Biomex Trustees Limited v Wilson
[2020] NZHC 1038
•19 May 2020
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2019-442-65
[2020] NZHC 1038
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of PHILLIP JOHN WILSON
BETWEEN
BIOMEX TRUSTEES LIMITED
Judgment Creditor
AND
PHILLIP JOHN WILSON
Judgment Debtor
Hearing: 11 May 2020 (By AVL) Appearances:
S Galbreath for Judgment Creditor P J Bellamy for Judgment Debtor
Judgment:
19 May 2020
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 19 May 2020 at 2.30pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 19 May 2020
BIOMEX TRUSTEES LIMITED v WILSON [2020] NZHC 1038 [19 May 2020]
[1] The judgment debtor, Mr Wilson, is indebted to the judgment creditor, Biomex Trustees Limited (Biomex), in the sum of approximately $478,000. The indebtedness has its origins in a settlement agreement reached in March 2017 where, in the course of a hearing in the High Court, the present parties along with others, reached a settlement.
[2] That settlement agreement required Mr Wilson and his related parties to take certain steps. It is common ground they did not do so. The settlement agreement provided that in the event those steps were not taken, Mr Wilson and related parties would be liable for a specified amount.
[3] With Biomex being entitled to pursue payment of the amount payable as a result of non-compliance with the settlement agreement, it issued summary judgment proceedings in early 2019 which were served on Mr Wilson and parties related to him in April 2019. The first call of those proceedings occurred on 27 June 2019. Mr Wilson was the first defendant in those proceedings. No notice of opposition was filed by Mr Wilson or the other defendants. An application for an adjournment to allow oppositions to be filed was sought but declined by Associate Judge Matthews in relation to all defendants, except for Mr Wilson, and judgment was entered against the other defendants.1
[4] The adjourned proceeding against Mr Wilson was called on 8 August 2019. There was no appearance by or on behalf of Mr Wilson. No notice of opposition had been filed and judgment was entered against him.
[5] On 11 September 2019, a bankruptcy notice was issued in the Nelson High Court and served on Mr Wilson on 3 October 2019. No steps were taken by Mr Wilson to apply to set the bankruptcy notice aside.
1 Biomex Trustees Ltd v Wilson [2019] NZHC 1488.
[6] The present application to adjudicate Mr Wilson bankrupt was filed on 21 October 2019. Liquidation proceedings had been filed against the corporate defendants, against whom summary judgment had been entered by Associate Judge Matthews in June 2019. Bankruptcy proceedings were also issued against Ms Pamela Thomson, Mr Wilson’s wife, who was also a signatory to the settlement agreement. Ms Pamela Thomson was bankrupted and the corporate defendants were liquidated on 31 October 2019. Because the proceedings against Mr Wilson had become out of step with the proceedings against the other defendants, the application to adjudicate Mr Wilson was not served on him until early November 2019. A notice of intention to oppose the bankruptcy was filed by Mr Wilson on 11 December 2019.
The bankruptcy regime
[7]I adopt Associate Judge Osborne’s summary of the bankruptcy process from
Re Ellerm:2
A creditor’s right to apply for adjudication set out in s 13 Insolvency Act 2006. Each of the four requirements of that section is made out in this case. The Court under s 36 of the Act then has a discretion to adjudicate the debtor bankrupt. Under s 37 the Court may refuse adjudication pursuant to that discretion in four given situations, the fourth of which is the catch-all. The situations are
“(a)the applicant creditor has not established the requirements set out in section 13; or
(b)the debtor is able to pay his or her debts; or
(c)it is just and equitable that the Court does not make an order of adjudication; or
(d)for any other reason in order of adjudication should not be made.”
[8] Mr Wilson does not suggest that Biomex has not established the requirements set out in s 13 of the Insolvency Act 2006 (“the Act”), or that he is able to pay his debts. While the notice of intention to oppose the application to adjudicate does not refer to s 37 of the Act, it follows that Mr Wilson relies on either s 37(c) or s 37(d).
2 Re Ellerm, ex parte Bank of New Zealand HC Christchurch, CIV-2011-409-1211 at [3].
Mr Wilson’s opposition
[9]Mr Wilson says:
I intend to dispute the Applicant Creditor’s debt on the following grounds:
(a)that I have a set-off in this matter which has not been heard previously or compromised by the settlement agreement.
(b)Where it can be shown by the Debtor that they have a set-off against the creditor even if that set-off is not able to be independently pursued by way of Court proceedings, it can still be applied to determine what if any money is owed by the Debtor to the Creditor.
[10] The reference to the settlement agreement is the settlement reached in March 2017. The reference to the set-off not being able to be independently pursued is to the fact that the claimed set-off is time barred. Mr Wilson accepts that limitation would prevent him commencing proceedings to enforce his claimed set-off.
[11] Prior to discussing the nature of the claimed set-off, it is not suggested by Mr Wilson that he had raised it previously. That means this is the same situation as confronted Associate Judge Osborne in Re Ellerm, that the debtor has had two occasions on which to raise issues by way of set-off, at the summary judgment stage and at the bankruptcy stage, but did not do so. Mr Wilson in his affidavit does not offer any explanation as to why he did not do that.
Mussel farming
[12] Mr Wilson explains the life cycle of mussel spat. In the first stage, the spat (which is then as fine as sand) is put onto lines by hand with a stocking over the top and placed in the water to grow. Once the spat have reached a certain size, they are stripped off and placed at a greater spacing on other lines; this being called “secondary seeding”. The “final seeding” is when the spat is stripped off and placed on lines for the final grow out.
[13] None of the defendants in the summary judgment proceeding or the bankruptcy and liquidation proceedings claimed to have the set-off in which, on Mr Wilson’s case, they have an interest. Mr Wilson says that the value of the claim held by him, his wife and one of the corporate defendants in the 2017 proceeding, Teapot Enterprises (2008)
Ltd (“Teapot”), is $2.7 million. He does not claim to have taken assignments from his wife or Teapot of their interest in the claim, so he could say he controlled the entire claim.
The matter in issue in the 2017 hearing
[14] The issues before the Court in the proceeding settled in March 2017 concerned Biomex’s mussel farming operation and its management by Mr Wilson. The hearing proceeded on Biomex’s (then called Maclab (NZ) Limited) fourth amended statement of claim. The defendants were Mr Wilson, Teapot, PJ Contracting (Nelson) Limited, Ms Pamela Thomson, and Mr Wilson and Ms Thomson as trustees. Mr Wilson was a former director of Biomex and he and Ms Thomson were together 50 per cent shareholders of Teapot.
[15] Mr Wilson had been employed by Biomex since 1996 to assist in the day-to-day running of Biomex’s mussel farming operation. Included in the pleadings against the defendants was that Teapot was the lessor of a mussel farm and had Biomex sub-lease part of the mussel farm from Teapot. The pleading was that this sub-lease arrangement was without Biomex’s authority and that Biomex did not receive the full benefit of the sub-lease.
[16] There is a pleading that Mr Wilson arranged for various mussel farms not owned by Biomex to be seeded and maintained using Biomex’s resources, including mussel farms owned by Teapot. Biomex pleaded that it received no direct benefit from the seeding and maintenance work carried out on mussel farms that it did not have an interest in, including farms owned or operated by Teapot.
[17] There are further pleadings in relation to unauthorised cash transactions, essentially alleging unauthorised expenditure for the benefit of Mr Wilson. There was a pleading against Teapot in unjust enrichment in respect of Teapot’s mussel farms being seeded and maintained without charge using Biomex’s resources to a value of just over $800,000. There was a further unjust enrichment claim alleging that Teapot invoiced and received payment of $165,000 for seeding and maintenance work done by Mr Wilson on third parties’ mussel farms being a payment that should have been paid to Biomex, but instead was paid to Teapot.
The settlement agreement
[18] As I have said, the 2017 hearing was settled mid-hearing. A written settlement agreement was entered into. The agreement recorded that it was in full and final settlement as follows:
The settlement recorded herein is in full and final settlement of all claims, past, present, or contingent, arising out of, or connected to, in any way whatsoever, the High Court Proceedings and the ERA Proceedings.
[19] Mr Wilson asserts that the set-off he wants to raise was not compromised by the settlement agreement.
[20]Accordingly, the following issues arise:
(i)Is it open to Mr Wilson to raise the set-off at all, given the terms of the settlement agreement?
(ii)If the settlement agreement is not a barrier to Mr Wilson raising the claim, what is the effect of the claim being more than six years old and of the claim not being one wholly vested in Mr Wilson?
(iii)Given Mr Wilson has to rely on the Court’s discretion under s 37 of the Insolvency Act 2006, what is the effect of Mr Wilson not having raised the claimed set-off at any time prior to the bankruptcy proceedings?
(iv)Is the claimed set-off on its face of prima facie merit?
The set-off
[21] Mr Wilson in his latest affidavit, characterised the allegations against him in the 2017 hearing as being Biomex claiming that work Mr Wilson had Biomex carry out on farms owned by him, his wife or his companies, should be paid for by Mr Wilson or his associated companies.
[22] Mr Wilson explains the set-off he wants to raise as follows. He says Biomex owned the spat and eventually the vast majority of the spat was either secondary
seeded or finally seeded onto Biomex’s farms, or onto farms owned by the director of Biomex. Mr Wilson says, in short, that Biomex’s resources were used for Biomex’s own advantage and that he should not have paid anything in respect of that part of the claim. By settling the proceeding and agreeing that he would be liable for the sum specified in the Agreement, he says that: “In effect, even though I have not pleaded that I was the owner of the mussels, I was agreeing that I was.”
[23] Accordingly, Mr Wilson’s claim is based upon him having an interest in the mussels which were the subject of the proceeding, for which he, his wife and Teapot have not been compensated.
Issues Two and Three
[24] Mr Wilson is not seeking to raise the claimed set-off as a defence. The time to do that was in the summary judgment proceedings. There has been no application to set aside the judgment upon which the bankruptcy is based. A challenge to the bankruptcy notice based on the set-off now raised would have run into the barrier that Mr Wilson could have raised the set-off in the summary judgment hearing.3
[25] The asserted set-off covers 2009-2014 and is therefore covered by the Limitation Act 1950 which applies to acts before 1 January 2011 and the Limitation Act 2010.4 While there is debate whether limitation prevents an equitable set-off being raised as a defence, there is no debate as to the application of limitation principles where a debtor wants to raise a set-off not as a defence, but to bring a proceeding to have the set-off converted into a judgment. The point of issuing proceedings is to obtain a judgment converting the equitable set-off into a legal set-off, that is a judgment that can be set off against the bankruptcy creditor’s judgment, once that course is embarked on, the proceeding is subject to the Limitation Acts whether or not the cause of action pleaded could have been raised as a set-off in earlier proceedings.
3 Any counterclaim, set-off or cross-demand a debtor wants to raise in response to a bankruptcy notice must be one the debtor could not have put forward in the action or a proceeding in which the judgment upon which the notice is based was obtained. Insolvency Act 2006, ss 17(1)(d)(ii) and 17(7)..
4 As to whether the raising of an equitable defence is subject to limitation, see The Laws of New Zealand Set-off and Counterclaim (online looseleaf ed, LexisNexis) at [31] and OHL Ltd v Johns [2019] NZHC 594 at [25].
[26] In this case, Mr Wilson asks the Court to exercise its discretion under s 37 of the Act in his favour, based on a set-off he did not raise as a defence when it was arguably open for him to do so and which he now cannot pursue through to judgment.
[27] In Re Ellerm, Associate Judge Osborne said of the debtor in that case, who sought to rely on s 37:5
The debtor did not take any opportunity to assert a counterclaim and set-off at the time and the amount of the debt which we are speaking of is vastly behind the minimal resources that Mr Ellerm could meet. Even were there a counterclaim or set-off potentially available to Mr Ellerm I am not satisfied in relation to a judgment debt of this nature that would be proper to keep the Bank out of its rights of taking this step while Mr Ellerm considers whether or not to pursue a counterclaim or set-off. Significantly, he has at no time signalled in the course of this proceeding an intention or determination to pursue such a set-off or counterclaim. Rather, his prayer to the Court is simply to not adjudicate him because he or the company may have a set-off or counterclaim.
[28] While in this case, the quantum of Mr Wilson’s alleged set-off does exceed the judgment debt, unlike in Re Ellerm. In that case, Associate Judge Osborne was unwilling to do was, in effect, to stay the creditor’s judgment, or at least halt the bankruptcy process while the judgment debtor considered whether to bring his claim. In this claim, Mr Wilson asks the Court to halt the bankruptcy process in respect of a claim he accepts he cannot bring because it is statute barred.
[29] The short point is the opportunity to raise the set-off has been lost. Any set-off raised to challenge a bankruptcy notice must be one that could not be raised in the proceeding upon which a bankruptcy notice was based. Given that there would need to be some special circumstance before a set-off that could have been raised at the time judgment was obtained, could be the basis of an application to halt the bankruptcy process at the application to adjudicate stage.
[30] The presumption of insolvency applies. The asserted set-off has, in reality, become redundant given it was not raised earlier and is now statute barred. I find nothing in the circumstances that warrants halting the bankruptcy process.
5 Re Ellerm, ex parte Bank of New Zealand, above n 2 at [19].
Issue Four – does the set-off have merit?
[31] Undermining the merit of the set-off is that Mr Wilson does not quantify the value of the claim he asserts he is personally entitled to. He cannot rely on claims that belonged to his wife and/or to Teapot.
[32] Accordingly, it is not possible to ascertain how much, if any, of the $2.7 million claim could have been raised as a defence by Mr Wilson alone. I do not dwell on this point given the decision I have reached in relation to the other Issues.
Issue One – is the alleged claim covered by settlement?
[33] Mr Wilson expressly relies on having a set-off in relation to Biomex’s claim. If the claim Mr Wilson wants to bring arises out of, or is in any way connected with, the settled High Court proceedings, then it is caught by the terms of the full and final settlement set out at [18] above.
[34] That Mr Wilson has categorised his claim as a set-off, is in fact an acknowledgement by him that his claim is connected to the set-off proceedings. A set-off was described in the often-cited passage in Grant v New Zealand Motor Corporation Ltd, in the following terms:6
The principle is, we think, clear. The defendant may set off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim into account. The link must be such that the two are in effect interdependent, judgment on one cannot fairly be given without regard to the other, the defendant’s claim calls into question and impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that the claim and cross-claim arise out of the same contract.
(emphasis added)
[35] That Mr Wilson claims he has a set-off means that he is asserting a claim connected to the High Court claim. That a claim and counter-claim are linked is the hallmark of a set-off.
6 Grant v New Zealand Motor Corporation Ltd [1989] 1 NZLR 8 (CA) at 12 and 13.
[36] Having settled all claims in any way connected with the settled proceeding, even if the claim now raised by Mr Wilson was not time barred, he could not have raised it as a set-off. In short, the claim is no longer open to him, he having already settled it.
[37] Even if Mr Wilson had not characterised his claim as a set-off, it is clear to me from his own description of the claim, that it was closely connected to the settled proceeding. In his updating affidavit, Mr Wilson says:
However by settling this Court case in 2017 and agreeing that I was liable for the 80 cents per metre costing for Kaitaia weed or the $1.10 per metre for Golden Bay spat. Or where it was secondary seeding or final seeding, 80 c per metre costing. In effect, even though I had not pleaded that I was the owner of the mussels, I was agreeing that I was. This entitles me to charge $1.25 for the re-setting of the mussels on to Maclab’s farms.
(Maclab (NZ) Limited at the time being the name of Biomex).
[38]In submissions filed for Mr Wilson, counsel said:
Mr Wilson’s argument is that he was the person that paid money and made agreements which compromised his position. He was essentially accepting Biomex’s argument that he should be paying for the seeding work. As Biomex’s claim involved the sale of the seed to Mr Wilson, then he became the owner of the mussels.
[39] This is further confirmation that Mr Wilson’s claim concerns the subject matter of the settled proceeding.
[40] Mr Wilson’s counsel, in response to the argument that his claim was settled by him, says:
As the issue that forms the basis of Mr Wilson’s set-off was never contemplated by either of the parties at the time of trial or in any of the three years leading up to the trial, it is submitted that this claim is not a matter that arose out of the High Court proceedings as it was never part of the proceeding.
[41] That is not the test as to what the full and final settlement clause covers. The wording of the clause is clear:
The settlement recorded herein is in full and final settlement of all claims, past, present, or contingent, arising out of, or connected to, in any way whatsoever, the High Court Proceedings and the ERA Proceedings.
[42] On Mr Wilson’s own description of his claim, it is connected to the settled proceeding and therefore a claim he is not able to bring.
[43] Mr Bellamy, counsel for Mr Wilson accepted that the facts and evidence upon which Mr Wilson’s set-off are based were before the High Court at the time of the 2017 hearing. Mr Bellamy submitted those facts were not pleaded or considered in the way they are presently viewed. Counsel submitted there was a failure to appreciate the significance of those facts. This submission cannot assist Mr Wilson. Clause 2.2 of the settlement agreement provides:
The provisions of this Agreement shall bind the parties in all respects and each party hereto accepts the risk of mistake in respect of all matters relevant to the settlement and hereby is obliged to assume such risks (whether patent or latent) for the purposes of the Contractual Mistakes Act 1977, section 6(1)(c).
The point of a full and final settlement clause is that there are no re-runs because of a reassessment of the facts and/or law.
Conclusion
[44] Biomex is entitled to seek the adjudication of Mr Wilson. None of the matters raised by Mr Wilson mean that it is just and equitable for an order not to be made or otherwise persuade me that Biomex is not entitled to proceed.
Order
[45] Accordingly, there is an order adjudicating Mr Phillip John Wilson bankrupt. That order is timed to coincide with the release time of this judgment, namely at 2.30pm on Tuesday 19 May 2020.
Associate Judge Lester
Solicitors:
Duncan Cotterill, Nelson
Philip James Bellamy, Lawyer, Nelson
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