David Arthur Jaques v Grant Stephen Lovatt &

IN THE COURT OF APPEAL OF NEW ZEALAND

CA42/01

IN THE MATTER

OF THE INSOLVENCY ACT 1967

BETWEEN	DAVID ARTHUR JAQUES
Appellant

AND	GRANT STEPHEN LOVATT AND PAUL WHELAN
Respondents

Hearing:	24 April 2001
Coram:	Richardson P Gault J McGrath J
Appearances:	D A Jaques in person J Barratt-Boyes for Respondents
Judgment:	24 April 2001

JUDGMENT OF THE COURT DELIVERED BY GAULT J

The Court is presented with an appeal and cross-appeal from a decision of Master Thomson given in the High Court on 26 February 2001. On an application by Mr Jaques, the appellant, to set aside a bankruptcy notice, the Master “admitted” the application although it had been filed and served out of time. However, the application was dismissed as not meeting the requirements of s19(1)(d) Insolvency Act 1967. The appellant did not “satisfy the Court that he has a counterclaim, set-off, or cross demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid, and which he could not set up in the … proceedings in which the order was obtained”.
The appellant had sued the respondents in the District Court alleging breach of a written contract dated 5 May 1998 under which he was to have national distribution rights for a computer based music player including a jukebox model developed by the respondent. It was further alleged that payments were made for the distribution rights and for five jukeboxes supplied. The jukeboxes supplied were said, in particulars of breach, to have significant fundamental faults rendering them unsaleable. The primary allegation was that the respondents had “breached the contract and failed to provide valuable consideration whereby the contract is void ab initio”.
After trial at the Waitakere District Court Judge B N Morris dismissed the appellant’s claim, gave judgment for the respondents and made an award of costs in their favour.
The appellant appealed to the High Court. Glazebrook J, in a judgment delivered on 31 August 2000, dismissed the appeal and awarded costs to the respondents. In her written judgment the following paragraphs appear:
The appellant then alleges that there were fundamental faults with the five jukeboxes supplied and breaches of implied warranties as to merchantible quality etc under the Sale of Goods Act. Given the fundamental faults it is argued that damages equal to the purchase price should be paid by the respondents.
The question of faults in the jukeboxes was specifically dealt with in Judge Morris’ judgment. He says that the appellant went off with the first five jukeboxes in the knowledge that certain items were not completed (p10) and that the respondents’ representations as to quality were not misrepresented but that the appellant failed to give them the time they needed to effect the creation of the product he wanted (p11).
The appellant has not pointed to anything in the evidence that would convince me that the judge was wrong in this finding. In addition, as the respondent points out, there is no independent evidence as to how fundamental the faults were. The respondents argue that they had machines on site by 1 September and fully developed models for sale by November 1998. In addition there appears to have been an acceptance by the appellant that the faults were not fundamental in cross-examination – page 31, lines 33-36 notes of evidence – and he also accepted that he was still using three of the jukeboxes, page 33, lines 16-17. This ground must fail.
The bankruptcy notice served on the appellant on 18 December 2000 required payment within 14 days of the costs awarded to the respondents in the proceedings.
The appellant, on 24 January 2001, filed in the High Court an application, in effect, to set aside the bankruptcy notice on the ground that he had a claim against the respondents for an amount in excess of the sum ordered in respect of costs in the earlier proceeding, which claim was not able to be brought in that proceeding. The application was supported by an affidavit the material paragraphs of which read:
Starting in 1998 I brought a claim against the judgment creditors for breach of a contract they had entered into requiring them to supply me computer based jukeboxes for distribution and that they had not supplied these within a reasonable time.
The claim was that the product that was supplied was in fact owned by the judgment creditors and that I was entitled to a full refund of the money I had paid for those goods as well as money advanced to purchase exclusive right and promotional costs.
The Court held that I was the lawful owner of the goods and that I was not entitled to a refund of any of the money I had expended.
It is as a result of this initial court hearing that the judgment creditors bring this petition for bankruptcy.
Now that it has been ordered I am the lawful owner of the 5 jukeboxes in dispute I have the foundation to bring a claim under the Sale of Goods Act that the goods are faulty and not fit for their purpose.
Since my initial claim was based on me not being the owner of these goods I could not have brought this claim at that time.
The claim against the judgment creditors will be for the purchase price of $39,900.00.
The application was served on 30 January 2001. The respondents contended before the Master, and by way of cross-appeal in this Court, that this was outside the 14 day time limit provided for in s19(1)(d), that the act of bankruptcy was complete and that the application to set aside the notice was too late.
The matter came before Master Thomson on 26 February 2001. He had some evidence directed to the circumstances surrounding the service of the appellant’s application to set aside the bankruptcy notice and heard from Mr Jaques on that matter when he appeared in person. He did not give written reasons but issued a minute in these terms:
1.The Court admits the application to set aside the bankruptcy notice and dismisses it because the separate proceeding issued in the District Court does not amount to a counterclaim or set-off or cross demand that equals or exceeds the amount of the judgment and could not have been set up in the proceedings in the District Court. Costs reserved.
2.Mr Jaques accepts service of petition from process server 11.10 am. 26/2/2001.
3.Petition adjourned to 9 April 2001, 2.15 pm for hearing.
4.Debtor to file and serve notice of opposition and affidavit within 7 days hereof which is to include statement of assets and liabilities.
Without the benefit of written reasons from the Master we are not able to comment on his admission of the appellant’s application outside the prescribed time. But we are satisfied in any event that he reached the correct conclusion in holding that the appellant had failed to satisfy him in terms of s19(1)(d).
Plainly the appellant not only could have, but did, allege breach of the Sale of Goods Act warranties in his earlier proceeding. It was not mounted on the narrow foundation he now claims as is apparent from the extracts from the pleadings and from the High Court judgment we have set out.
Further, even if the claims in the new proceeding were different from those in the earlier proceeding, the claims in the new proceedings cannot be characterised as a counterclaim, set-off or cross demand in relation to the orders for costs made in a prior unsuccessful proceeding. The orders for costs were made in consequence of the failure by the appellant to make out the earlier claims. It cannot be a “counterclaim, set-off or cross demand” to the costs awards to make new and different allegations. As Richardson J said in Thomasen v Nigro and Steven CA124/76, judgment 19 July 1978:
Full meaning must be given to the collocation of words “counterclaim, set-off or cross demand”. The common thread running through the phrase is that the claim is a defence: it is raised in response. It is inapt to say at a time when there is no hint of a claim by the other party – “I have a counterclaim, set-off or cross demand against you.” And in the context of s.19(1)(d) it is clear that at this second stage of the inquiry the question is whether or not the debtor’s claim could have been set up as a counterclaim, set-off or cross demand in the action.
That case has not been reported but it is cited in Laws NZ, Insolvency para 48.
We should add that merely asserting that there is a claim for the full amount paid for goods in respect of which the Sale of Goods Act warranties allegedly have been breached is no sufficient proof of the amount of the claim. But it is unnecessary for us to go into that.
For the reasons given the appeal is dismissed. It is unnecessary to deal with the cross appeal. The respondents are entitled to costs which we fix at $3,000 together with disbursements including the reasonable travel and accommodation expenses of counsel approved, if necessary, by the Registrar.

Solicitors
Barratt-Boyes Law Practice, Auckland, for Respondents

[2001] NZCA 135

24 April 2001