Ipsofactoj.com: International Cases [2000] Part 5 Case 6 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Arbridge Developments Ltd

- vs -

Weatherby Developments Ltd

RICHARDSON P 

GAULT J

BLANCHARD J

4 JULY 2000


Judgment

Richardson P

  1. This appeal is against the decision of the High Court refusing an application by the present appellant, Arbridge Developments Ltd ("Arbridge") to set aside a statutory demand by Weatherby Developments Ltd ("Weatherby") under s 289 of the Companies Act 1993 and ordering that Arbridge pay Weatherby $315,498.31 by 16 May 2000 and that, in default of payment, Weatherby may make an application to put Arbridge into liquidation.

  2. In essence the grounds of Arbridge's application under s 290 were

    1. that there was a substantial dispute as to whether or not the alleged debt was owing or was due; and

    2. that Arbridge had various counterclaims or set-offs.

  3. Master Kennedy-Grant summarised the circumstances in which the claim arose as follows:

    1. In January 1999 the applicant contracted with Nationwide Group Developments Ltd to construct a total of 28 houses, four at Tidal Rd, Mangere, four at Massey Rd, Mangere, and 20 at Plumley Crescent, Mangere. Nationwide Group Developments Ltd's interest in this contract was later assigned to Force Developments Ltd, a related company.

    2. In March 1999 the applicant sub-contracted the work under this contract to the respondent.

    3. The first four houses, which I will call collectively the Tidal Rd Stage 1 Houses, were completed (I use the word loosely at this stage) in May 1999. The respondent invoiced the applicant for the full amount due under the contract and was paid that amount.

    4. The second four houses, which I will collectively describe as the Massey Rd Houses, were completed (again I speak loosely, as will appear) in August 1999. The respondent again invoiced the applicant in respect of this group of houses and was paid.

    5. A defects list was issued in respect of the Massey Rd Houses in or about August 1999 and was attended to by the respondent. There is an issue as to whether it was attended to completely.

    6. In July 1999 a separate contract for the construction of 16 houses at Tidal Rd was entered into between Force Development Ltd and Maromaku Holdings Ltd. Force Development Ltd's interest in this second contract was assigned by that company to the applicant.

    7. Construction of the houses in this second contract and of a further four houses, which I will collectively call the Tidal Rd Stage 2 Houses, was substituted as between the applicant and the respondent for the third group of 20 houses in the first contract sub-contracted to the respondent in March 1999.

    8. The respondent completed the first four houses in the Tidal Rd Stage 2 project (again I speak loosely) on 24 October 1999 and billed the applicant for them. This is the first remaining item in the statutory demand.

    9. The applicant had issued a progress payment claim in respect of these houses during their construction. A payment was made on 2 November 1999 which the respondent alleges was in response to this progress payment claim. The applicant for its part, contends it was a voluntary advance.

    10. The respondent commenced the construction of the second group of four houses in the Tidal Rd Stage 2 project in November 1999 and issued a progress claim on 29 November 1999.

    11. This progress payment claim was not paid.

    12. On 10 December 1999 the respondent purported to cancel the contract, stopped work and invoiced the applicant for $226,000.00, being the contract price for the second four houses in the Tidal Rd Stage 2 project less an allowance of $115,000 for completion of those houses.

  4. Arbridge contended that payment in respect of the Tidal Rd Stage 2 Houses was to be made 30 days after completion of the houses and then only on production of a 5 year New Home Guarantee from Master Build Services Ltd or from Weatherby itself. Weatherby contended that payment was to be made for each group of four houses separately on the basis of

    1. a progress payment of $70,000 within four weeks of commencement of work on that group of houses; and

    2. the balance within 30 days of the completion of that group of houses, and that there was no obligation to provide a guarantee.

  5. In terms of s 290(4) the onus was on Arbridge to satisfy the High Court of the existence of the grounds relied on. Applying by analogy the principles relating to refusing entry of summary judgments, the Master held that Arbridge had to establish an arguable case in support of those grounds; that not every allegation made by the applicant must be taken into account; and that if the applicant's case was inherently improbable or otherwise clearly unworthy of credit it might be discounted.

  6. It was common ground in the High Court that the terms of payment for Stage 2 were orally agreed. The argument for Weatherby was that the affidavit evidence of Mr. Liao for Arbridge should be discounted as being inconsistent with the surrounding circumstances and the parties' actions and as being inherently improbable. For the reasons he gave the Master accepted that submission. He went on to consider the amount to which Weatherby was presently entitled. The figure for the first group of four houses was $264,498.31 and for the second $226.000 after allowing $115,000 for their completion. The Master then deducted from that total $175,000, being $25,000 in respect of the cost of outstanding work on the first four houses in the Tidal Rd Stage 2 Project, $85,000 in respect of further allowance for work on the second group of four houses in the Tidal Rd Stage 2 Project, and $65,000 for the cost of outstanding work in respect of the Tidal Rd Stage 1 houses and the Massey Rd houses, leaving $315,498.31 as the amount immediately payable by Arbridge.

  7. In the points of appeal Mr. Warburton for Arbridge submitted that it was inappropriate in all the circumstances for the Master to disregard Mr. Liao's evidence as to payment terms under the contract relating to the Tidal Rd Stage 2 contracts. In his written submissions he has also argued that the contract remained on foot, Arbridge not having accepted the purported cancellation of the contract by Weatherby, and that no money is presently payable; that even if cancelled it has not been substantially performed given the work required to be completed; and, further, as to quantum, to achieve a just result under s 9 of the Contractual Remedies Act 1979 the matter should go to a substantive hearing in the ordinary way.

  8. On the primary issue as to the agreed basis of payment the Master concluded that the following matters favoured the respondent's contention:

    (a)

    There is no doubt that the agreement, so far as the Tidal Rd Stage 1 Houses were concerned, provided for progress payments.

    (b)

    Progress payments were made although not in strict accordance with the contractual terms in respect of the Tidal Rd Stage 1 Houses.

    (c)

    Progress payments were also made in respect of the Massey Rd Houses.

    (d)

    The respondent made progress claims in respect of each group of four houses in the Tidal Rd Stage 2 project without its right to progress payment being challenged at the time.

    (e)

    The applicant made a payment which was of an amount equivalent to the progress claim in respect of the first four houses in the Tidal Rd Stage 2 project. The amount actually paid was greater but there appears to be agreement that it also included a credit which was due to the respondent.

    (f)

    To accept the applicant's contention as to the payment terms would mean that the respondent agreed to carry the cost of building 8 houses for up to in excess of 20 weeks. The respondent could build 4 houses every 8 weeks i.e. would take 16 weeks to build 8 houses, and would then have to wait a further 30 days after completion for payment, if the applicant's version is correct. This is a course which would obviously expose the respondent to extreme risk, given its obligations to its sub-contractors and suppliers, and is one which it is unlikely that the respondent would have agreed to.

    And as to the provision of a guarantee, the Master continued:

    (g)

    In so far as it is part of the applicant's case that payment was only due on provision of a guarantee:

    (i)

    It is clear, in my view, that the term requiring the provision of a guarantee was not carried through into the sub-contract. Certainly this is so in the case of the first contract. I base this finding on the fact that the sub-contract document which is described as an assignment, requires the respondent to build the houses to the specifications contained in the head contract but does not otherwise on its face bind it to the terms of the head contract.

    (ii)

    The respondent was not in fact a Master Builder and therefore could not have agreed to provide a Master Builders guarantee as alleged by the applicant.

    (iii)  

    The applicant paid the respondent in full in respect of the Tidal Rd Stage 1 Houses and the Massey Rd Houses notwithstanding the fact that the respondent had not provided a guarantee on either occasion, whether a Master Builders guarantee or any other form of guarantee.

  9. We are satisfied that the Master was entitled to conclude from the clear course of dealing between the parties in their factual circumstances that the houses were to be dealt with for payment purposes in groups of four and that a progress payment of $70,000 was to be made in respect of each group of four with payment of the balance being due 30 days after practical completion. Mr. Weatherby was a young builder operating through a small company whose only work and income between March and December 1999 was from contracts with Arbridge, and whose debts to suppliers at the end of the work totalled almost $400,000. Clearly it was commercially untenable for Weatherby to carry all of the costs of its subcontractors and suppliers for up to 20 weeks, and under its own head contract Arbridge was paid progressively. Progress payments were in fact made to Weatherby in respect of the earlier Tidal Rd Stage 1 and Massey Rd houses and in respect of the first four houses in Tidal Rd Stage 2 and Mr. Weatherby's evidence covered the basis and circumstances in which the progress payment had been set at $70,000, which was a wholly commercially realistic figure. And if, as Mr. Liao claimed, Arbridge had no obligation to pay Weatherby any progress payments, it is surprising that he sought to borrow in order to make a payment to Weatherby in response to Weatherby's claim to a progress payment.

  10. Clearly, too, there was substantial performance by Weatherby of the contract in respect of the first four houses, having regard in that respect to the relatively small cost in proportion to the contract price of rectifying any defects allowed for in the $25,000 deduction. Clearly, too, on this analysis Weatherby was entitled to the progress payment of $70,000 in respect of the second four houses at Tidal Rd Stage 2. But given the uncertainty in the evidence over questions of cancellation and completion in respect of the second group of houses, Weatherby has not established an unarguable debt to found a statutory demand beyond those amounts.

  11. It is arguable that a guarantee was required of Weatherby, as indeed it was of Arbridge under its head contract, even though such a guarantee had not been insisted on following completion by Weatherby of the earlier contracts. But, if so, it was not on the evidence tied in any way to practical or substantial completion so as to bar entitlement to payment and the $25,000 deduction covering contingent liabilities is sufficient in that respect.

  12. The appeal is accordingly allowed only in part so as to reduce the amount which Arbridge is required to pay Weatherby to $244,498.31 and the order made in the High Court will be varied accordingly so as also to provide that that sum be paid by 14 July 2000, failing which Weatherby may apply in terms of s 291(1)(a) of the Companies Act for an order putting Arbridge into liquidation.

  13. In the circumstances the respondent, Weatherby, is entitled to costs in respect of the appeal which are fixed at $5,000 together with all reasonable disbursements including travel and any accommodation expenses of counsel as fixed, if necessary, by the Registrar.


Legislations

Companies Act 1993: s.289, s.290, s.291

Contractual Remedies Act 1979: s.9

Representations

R J Warburton for Appellant (instructed by John Langford, Wellington)
D J Ambler for Respondent (instructed by Chapman Tripp Sheffield Young, Auckland)


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