GULF HARBOUR INVESTMENTS LIMITED V Y GULF HARBOUR LIMITED (FORMERLY GLOBAL YACHT FINISHERS LIMITED) HC AK CIV 2006-404-386 [2006] NZHC 239 (16 March 2006)

 

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV 2006-404-386

 

BETWEEN GULF HARBOUR INVESTMENTS LIMITED

Applicant

 

AND Y GULF HARBOUR LIMITED

(FORMERLY GLOBAL YACHT

FINISHERS LIMITED)

Respondent

 

CIV 2006-404-387

 

AND BETWEEN MARINE PAINTING SOLUTIONS

LIMITED

Applicant

 

AND Y GULF HARBOUR LIMITED

(FORMERLY GLOBAL YACHT

FINISHERS LIMITED)

Respondent

 

 

Hearing: 13 March 2006

 

Counsel: GAD Neil for Applicants

SD Carpenter for Respondent

 

Judgment: 16 March 2006 at 10:00

 

 

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

Application to set aside statutory demands

 

 

 

 

Solicitors: Meredith Connell, PO Box 2213, Auckland for applicants

Gaze Burt, PO Box 91 345, Auckland for respondent

 

 

 

GULF HARBOUR INVESTMENTS LIMITED V Y GULF HARBOUR LIMITED (FORMERLY GLOBALYACHT FINISHERS LIMITED) HC AK CIV 2006-404-386 16 March 2006

 

 

[1] The respondent, formerly named Global Yacht Finishers Limited ("GYF"),

served statutory demands on each of the abovenamed applicants on 17 January 2006.

Those demands claim that $94,989.68 is due and owing by the applicants pursuant to

payment claims under the Construction Contracts Act 2002 (the "Act"), such payment

claims having issued on 6 December 2005. In the absence of any formal step being taken by the applicants pursuant to the Act the respondent served its statutory demand on the applicant companies.

 

 

[2] The respondent's position is that, as a matter of law (pursuant to the Act)

there cannot be any substantial dispute that the debt is due and payable jointly and

severally by the applicant companies.

 

 

[3] The applicants' application is made on the grounds that a substantial dispute exists as to whether any debt is owing or due; the plaintiffs have a counterclaim or set off; and the use of the statutory demand process is appropriate in the circumstances.

 

 

[4] An affidavit by Mr T Warren in support of the application chronicles the

extensive background of the relationship between the applicants and the respondent.

He details the reasons for the breakdown in the relationship between the parties and

provides his assessment of it and the reasons in support of a claim that there is an

arguable case to set aside the statutory demands.

 

 

[5] But for the provisions of the Act I would have no hesitation but to set aside

the statutory demands. The question is whether because of the Act I am compelled

to the contrary conclusion.

 

 

[6] Also, as noted, identical statutory demands have been served on separate

companies. This raises the issue of a whether either or both of those companies has

properly been served with the statutory demands and whether there is some doubt

about which of the applicants contracted with the respondent and, therefore, whether

there is an arguable case for referring this matter to trial to determine the true

identity of the contracting partner concerned.

 

 

Background

 

[7] Mr T Warren is the General Manager of both applicants and as well Gulf Harbour Marina Limited ("GHM"). GHM is the owner of Gulf Harbour Marina complex. Gulf Harbour Investments Limited ("GHI") has a contract with GHM to manage the marina and Marine Painting Solutions Limited ("MPS") is a company that was specifically incorporated to provide boat painting and other related services at the marina.

 

 

[8] In 2004 GHI resolved to commence business as a boat painting company operating from the Marina. It was envisaged that customers would contract directly with GHI for the provision of boat painting and related services and that those services would then be subcontracted to a reputable boat painting company. In that respect, and for that purpose, discussions were had with Mr J Hamilton of GYF in June 2005. Mr Warren recalls telling Mr Hamilton that GHI intended to commence an on-site business to provide anti-fouling, touch up and repair and repainting services.

 

 

[9] Mr Warren said he with Mr Hamilton on 13 July 2005 discussed the basis of a relationship between GHI and GYF. He said he informed Mr Hamilton it was his intention to incorporate a company through which to run the boat painting business and hence the reference in the Heads of Agreement naming the parties as GHI or "Nominee Company" and GYF. He said he informed Mr Hamilton that once the new company was incorporated GHI would nominate it as the principal to the agreement and that the contractual relationship would then be between the new company and GYF. According to Mr Warren, Mr Hamilton took no issue with what was proposed.

 

 

[10] Messrs Hamilton and Warren discussed matters including the duration of the

relationship, projections of work, labour requirements and turnover. In general GHI

would arrange the bookings and GYF would be expected to provide the skill and the

labour to handle the work subcontracted to them. The Heads of Agreement required

GYF to contract solely to GHI and in effect to move into and to utilise its painting

sheds and, within, its hard-stand in which yachts would be held whilst painting and

related work was carried out on them. The Heads of Agreement referred to a fixed

charge out rate payable to GYF and in addition it established the basis upon which

the materials could be charged.

 

 

[11] The Heads of Agreement provided:

 

Payment will be made to Global Finishes Yacht Limited on a weekly basis

consisting of the cleared funds received in the preceding week. It is

anticipated that this will be done on a Monday. Initial payments during the

ramp-up period may be done on a twice a month basis for the initial four

months or earlier, subject to agreement, after which the weekly payments

will commence.

 

Additionally:

 

All quotations, invoicing and other contractual and financial communication

with a customer will be undertaken by GHI in the capacity of a primary contractor…

 

All customer invoicing and debt collection will be the responsibility of GHI.

 

In the event that there is a quality control dispute between Global Yacht Finishes Limited and the boat owner or their representative as to the standard of work undertaken, then GHI will make a decision on the remedy. The decision on the dispute shall bind Global Yacht Finishes Limited ...

 

 

[12] Mr Warren said it was envisaged GYF would commence operating at the Marina on or around 1 August 2005. He said the new company, through which the boat painting business was to be run, was incorporated on 1 August 2005 and then, by email dated 25 August 2005, he provided confirmation that GHI nominated MPS as the principal to the agreement, which resulted in the commencement of a contractual relationship between GYF and MPS. He said following nomination MPS assumed the responsibility upon GHI pursuant to the Heads of Agreement that all quotations, invoicing and other contractual and financial communications with customers were undertaken .

 

 

Novation

 

[13] The applicants accept that the nomination of MPS as principal to the

agreement in itself is not sufficient to create a contractual relationship between MPS

and the respondent. The applicants state that in the circumstances novation clearly

occurred and this had the effect of substituting MPS for GHI as a party to the agreement and discharging GHI from the contractual relationship. Although Ms S Warren, for the respondent, asserted she had always considered, and the respondent had always considered, that GHI remained party to the agreement as the principal contractor, the applicants say that the reason for that view has not been detailed; therefore the claim of Mr Warren to the contrary remains unchallenged.

 

 

[14] In submissions to me Mr Carpenter submitted that both applicant companies were jointly and severally liable for the debt. He said GHI remain liable as principal

contractor when MPS became its "nominee" or agent under the contract, but without

discharging GHI from the contract. He avers there is no separate document or

writing that evidences the substitution of MPS for GHI. No distinct request was

made by GHI and, at best, any implication from conduct is equivocal.

 

 

[15] I am not satisfied with the applicants' explanation of the events surrounding

their claims that novation has occurred. GHI managed the marina facility and had

control over the paint sheds, the hard-stand and other marine facilities made

available to the respondent for the purpose of it carrying out its contract. It is not

sufficient that Mr Warren may have indicated GHI's intention with a view to

establishing a nominee for contract purposes, nor even to conduct business with the

respondent through the instrument of MPS in circumstances where no formal

acceptance of nomination has been sought, much less obtained.

 

 

[16] It is in rare circumstances that a court would accept evidence of conduct

alone in support of a claim novation has occurred. What is required is conduct from

which it can unquestionably infer that the respondent accepted the substitution of

MPS under the contract so that no liability remained with GHI. I am not prepared

to make that inference on the basis of the evidence available to this Court.

 

 

Does the Construction Contracts Act 2002 apply?

 

[17] The Act applies to every construction contract (with limited exceptions that

have no application in this case) that relates to carrying out construction work in

New Zealand (s 9). The term "construction contract" is defined in s 5 of the Act as

follows:

 

"Construction contract"

 

(a) Means a commercial construction contract or a residential

construction contract; and

 

(b) Includes any variation to the construction contract; but

 

(c) Does not include the lease or licence under which a party undertakes

to fit out, alter, repair or reinstate the leased or licensed premises

unless the principal purpose of the lease or licence is the carrying

out of construction work.

 

 

[18] The terms "commercial construction contract" and "residential construction

contract" are defined in s 5 as follows:

 

"Commercial construction contract"

 

Means a contract for carrying out construction work in which none of the

parties is a residential occupier of the premises that are the subject of the

contract.

 

"Residential construction contract"

 

Means a contract for carrying out construction work in which one of the

parties is the residential occupier of the premises that are the subject of the

contract.

 

 

 

[19] The term "construction work" is defined in s 6 of the Act as follows:

 

  1. Meaning of construction work

 

  1. In this Act, unless the context otherwise requires, construction work

means any of the following work:

 

  1. the construction, erection, installation, carrying out, alteration, repair, restoration, renewal, maintenance, extension, demolition, removal, or

dismantling of any building, erection, edifice, or structure forming, or to

form, part of land (whether permanent or not and whether constructed

wholly or partly on, above, or below ground level):

 

(b) the construction, erection, installation, carrying out, alteration, repair,

restoration, renewal, maintenance, extension, demolition, removal, or dismantling

of any works forming, or to form, part of land; including--

 

(i) any road, motorway, aircraft runway, wharf, docks, harbour works,

railway, cableway, or tramway:

 

(ii) any canal, inland waterway, pipeline, reservoir, aqueduct, water main,

well, or sewer:

(iii) any electricity, water, gas, or telephone reticulation:

 

(iv) any telecommunication apparatus or industrial plant:

 

(v) any installation for the purposes of land drainage or coast protection:

 

(c) the installation in any building or structure of fittings forming, or to

form, part of land; including heating, lighting, air conditioning, ventilation,

power supply, drainage, sanitation, water supply or fire protection, security,

and communications systems:

 

(d) the alteration, repair, maintenance, extension, demolition, or

dismantling of the systems mentioned in paragraph (c):

 

(e) the external or internal cleaning of buildings and structures,

so far as it is carried out in the course of their construction, erection, alteration, repair, restoration, or extension:

 

(f) any operation that forms an integral part of, or is preparatory to or is

for rendering complete, work of the kind referred to in paragraphs (a) to (d);

including--

 

(i) site clearance, earthmoving, excavation, tunnelling, and boring; and

 

(ii) laying foundations; and

 

(iii) erecting, maintaining, or dismantling scaffolding or cranes; and

 

(iv) prefabricating customised components of any building or structure,

whether carried out on the construction site or elsewhere; and

 

(v) site restoration, landscaping, and the provision of roadways and other

access works:

 

(g) the painting or decorating of the internal or external surfaces of any

building or structure.

 

(2) Despite subsection (1), construction work does not include any of the

following work:

 

(a) drilling for or extracting oil or natural gas:

 

(b) extracting (whether by underground or surface working) minerals,

including tunnelling or boring, or constructing underground works, for that

purpose.

 

 

[20] For the purposes of their submissions both counsel have focused upon s 6(1)(g) and the respondent contends its contract was for the painting or decorating of the internal or external services of any structure. Although the preceding subparagraphs of s 6(1) (save for (6)(i)) each refers to buildings or structures "forming, or to form, part of land", subsection (1)(g) does not, neither does subsection (1)(e). The respondent contends therefore

that those two subsections are in a category all of their own. It follows, submits Mr Carpenter that, in the absence of those words in subsection (1)(g) "construction work" can include work in relation to chattels, including boats and aircraft.

 

 

[21] The term "structure" is not defined in the Act. Mr Carpenter submits

therefore the natural or ordinary meaning there should apply.

He refers to the Compact Oxford Dictionary of Current English defining "structure" as:

 

  1. the arrangement of and relations between the parts of something complex.

(2) a building or other object construction from several parts.

 

 

[22] Mr Carpenter submits that a yacht is definitely included within the above definition as being "a thing constructed" and an "object constructed from several parts". Moreover, these definitions clearly include the concept of a chattel, rather than just an object fixed to land.

 

 

[23] Mr Carpenter notes that the contract works in this case do not come anywhere

near the excluded categories of s 6(2) of the Act. Therefore if Parliament had

wanted to exclude boats, aircraft or any other movable "structure" then it could have

done so by specific exclusion as has been done in the Building Act 2004 (s 9) and

Building Act 1991 (s 3) which are sister Acts to the Construction Contracts Act,

being similar in their scope and application.

 

 

[24] Mr Carpenter refers to the Occupiers Liability Act 1962 defining "structure"

to include "any vessel, vehicle, or aircraft" (s 2), for the purposes of making persons

occupying or controlling such chattels liable for damage caused to visitors or invitees

(s 3). The Earthquake Commission Act 1993 defines "residential building" to

include "any building or part or a building, or other structure (whether or not fixed to

land or to another building, part of structure) ..." (s 2). Mr Carpenter submits this

Act could well apply to owners of yachts except for the fact that the Act specifically

Excludes them (along with aircraft and other movable chattels) under Schedule 1,

something that the Construction Contracts Act does not do.

 

 

[25] Mr Carpenter submits that the essential purpose/policy of the Act (s 13)

relates to subcontractors getting payment apart from whether the head contractor has

been paid.

 

 

[26] Regarding the definitions of "commercial construction contracts" and

"residential construction contract" which both use the phrase "the premises that are

the subject of the contract", Mr Carpenter submits these do no more than delineate

two different categories of construction contract for the purpose of assigning to each

a different set of rights and obligations under the Act. Therefore "the premises that

are the subject of the contract" is more a description of the background context/environment in which "construction works" take place. It should not therefore be read as confining the definition or scope of "construction work" under s 6 of the Act. It is submitted therefore that the phrase, "the subject of the contract" should be read as "the site or place of the construction work". For the purposes of the present case therefore the word

"premises" and the definitions of "commercial construction contract" and "residential construction contract" mean that commercial premises owned by the applicants, including their hard stand in which the various vessels were held for the purpose of the contract

works.

 

 

[27] I reach a different view than that advocated by Mr Carpenter. Having regard

to the policy objectives of the Act, had it been intended to expand the scope of the

Act to specifically include works on vessels or aircraft or indeed vehicles, buses

or trains then it would have been a simple exercise for those types of things to have

been included with the ambit of the Act.

 

 

[28] The general policy statement set out at the beginning of the explanatory note

that accompanied the Construction Contracts Bill when it was first introduced into

the House of Representatives on 15 May 2001 reads:

 

This Bill is intended to facilitate prompt payment and regular payments

within the construction industry. Typically, construction industry contracts

provide for work to be paid after the work has been carried out. Payments

are usually made by instalments as the work progresses, but they are very

seldom made in advance. This pattern of payments often means that the

developer, principal, or head contractor with cash flow problems may

deliberately delay payment for work done and, in effect, use those further

down the contractual chain (for example, subcontractors) to partly finance

the construction project. It also means that, if a developer or principal

becomes insolvent, head contractors and subcontractors may not be paid at

all for the work that they have already carried out.

 

Subcontractors are in a particularly vulnerable position because of two

factors. The first is that most construction contracts contain provisions

(commonly referred to as "pay when paid" and "paid if paid" clauses).

That makes a party's obligation to pay dependent on that party first receiving

payment from someone else. Subcontractors are often the ones who are

affected the most by these provisions because it is not commercially feasible

for them to impose "pay when paid" provisions in their contracts with their

own employees and suppliers. Furthermore, subcontractors are not always

aware whether firms further up the contractual chain have actually been paid

or not. This provides an opportunity for head contractors to withhold or

divert payments from the subcontractors for completed work. A second

factor is that any right that an unpaid subcontractor might have to suspend

work is often excluded by the terms of the construction contract. Thus,

subcontractors are effectively unable to suspend work even if they have not

been paid. If the head contractor's business fails after subcontractors have

been carrying out work for some time without being paid, the consequences

for subcontractors involved are significant, including business failure and

job losses for the subcontractor's employees.

 

 

[29] I am not prepared to read down the word "premises" in the manner counsel

suggests. The word "premises" is not defined in the Act but it is defined in the

Concise Oxford Dictionary (9th Ed.) as follows:

 

Premise ... a house or building with its grounds and appurtenances; houses,

lands, or tenements previously specified in a document etc.

 

 

[30] I accept Mr Neil's submission that the natural meaning of the word includes within its scope houses or buildings with their grounds and appurtenances, lands and tenements. When the word "premises" is considered in light of the definition of "construction work", which includes in effect all works that are carried out on land, it is evident that the natural meaning of the work was intended. It follows that a boat or vessel does not come within the ambit of the natural meaning of "premises". Therefore says Mr Neil, the agreement entered into between GHI and the respondent is not a "construction contract".

 

 

[31] A vessel is not a building and therefore to come within s 6(1)(g) it must be a

"structure".

 

 

[32] Counsel inform me that the word "structure" has not been judicially considered either under the Act, or pursuant to the United Kingdom's Housing Grants, Construction and Regeneration Act 1996, or the New South Wales Building and Construction Industry Security of Payment Act 1999, both of which contain identical provisions to s 6(1)(g).

 

 

[33] In my view the natural and ordinary meaning of the word "structure" is a

permanent, fixed, edifice in the nature of a building, that forms, or is to form, part of

the land. By comparison a boat, a ship and a vessel are usually defined by reference

to their association with water and their means of propulsion.

 

 

[34] I accept Mr Neil's submission that the purpose of the Act was explicitly designed to reform the construction industry's methods of paying contractors and subcontractors, as well as providing new dispute resolution procedures and remedies for the recovery of moneys due. The provision's aim is to protect traditionally vulnerable construction subcontractors from the inequitable payment practice of those above them in the contractual chain. A decision that the Act applies beyond land base construction and includes the painting or decorating of a vessel, could lead to the opening of the flood gates to industries well outside the scope of this policy. If structures referred to vessels then it should also refer to cars, buses, aeroplanes and trains. Therefore s 6(1)(g) would also have to have application

to a wide variety of contractors including automotive engineers, vehicle painters and upholsterers. Even those that clean such transport vehicles in the course of their construction, erection, alteration or repair would also come within the ambit of the Act.

In Staveley Industries Plc v Odebrecht Oil & Gas Services Limited (unreported, United

Kingdom High Court, Queens Bench Division, Judge Richard Harvey QC,

28 February 2001) it was held that construction contracts as defined by the Housing

Grounds Construction and Regeneration Act 1996 did not extend to ship building.

 

 

[35] Contrary to the submissions of Mr Carpenter that s 6(1)(e) and s 6(1)(g) are

stand alone provisions, I take the view that although they do not expressly state that

the buildings or structures must be attached to land the absence of those relevant

words is impliedly clarified by the preceding subparagraphs of the section, all of

which do contain this requirement, and which by their express words exclude

reference to a vessel.

 

 

[36] In my judgment a boat or vessel is not a "structure" in terms of s 6(1)(g).

Consequently the work carried out by the respondent does not fall within the

definition of "construction work" and the Act does not apply.

 

 

Other matters

 

[37] In my opening remarks I indicated that if the Construction Contracts Act did

not apply to the contract between the parties then there was sufficient evidence before the Court to indicate there was a substantial dispute about whether or not the debt was owing or is due. That position was not challenged in submissions before me. I comment that in applications to set aside statutory demands the Court expects some information to support a claim that the company upon which a demand has been served has no ability to pay its debts. The liquidation process is after all an inquiry into the solvency of the debtor company and not merely a process for use to collect debts.

 

 

[38] In this case there is some information (but not very much) from which to draw an inference that MPS is unable to pay its debts. There is no information at all to support that conclusion concerning GHI.

 

 

Judgment

 

[39] The statutory demands are set aside.

 

 

[40] Costs are payable by the respondent to the applicants on a Category 2B basis

together with disbursements as fixed by the Registrar. If counsel cannot agree upon

the quantum of costs then I will make a decision upon memoranda received by

the Court within 21 days of this date.

 

Associate

Judge Christiansen