Ronald McDonald Limited v Waller HC Auckland CIV 2010-404-005991
[2011] NZHC 445
•3 May 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2010-404-005991
UNDER the Companies Act 1993
IN THE MATTER OF an application to set aside a statutory demand
BETWEEN RONALD MCDONALD LIMITED Applicant
ANDEDWARD CHARLES WALLER Respondent
Hearing: 15 November 2010
Counsel: S Carey for applicant
C F L Godinet for respondent
Judgment: 3 May 2011 at 12:00 PM
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 3 May 2011 at 12:00pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Carson Fox Legal, PO Box 27403 Parnell, Auckland 1151 for applicantDavid Rice & Associates, PO Box 72266, Papakura 2244 for respondent
RONALD MCDONALD LIMITED V WALLER HC AK CIV 2010-404-005991 3 May 2011
[1] The applicant, Ronald McDonald Limited (RML), has applied to set aside a statutory demand served on it by the respondent Edward Charles Waller. The demand seeks payment of an order for $24,130 made by the Motor Vehicle Disputes Tribunal and a costs order of $5,200 made by this court.
[2] The tribunal order was made in respect of a dispute over a used car which Mr Waller says he purchased from RML but was found not to be of acceptable quality. The tribunal upheld Mr Waller’s rejection of the car and ordered repayment of the purchase price with some minor adjustment. The costs order was in respect of an application to set aside an earlier statutory demand (also seeking payment of the tribunal order) after RML failed to appear at the defended hearing, and the application was dismissed.
[3] RML says that there is a dispute as to whether the tribunal’s order is still payable. It contends that the order was dependent on the car being returned to it in the same or similar condition to its condition when Mr Waller received it, and that its obligation under the order ceased when the car was badly damaged in a fire whilst in Mr Waller’s possession. In the alternative it says that it has a counterclaim and set-off for the value of the car, which exceeds the amount of the demand.
[4] In opposition Mr Waller says that there is no genuine dispute, as the tribunal order clearly requires RML to make payment ahead of any return of the car, and says that ownership and risk reverted to RML when he rejected the car. Mr Waller also contends that RML’s alleged counterclaim is unmeritorious, given RML’s delays and the curious and unexplained circumstances of the fire (Mr Waller had had the car in storage for six months following the tribunal’s order for payment, and the car was damaged by a suspected arson within a day of advising RML’s agent of its whereabouts).
[5] RML did not dispute the costs order. It was clearly payable at the date of the demand. I was advised that a cheque for the costs was tendered shortly before the hearing.
[6] For the reasons I will now give I find that RML has not established that there is a genuine and substantial dispute, and that although there is a possible basis for a counterclaim, it would not be unjust to require RML to pay the sum directed by the tribunal and pursue its possible counterclaim independently.
History
[7] This dispute has its origins in Mr Waller’s purchase of a 2000 HSV Commodore Club Sport V8 car. The vendor is named in a credit sales agreement as Ron McDonald trading as European Wholesale Cars on 29 October 2007.
[8] After taking possession of the car Mr Waller experienced mechanical problems. He made a claim to the Motor Vehicle Disputes Tribunal. At a hearing on
31 March 2008, Mr Waller and a Mr McLeod, representing RML, reached agreement on terms of settlement. The tribunal recorded consent orders under which RML was to make a payment of $2,000 to compensate Mr Waller for repair costs incurred up to that date and for a misrepresentation as to the model, and Mr Waller agreed to return the vehicle to RML for repairs to its transmission and steering (at RML’s cost).
[9] Mr Waller says that the car was returned to RML on two occasions, but RML failed to undertake the agreed repair work either satisfactorily or at all. After experiencing further problems after the car was returned the second time, Mr Waller sent RML a letter giving notice that he rejected the car. He then applied to the tribunal for a refund of the purchase price he had paid, and other consequential costs he had incurred.
[10] Mr Waller’s second application was heard by the tribunal on 21 July 2008. RML did not appear. In the transcript of the proceeding the adjudicator noted that notice of the hearing had been sent to RML’s address for service as held by the Registrar of Motor Vehicles, and that Mr McLeod had been telephoned on the day before the hearing. Instead of appearing, Mr McLeod sent a letter to the tribunal attaching a letter sent by RML to Mr Waller, following receipt of Mr Waller’s notice of rejection, together with invoices from a third party repairer, apparently for repair work carried out pursuant to the terms of the earlier settlement.
[11] The Motor Vehicle Disputes Tribunal issued its decision on 24 July 2008, directing RML to pay Mr Waller $26,130. Mr Waller sought payment of the tribunal’s order, without success. RML took issue with the amount of the order (this cannot be considered a significant dispute given the clear arithmetical error), and also sought inspection of the car before it made payment. Mr Waller would not agree to inspection until the payment was made (the sum now being sought). The amendment was merely to correct an arithmetical error in the calculation set out in the earlier decision. The (amended) orders were:
Orders
[1] The purchaser has validly rejected the vehicle in accordance with the provision of the Consumer Guarantees Act 1993.
[2] The trader shall within 7 days of the date of this order pay to the purchaser the sum of $26,130 [sic] by Bank Cheque calculated as follows:
a) Purchase price of vehicle $24,500.00 b) Less allowance for payment already made $ 1,000.00 c) Cost of Sony CD/tuner fitted to vehicle $ 480.00 d Filing fee on Application $ 50.00 Total $24,130.00
[3] As soon as the trader has refunded the purchaser the sum of $24,130 in terms of order 2 (above) the purchaser shall have the vehicle transported back to the trader at his expense.
[4] The trader shall within 7 days of the date of this order pay to the
Auckland District Court the sum of $500.00 as costs.
[12] RML eventually went back to the tribunal (on 19 January 2009) seeking clarification of the amount payable, and an order that Mr Waller allow it to inspect the car before payment ―to ensure that it is not damaged before complying‖. On
22 January 2009 the tribunal issued an amended decision, confirming the amount payable was $24,130.
[13] A week or so after the tribunal issued its amended decision, it issued a further decision declining to make the order for inspection on the grounds that it had no jurisdiction to do so.
[14] At about this time (the only evidence as to timing is Mr Waller’s evidence that it was about six months after the tribunal’s order) Mr Waller received a
telephone call from Mr McLeod, saying that he wished to come out to Mr Waller’s address to pay the money ordered by the tribunal and to collect the car. Mr Waller says that he gave Mr McLeod directions. Early in the following morning the car was set alight. Mr Waller says that the Police have indicated that it was arson. It appears that the car is now valueless.
[15] Mr Waller continued to seek payment of the tribunal’s order. In about May 2009 Mr Waller served a statutory demand on RML. A former solicitor (Mr Warburton) who was assisting RML responded to Mr Waller’s solicitors by letter on 21 May 2009. He invited withdrawal of that demand on the grounds that RML was not insolvent, that the tribunal’s order could no longer be satisfied (because Mr Waller could not return the car) and because Mr Waller had made a claim on his insurance which had still to be answered. Mr Waller’s solicitors replied immediately saying that the tribunal’s order required payment to be made before the vehicle was returned, and pointing out that RML had had six months in which to comply with the order of the tribunal. His solicitors confirmed that Mr Waller had approached his insurance company, but had been advised that as ownership of the car had revested in RML upon Mr Waller’s rejection of it, Mr Waller did not have the basis for a claim.
[16] Although the first demand was not withdrawn, RML did not apply to set it aside, nor did Mr Waller take any further steps in relation to it. Instead, he issued a second demand on 31 August 2009. This time RML did apply to set it aside. The application was opposed and a hearing date was set. On the date of hearing RML’s counsel sought, and was granted leave, to withdraw on the grounds that he had no instructions. There was no appearance for RML and its application was dismissed. Subsequently the court made the order for costs ($5,200 plus disbursements of $40), which amount forms part of the present demand.
[17] Mr Waller also did not take any further steps on the second demand, but on
18 August 2010 issued a third demand, this time including the sum due under the costs order as well as the tribunal order. On 9 September 2010 RML applied to set the demand aside. That application, and the supporting affidavit, were in almost identical terms to its previous application. The only difference is that RML has
advanced a new ground, namely that Mr Waller had purchased the car not from RML but from a company run by Mr McLeod, to which RML (as a wholesaler) supplied cars including this one.
The legal principles
[18] RML’s application is brought under s 290(4) of the Companies Act 1993:
290 Court may set aside statutory demand
(4) The Court may grant an application to set aside a statutory demand if it is satisfied that—
(a) There is a substantial dispute whether or not the debt is owing or is due; or
(b) The company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c) The demand ought to be set aside on other grounds.
[19] The principles which the court applies in determining these applications are well established.1 In summary, the party applying to set aside must show:
(a) There is arguably a genuine and substantial dispute as to the existence of the debt or the applicant has a reasonably arguable counterclaim, cross demand, set-off or other grounds to set aside;
(b)It is not enough merely to assert a dispute, counterclaim or other ground exists – material, short of proof, is required to support the claim that the debt is in dispute or the counterclaim or cross demand is arguable or the other grounds being advanced;
(c) If the material is available, the dispute should normally be resolved by other means;
1 See principles and authorities in Linda Howes and Stephen Revill Brookers Company and Securities
Law (looseleaf ed, Brookers, updated to 14 March 2011) at CA 290.02(1).
(d)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly where issues of credibility arise but the court can and will assess whether facts which are said to give rise to a dispute pass a threshold of credibility (for example, by reference to contemporary documents or other statements by the witness).
[20] The task for the court is not to resolve the dispute or counterclaim/set-off but to determine whether there is an arguable dispute or counterclaim or other grounds for setting aside.
Issues for determination
[21] The following issues need to be determined on this application:
(a) Whether RML has established that there is substantial dispute as to
whether the tribunal’s order is now payable;
(b)Whether RML has established that it has a reasonably arguable counterclaim against Mr Waller for the value of the car;
(c) Whether there is any other reason to set aside the demand;
(d) How should the court exercise its discretion in light of those findings.
Is there a genuine and substantial dispute
[22] There is no question that the Disputes Tribunal ordered RML to pay Mr Waller the sum of $24,130. Counsel for RML argued, however, that that order and the further order for return of the car were interdependent. He submitted that it was both implicit in the order, and a statutory obligation under s 22(2) of the Consumer Guarantees Act 1993, that Mr Waller should return the car (the rejected goods), and in the same or a similar condition as he received it. He argued that, they were interdependent obligations, RML did not need to pay under the tribunal’s order
if Mr Waller could not perform his obligation, namely return of the car in the same or similar condition, as a result of its destruction by the arson. He submitted that this point was sufficient to warrant setting aside of the demand either on the basis of a genuine and substantial dispute or on the grounds that it was just and equitable to do so.
[23] I do not accept that the obligation to pay as ordered by the tribunal was interdependent with the order for return. I read the orders as separate obligations, in that the order in respect of return clearly did not take effect until RML had complied with the order for payment. I will return to the argument that Mr Waller was under a duty to RML to safeguard the car whilst it remained in his possession, but that does not alter the clearly sequential obligations arising under the tribunal’s orders.
[24] Counsel for RML sought to make something of Mr Waller’s failure to allow inspection of the car prior to payment. However, that was not a term of the orders, a point that was clearly accepted by RML at the time because it returned (belatedly) to the tribunal for an order to that effect.
[25] Counsel also sought to justify RML’s failure to pay the order in the six months leading up to the damage to the car on the grounds that there was a genuine dispute over the sum ordered. There might have been something in this point if Mr Waller had rejected tender of the amount clearly due ($24,130), but I cannot see that it helps RML where it did not even attempt to pay the undisputed sum. The same reasoning applies to the fact that Mr Waller continued to issue his demands for the amount of the first order even though there can be no question that the later and lesser amount was the sum that was due.
[26] Counsel for RML referred to, anticipating an argument for Mr Waller, the effect of s 22(3) of the Consumer Guarantees Act 1993, under which ownership of goods reverts to the supplier when the consumer notifies rejection. He submitted that this could not release Mr Waller from his obligation to return the car in the state that it was received by him.
[27] I regard this point as having some relevance to RML’s alleged counterclaim, but do not see that it can help RML in an argument that the tribunal’s order no longer applies.
[28] The issues raised do not impugn the primary orders of the Disputes Tribunal that Mr Waller had validly rejected the car, and that RML was to repay him what he had paid. Similarly, I do not consider that s 22(2) of the Consumer Guarantees Act
1993 (which deals with a consumer’s obligation to return rejected goods) helps RML’s argument on interdependence. That section addresses the mechanics of return of goods that have been rejected. It does not assist in determining respective rights to the car following rejection (and particularly any obligation to return in same or similar condition) in the circumstances of this case.
Is there a reasonably arguable counterclaim
[29] Under s 22(3) Consumer Guarantees Act 1993, ownership in goods revests in the supplier when the consumer gives notice of rejection. Counsel for RML submitted that while Mr Waller was in possession of the car, he was under an obligation to return it in the same or similar condition, and thereby under a duty to preserve it until it was returned. He said that in effect Mr Waller held the vehicle on trust for RML. He argued that as the car had been destroyed whilst in Mr Waller’s possession, RML had prospective claim for breach of duty, the amount of such claim being the value of the vehicle which equalled or exceeded the amount of the demand.
[30] In the circumstances of this case, the better analysis is perhaps that Mr Waller became a bailee of the car after he gave notice of rejection (or perhaps when the tribunal upheld his notice of rejection) and ownership revested in RML.
[31] I accept that there is a potential argument for RML as to whether or not
Mr Waller took appropriate care of the care while it remained in his possession:2
At common law, a custodian for reward must exercise reasonable care for the safety of the property entrusted to it. The degree of care is that which may reasonably be expected from a skilled warehousekeeper acquainted with the
risks. As to the burden of proof, in an action for negligence the general rule is that the plaintiff must prove a breach of the duty of care. But when goods or property are damaged in the possession of a bailee, the bailee must prove either that it took appropriate care of them, or that its failure to do so did not contribute to the loss. The bailee’s burden of proof is not merely a shifting onus, or the onus of going forward with evidence. It is what is sometimes described as an ―ultimate onus‖. Whilst the bailee does not face the burden of providing an exact explanation of the event or injury, if a defendant leaves it doubtful whether the particular damage was due to its fault, the plaintiff should succeed.
[32] I also accept that it is not possible to resolve this issue on the evidence currently before the court. However, the possibility of a counterclaim does not automatically entitle RML to setting aside of the statutory demand: the court still has a discretion.3
[33] I am not persuaded, on the facts of this case, that this is a case where the court should exercise its discretion to set the demand aside. The following factors are relevant:
(a) Under s 22(3) of the Consumer Guarantees Act 1993, ownership of the car revested in RML at the date of the Disputes Tribunal’s order (if not before).
(b)RML chose to delay, and take a technical point over the amount of the tribunal’s order for a period of six months (notwithstanding that the order required payment within seven days). The error in the order was self-evident. A tender of the correct amount would either have resulted in delivery of the car well before the arson, or would have given RML a justifiable basis for its argument (had Mr Waller declined to accept the proper amount).
(c) It was open to RML to ensure that care (ownership having reverted), thereby protecting itself against the unforeseen.
(d)RML has chosen to take advantage of the arson, without itself instigating any counterclaim. It is still able to bring that claim if it so wishes.
(e) RML says that it has the ability to pay, so a failure to have the statutory demand set aside would not have the inevitable consequence of its liquidation.
(f) Although the facts surrounding the arson are unclear, the coincidence of the timing of the arson with Mr Waller’s advice to RML of the location of the car is curious to say the least. However, and more significantly, there is nothing before the court to suggest a failure on the part of Mr Waller to keep the car secure. To the contrary, the limited evidence available suggests that Mr Waller was careful to keep the car secure from all parties (including RML) It does not appear to be a blatant case of failure to take proper care, and hence any claim would appear to be relatively weak.
[34] In assessing whether to exercise my discretion, I need to weigh the effect of the decision either way on the parties. I cannot see that it is significantly unfair to RML, in the circumstances set out above, to require that it bring its counterclaim independently. To the contrary, I consider that it is unreasonable and unfair on Mr Waller to require him to wait further for payment of a debt that is clearly due. Weighing the various matters, I come to the view that I should not exercise my discretion to set aside the statutory demand on the basis of RML’s possible counterclaim: it is not certain to impugn RML’s debt to Mr Waller.
Any other reason to set aside
[35] RML has also argued that the debt may not currently be due, on the grounds that it has applied for a rehearing before the Disputes Tribunal. It contends that another company sharing the same premises, Texaco NZ Limited, and not RML sold the car to Mr Waller.
[36] RML has not persuaded me that the statutory demand should be set aside on this ground. First, I accept the submission of counsel for Mr Waller that there is no jurisdiction for the Disputes Tribunal to grant a rehearing. The proper course was for RML to appeal.
[37] Secondly, the merits of any appeal (or indeed application to set aside) are not apparent. Again, I accept the submission of counsel for Mr Waller that RML would be unlikely to get leave to appeal out of time, having regard to the following:
(a) RML’s director acknowledges that he knew of the order. He says that he left it to his business associate, Mr McLeod, to deal with. If this is the case, it may give RML a right to recover any loss from Mr McLeod.
(b)The contemporary documents do not show Texaco necessarily as the vendor. They are equally consistent with RML being the vendor: the credit sales agreement states that the vendor was Ron McDonald trading as European Wholesale Cars. Further, a tender form/auction instruction in the evidence before the court suggest that Texaco may well have been selling on RML’s behalf (other documents signed by Texaco, on which RML places reliance, are equally explicable on that basis).
(c) The Disputes Tribunal was satisfied that Mr McLeod was representing RML. In its first decision on 31 March 2008, when it made consent orders, it recorded that Mr McLeod was present ―for Ron McDonald trading as European Wholesale Cars‖.
(d)A former solicitor, (Mr Warburton) became involved at a later stage, and wrote presenting arguments on behalf of the RML. There was no suggestion then that Texaco was the proper party – a matter that he, with his legal background, could have been expected to have raised. This suggests that RML accepted that it was the proper party at that time.
[38] Weighing the above, I do not accept that the recently advanced ground (that
RML was not the vendor) is a sufficient basis to warrant setting aside.
Decision
[39] Weighing all of these matters together, I am not persuaded that the court should exercise its discretion to set aside the statutory demand. The application is dismissed.
[40] As the successful party, Mr Waller is entitled to costs on the standard 2B
basis together with disbursements as fixed by the Registrar.
Associate Judge Abbott
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