. Acrow was obviously concerned to achievesome certainty with the equipment either remaining and West Village paying for it, orit being removed. However, I accept the submission of Mr Wilson, for West Village,that there is a genuine and substantial dispute as to whether the arrangements betweenthe parties (particularly those recorded in the email and attachments of 29 August2018) should be understood or interpreted as invoking the continuity guarantee or beinterpreted as no more than the conclusions of the health and safety experts on whatequipment should remain and what should be removed. I reject the submission ofMr Harlowe, for Acrow, that there is only one reasonable explanation for thescaffolding review attached to the 29 August 2018 email, namely that it was arequirement for certain equipment to remain.[40] It is true that cl 1 of the continuity guarantee does not contain an expressrequirement that the principal give written notification of the invocation of the clause.However, cl 1 expressly contemplates a requirement being issued (not just a processfor removal of equipment and the need to comply with health and safety legislation),one which Acrow as the sub-contractor is bound to comply with. The steps taken bythe parties have to be assessed within that framework.[41] The Bell Gully letter of 22 August 2018 expressly foreshadowed the partiescommunicating and reaching agreement on what scaffolding equipment needed toremain in order to address health and safety legislative requirements. That earliercorrespondence is, in my view, an important context for assessing the communicationson 29 August 2018. It is clearly arguable, in applying orthodox contractualinterpretation principles, that a reasonable bystander would not interpret thecommunications of 29 August 2018 as an assumption of responsibility by West Villageunder the continuity guarantee.2 Although the evidence is in dispute, there is a tenableclaim that West Village, focused on attempting to bring Dominion on board as soon aspossible (with the result that the issue of the equipment remaining on site or not, wouldbe quickly resolved) did not trigger the continuity guarantee as contemplated by cl 1.[42] I also accept the submission of Mr Wilson that Acrow's failure to issue thethree invoices in accordance with the express terms of the head contract provides somesupport for the conclusion that no requirement was issued by West Village pursuant tothe continuity guarantee – that is, the conduct of the parties, including the fact that on29 August 2018 an invoice was issued by Acrow to Dominion, is not suggestive of theinvocation of the continuity guarantee.[43] I reject the submission of Mr Harlowe that the commercially obvious andsensible approach for West Village would have to have been to invoke the continuityguarantee. The invoking of the continuity guarantee does of course give rise to directfinancial liability by West Village and having already taken legal advice about thesituation, it is entirely understandable that West Village would be proceeding2 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].cautiously and would likely only invoke the continuity guarantee in a formal way (thatis, via its solicitors).[44] I acknowledge that, as persons conducting a business or undertaking (PCBU),both parties had responsibilities under the Health and Safety at Work Act 2015.However, steps taken to address health and safety obligations cannot automatically beequated to an assumption of responsibility by West Village under the continuityguarantee.[45] In support of his submission that the guarantee had been triggered by WestVillage, Mr Harlowe relied on what he described as the "statutory estoppels" ins 18(1)(c) and (d) of the Companies Act 1993. He contended that MyLand Partnersand Mr Rae, acting with apparent or ostensible authority, made representations thatbound West Village under the continuity guarantee. However, as Mr Wilsonsubmitted, the question is not whether MyLand Partners or Mr Rae were authorised toreach a binding commitment on behalf of West Village but rather, what were theyauthorised to do – what was the scope of the holding out? I acknowledge the role ofMr Taylor in the various arrangements but there is a substantial dispute (involvingcontested evidence that I cannot determine) as to whether Messrs Taylor and Rae wereauthorised and/or held out as having authority to invoke the continuity guarantee.[46] Having concluded that there is a substantial dispute about whether thecontinuity guarantee was invoked by West Village issuing a requirement, it is notnecessary for me to determine whether the guarantee did not in any event apply,because the employment of Ebert (the contractor) had not been determined. I expressno view on that issue.Alternative basis for contractual liability[47] In support of its alternative argument that, in the absence of the continuityguarantee applying, the parties nevertheless reached agreement for West Village toretain and pay for the remaining scaffolding equipment, Acrow relies on the decisionof Fisher J in Transpower New Zealand Ltd v Meridian Energy Ltd.3 Acrow contendedthat the basic premise of the law in Transpower is that:(a) Where a party elects to accept a service offered on a contractual basisthen that party is bound by such offer.(b) In a commercial context, a real and practical approach must be taken tothe question whether, viewed as a whole and objectively, the exchangesbetween the parties show a concluded agreement. Undue emphasisupon the traditional sequence of offer and acceptance can sometimesdistract from the ultimate question which is whether the dealings showa concluded bargain.4[48] Transpower related to a contract for transmission service between Transpower,as the owner and operator of the national electricity transmission grid, and MeridianEnergy Ltd, an electricity generator and user of the grid. The parties had negotiatedfor a contract for services in the context of the division of the Electricity Corp of NewZealand (ECNZ) among state-owned enterprise generators, including Meridian.Transpower maintained that, in the absence of explicitly agreed terms, certain "postedterms" were deemed accepted by Meridian's conduct in using its transmissionservices.[49] Meridian used Transpower's grid after it acquired generation assets fromECNZ. Meridian made payments at a level that it calculated were being paid by itsmain South Island competitor, Contact Energy Ltd, but denied any contract.[50] Fisher J held that where an offeree took a benefit offered without explicitlyrejecting the terms, its conduct could constitute acceptance of terms, but where theofferee made clear that it rejected the terms on which the benefit was offered, the offerhad not been accepted and no contract resulted as there had been not the requisitecoincidence of offer and acceptance. In that case, Transpower knew that Meridian hadrejected the posted terms and that, too, was fatal to the existence of a contract.3 Transpower New Zealand Ltd v Meridian Energy Ltd [2001] 3 NZLR 700 (HC).4 At [51].[51] I reject the submission of Acrow that West Village is contractually liable in thealternative manner contended for. I find that West Village has demonstrated that thereis a genuine and substantial dispute as to whether it can be contractually liable for theongoing hireage of the scaffolding equipment in circumstances where it retained andcontinued to use and enjoy the benefits of that equipment. On the evidence before me,as at 29 August 2018 (when the contract is said to have come into existence), WestVillage had not seen the pricing terms and had as recently as 22 August 2018 expresslyindicated that it would not accept any contractual responsibility. It is clearly arguable,as Mr Wilson submitted, that having clearly stated its contractual position, WestVillage was not required to keep repeating or restating that position. In any event,what it did on 29 August 2018 was, arguably, to provide its health and safetyassessment (as foreshadowed in the Bell Gully letter of 22 August 2018).[52] In relation to the communications between Mr Blacklock of MyLand Partnersand Ms Barrington of Acrow in September 2018, there is a clear dispute on theevidence as to whether MyLand Partners, on behalf of West Village, ever acceptedresponsibility for the invoices. Mr Moinfar has responsibly acknowledged thatMyLand was not always "speedy" with its response to some of Acrow'scorrespondence, but that provides no basis for concluding that there was a clearcommitment or acknowledgement by MyLand on behalf of West Village that theinvoices would be paid.[53] It may well be the case that Acrow has a significant quantum meruit claimagainst West Village for its retention and use of the scaffolding equipment. However,that cannot assist Acrow in its attempt to uphold the statutory demand. Mr Harlowedid not seek to argue (rightly so in my view) that on the basis of a quantum meruitclaim the statutory demand should be upheld. An unliquidated claim cannot constitutea debt for the purposes of s 289 of the Companies Act 1993.5 The acknowledged slowresponse by West Village to Acrow's pursuit of its claim (during a period when itcontinued to use the equipment) may well be of relevance to any quantum meruitclaim.5 Re Prime Link Removals Ltd [1987] 1 NZLR 510 (HC); and Northern Crest Investments Ltd vRobt Jones Holdings Ltd [2009] 19 PRNZ 258 (HC).[54] Having concluded that West Village has demonstrated there is a substantialdispute that it has no contractual liability for the debt, it follows that the statutorydemand should be set aside. The dispute should be resolved other than by means ofproceedings in this Court's Companies Act jurisdiction.Result[55] I conclude that the applicant, West Village Capital Partners Ltd, hasdemonstrated that there is a genuine and substantial dispute as to the existence of thedebt in the statutory demand issued by Acrow on 14 November 2018.[56] I set aside the statutory demand issued by the respondent, Acrow Ltd, dated14 November 2018, pursuant to s 290(4)(a) of the Companies Act 1993.[57] My preliminary review is that the applicant, West Village, having succeeded,should be entitled to costs and on a 2B basis. If the parties cannot agree on costs, thenmemoranda are to be filed within 14 days.__________________________Associate Judge P J Andrew