Baker v Libeau
[2023] NZHC 2426
•18 December 2023
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2023-425-83
[2023] NZHC 2426
IN THE MATTER of the bankruptcy of JEAN-MICHEL LIBEAU BETWEEN
ROBERT DARCY BAKER
Judgment Creditor
AND
JEAN-MICHEL LIBEAU
Judgment Debtor
Hearing: On the papers Counsel:
Mr Baker appears in person Mr Libeau appears in person
Judgment:
18 December 2023
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 18 December 2023 at 4.15 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
BAKER v LIBEAU [2023] NZHC 2426 [18 December 2023]
[1] This is an application pursuant to s 17 of the Insolvency Act 2006 (the Act) to set aside a bankruptcy notice.
[2] The judgment debtor (Mr Libeau) says he has a cross-claim against the judgment creditor (Mr Baker) that is equal to, or greater than, the judgment debt in respect of which the bankruptcy notice was issued, and that he could not have used the cross-claim as a defence in the proceeding in which Mr Baker’s judgment was obtained.1
[3]The issues that arise are whether:
(a)Mr Libeau has a genuine and triable claim against Mr Baker that is equal to or greater than the judgment debt; and
(b)Mr Libeau could not have used the claim as a defence in the proceeding in which the judgment was obtained.
Background
[4] The parties have been engaged in litigation in the Invercargill High Court under CIV 2021-425-017 (the Invercargill proceeding). The background to that litigation was summarised in a judgment of Nation J where he said:2
[1] The first defendant (Mr Libeau) is a director and shareholder of a number of companies that have an interest in a yarn and fabric manufacturing technology (the Lincspun technology) which they licence to spinning mills and other manufacturers of yarn and fabric-based products. In 2015, the plaintiff (Mr Baker) and Mr Libeau discussed the potential value of Mr Libeau’s companies being USD 10 million. Mr Libeau planned on setting up a holding company which would own all the Lincspun technology intellectual property. Mr Baker agreed to invest USD 150,000 and receive a 20 per cent shareholding in the company. Mr Libeau owned the other 80 per cent of shares, which he transferred to the third defendant (Libeau Ltd). In 2016, the shares were reallocated so that Mr Baker owned 26 per cent of them. He paid an additional USD 10,000 in consideration. The relationship between Mr Baker and Mr Libeau ultimately broke down.
[2] In 2021, Mr Baker filed proceedings against Mr Libeau and the defendant companies associated with him, seeking damages and relief for breach of contract and misrepresentation under the Contract and Commercial
1 Insolvency Act 2006, s 17(7)(a) and (b).
2 Baker v Libeau [2022] NZHC 3137.
Law Act 2017, and for oppressive and unfairly discriminatory conduct under the Companies Act 1993.
[5] The defendant companies associated with Mr Libeau to which Nation J referred were LincSpun Ltd and Libeau Ltd. On 6 December 2021, Mr Libeau and those companies filed a statement of defence and counterclaims in the Invercargill proceeding.
[6] On 13 July 2022, Mr Baker filed an application for freezing orders over assets in which Mr Libeau and his companies had an interest. On 15 July 2022, Mander J made interim freezing orders and, on 21 July 2022, Dunningham J confirmed the freezing orders would continue until further order of the Court. On 9 September 2022, Mr Libeau and the other defendants filed an application for the discharge of the freezing orders. On 28 November 2022, Nation J dismissed Mr Libeau’s application.3
[7] Also in the Invercargill proceeding, in a judgment of 31 October 2022, Associate Judge Lester ordered that Mr Libeau and his companies were to provide security for costs in two tranches in respect to their counterclaims totalling $30,000. The Associate Judge ordered that if any amount was not paid, then the counterclaims would be stayed.4
[8] The security for costs was not paid and, in a subsequent judgment, Associate Judge Lester confirmed that the counterclaims were stayed.5 In the same judgment Associate Judge Lester fixed costs on Mr Libeau’s unsuccessful application before Nation J to discharge the freezing orders. Associate Judge Lester ordered Mr Libeau to pay Mr Baker the sum of $8,626 inclusive of disbursements in respect to that application (the costs judgment).6
[9] I understand the Invercargill proceeding has now been heard, but judgment is yet to be released. While it is implicit in what I have said above, the counterclaims filed by Mr Libeau and his companies remain stayed.
3 At [87].
4 Baker v Libeau [2022] NZHC 2826 at [60].
5 Baker v Libeau [2023] NZHC 733 [costs judgment] at [3].
6 At [23].
[10] Mr Libeau did not pay Mr Baker what he is owed under the costs judgment. On 3 October 2023, Mr Baker obtained the issue of a bankruptcy notice to enforce the costs judgment, which was served upon Mr Libeau on 9 October 2023.
[11] On 12 October 2023, Mr Libeau filed his application to set aside the bankruptcy notice. That application was called before me on 16 November 2023, when I heard from both parties. As the parties are self-represented, I provided them with the opportunity to file further submissions addressing whether Mr Libeau had a cross-claim in terms of s 17 of the Act. Those submissions were subsequently received from both parties.
The application
[12] In his application, Mr Libeau states his grounds for seeking an order setting aside the bankruptcy notice as follows:
a.The judgment debtor has a counterclaim of NZ$474,551.39 that could not be put forward previously because detailed reports required to quantify the royalty amount not paid were not available.
b.The counterclaim is the amount of royalty income from July 2021 to December 2022 that my company did not receive because of the judgment creditors personal interference with licensing agreement between Mira Corporation of South Korea the licensee and LincSpun Ltd, New Zealand the licensor.
c.The judgment creditor stated to Mira Corporation that the licencing agreement was not valid, and he would have full control over the licensing company soon.
d.I the judgment debtor receive my main income from the licensing company Lincspun Ltd.
[13] Mr Baker opposes the application and says it is an “attempt to reintroduce a countersuit related to [the substantive proceedings] … [that] was stayed in February 2023…”. He submits the attempt to reintroduce a previously stayed counterclaim “has no legal standing or legitimacy”.
The law
[14]Section 17 of the Act relevantly provides:
17 Failure to comply with bankruptcy notice
(1)A debtor commits an act of bankruptcy if—
(a)a creditor has obtained a final judgment or a final order against the debtor for any amount; and
(b)execution of the judgment or order has not been halted by a court; and
(c)the debtor has been served with a bankruptcy notice; and
(d)the debtor has not, within the time limit specified in subsection (4),—
complied with the requirements of the notice; or
(ii)satisfied the Court that he or she has a cross claim against the creditor.
…
(4)The time limit referred to in subsection (1)(d) is,—
(a)if the debtor is served with the bankruptcy notice in New Zealand, 10 working days after service; or
(b)if the debtor is served outside New Zealand, the time specified in the order of the Court permitting service outside New Zealand.
(5)In this section, a creditor who has obtained a final judgment or a final order includes a person who is for the time being entitled to enforce a final judgment or final order.
…
(7)In subsection (1)(d)(ii), cross claim means a counterclaim, set-off, or cross demand that—
(a)is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay; and
(b)the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.
(emphasis added)
[15] In Sharrock v Kipping, Associate Judge Osborne noted the following principles in determining whether a cross-claim existed for the purposes of s 17(7):7
7 Sharrock v Kipping [2018] NZHC 2210 at [8].
(a)The debtor must show they have a genuine triable claim against the creditor.
(b)The debtor’s inability to use the cross-claim as a defence (required under s 17(7)(b)) is primarily a legal inability. Factual inability is also available but that requires some cogent circumstance. Notwithstanding that the creditor’s original claim is pursued through a summary proceeding, it is open to the defendant in such a proceeding to set up a cross-claim.
(c)To establish the required value under s 17(7)(a) the debtor must establish (including where a claim may be for unliquidated damages) a genuine, triable claim at least to a sufficient extent in monetary terms to bring it somewhere near the equality or excess required under the sub-section.
Does Mr Libeau have a genuine and triable claim against Mr Baker that is equal to or greater than the judgment debt?
[16] The claim Mr Libeau asserts concerns the affairs of two companies, namely LincSpun Tech Ltd and LincSpun Ltd. From what I can make out from Mr Libeau’s evidence, LincSpun Tech Ltd is the company in which Mr Baker invested and he owns 26 per cent of the shares, although he is not a director of that company. The balance of the shares are owned by Mr Libeau’s company, Libeau Ltd. Mr Baker has no interest in LincSpun Ltd. Mr Libeau is a director of that company, and it appears to be owned and/or controlled by interests with which he is related.
[17] Mr Libeau contends that LincSpun Ltd held a global licence agreement from LincSpun Tech Ltd under which LincSpun Tech Ltd agreed to supply LincSpun Ltd with the right to use and acquire royalty income for all intellectual property associated with the LincSpun trademark.
[18] Mr Libeau alleges that, in January 2022, Mr Baker contacted the chief executive officer of Mira Corporation advising that the licensing agreement entered into between Mira Corporation and LincSpun Ltd was not valid, and that LincSpun patents referred to in that agreement were in fact held by LincSpun Tech Ltd. He says as a result Mira Corporation withheld royalty payments due to LincSpun Ltd, totalling NZ$474,551 (up to December 2022). He says:
Mr Baker continued interference in the contractual agreements and operations of LincSpun Ltd and LincSpun Tech Ltd has caused significant financial losses and damage to the reputation of the companies globally.
[19] This claim was raised against Mr Baker in the Invercargill proceeding as the third of three counterclaims. Like all the counterclaims in that proceeding, it was stayed and remains so.
[20] I do not consider Mr Libeau has established that he has a genuine and triable cross-claim on the basis alleged for the following reasons.
[21] First, under s 17(1)(d), it is for the debtor to establish that “he or she has a cross claim against the creditor”. There must be mutuality of the parties and circumstances in respect to the competing claims. As noted by the Court of Appeal in Re Elvin; ex parte Sandilands, which concerned the comparable section of the Insolvency Act 1967:8
The purpose of the section is to deal with a lis which exists as between two comparable persons. Clearly it would be unjust if one having succeeded in obtaining a judgment against another, were able to enforce that without reference to other related claims which might substantially reduce the obligation to pay.
[22] The claim Mr Libeau relies upon is that Mr Baker interfered in the contractual relations between Mira Corporation and LincSpun Ltd. It is LincSpun Ltd that is said to have suffered the loss of royalty payments and not Mr Libeau. Mr Libeau has no right to assert a claim for royalty payments due to another and accordingly cannot set up such a claim to challenge the bankruptcy notice.
[23] It is the case that Mr Libeau claims he has personally suffered loss as a result of Mr Baker’s interference in the relations between Mira Corporation and LincSpun Ltd, but that evidence is limited to the following:
I did receive income from LincSpun Ltd and Lincspun Tech Ltd as the Managing Director of both. This income was significantly reduced and only received from LincSpun Ltd after the Judgment Creditor actions.
[24] There is no other evidence to support what is a bald allegation of loss of income. The Court is not required to accept such assertions uncritically, and the evidence falls short by a very wide margin of satisfying me that Mr Libeau personally suffered any loss which might in law be recoverable from Mr Baker.
8 Re Elvin; ex parte Sandilands [1990] 3 NZLR 124 at 127.
[25] In addition, the requirement that a cross-claim be genuine and triable requires a debtor to establish not only that the cross-claim has true substance but that the debtor genuinely intends to pursue it.9 The time for determining whether a debtor has established that he or she has a genuine and triable cross-claim is the date of hearing of the application to set aside the bankruptcy notice.10
[26] Mr Libeau’s alleged cross-claim has been stayed since 17 December 2022.11 In over a year, Mr Libeau has taken no steps to lift the stay. He says that he was unable to do so as he could not pay security for costs, but there is nothing to suggest anything has changed in this regard. The fact of the matter is that the claim Mr Libeau says he wishes to advance is not triable in circumstances where he is not legally able to pursue it because it is stayed. It is also the case that Mr Libeau has not satisfied me that he has any genuine intention to pursue the cross-claim.
[27] There is plainly nothing unjust in allowing Mr Baker to enforce payment of the costs judgment without reference to an alleged cross-claim that Mr Libeau is presently legally unable to pursue and has taken no positive steps to do so.
Could Mr Libeau not have used the cross-claim as a defence in the proceeding in which the judgment debt was obtained?
[28] When s 17(7) refers to “could not use” a cross-claim as a defence in the “action or proceedings in which the judgment or the order... was obtained”, it is concerned with the legal opportunity to do so.12
[29] Here, Mr Libeau did have that opportunity and, what is more, he did in fact raise the cross-claim in the Invercargill proceeding. That the cross-claim was not ultimately heard when the Invercargill proceeding went to trial makes no difference in my view, particularly in circumstances where that was entirely within Mr Libeau’s control.
9 Sharma v ANZ Banking Group (1992) 6 PRNZ 386 (CA) at 389.
10 Haines v Memelink [2022] NZCA 82 at [13].
11 The first tranche of security for costs was payable on 16 December 2022 and was not paid.
12 Re Williams HC Auckland B 120/1994, 20 June 1994 at 4.
Conclusion
[30]Mr Libeau’s application to set aside the bankruptcy notice is dismissed.
[31] As Mr Baker is self-represented it is unlikely that he will be entitled to an award of costs. If I am wrong in that because he has in fact incurred legal costs in relation to this application or wishes to claim for disbursements reasonably and necessarily incurred, he may file a memorandum by 15 January 2024 and Mr Libeau will have seven days to reply. I will decide any application for costs and disbursements on the papers.
O G Paulsen Associate Judge
Copy to: Mr Baker Mr Libeau
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