Sinclair v Rural Builders Limited - [2020] NZHC 1857

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE

CIV-2020-454-13

[2020] NZHC 1857

UNDER the Insolvency Act 2006

IN THE MATTER

of an application to set aside a bankruptcy notice

BETWEEN

JEREMY RALEIGH SINCLAIR

Applicant

AND

RURAL BUILDERS LIMITED

Respondent

Hearing: 16 July 2020

Appearances:

D Sheppard for applicant A Swan for respondent

Judgment:

29 July 2020

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[1] This is an application pursuant to s 17(1)(d)(ii) of the Insolvency Act 2006 for an order setting aside a bankruptcy notice, and the question which the Court must resolve is whether the applicant, Mr Jeremy Sinclair, has a triable cross claim against the respondent, Rural Builders Ltd, for an amount equal to or greater than the judgment debt on which the bankruptcy notice is based that he could not have used as a defence in the proceeding in which the judgment was obtained.

[2] The dispositive issue is more refined, but that is best identified after outlining the factual background.

SINCLAIR v RURAL BUILDERS LIMITED [2020] NZHC 1857 [29 July 2020]

[3] During the second quarter of 2018 Mr Sinclair entered into contractual arrangements with a company called Lumberland 2006 Ltd which manufactures and markets kit-set pole sheds and RBL which is a building company. Essentially, Mr Sinclair agreed to purchase one of Lumberland’s kit-set pole sheds and engaged RBL to erect it on his property outside Palmerston North.1

[4] It is common ground that the building needed to meet certain specifications so that Mr Sinclair could use it for his business that requires him to garage large machinery, and that it needed to be designed specifically to meet those needs. In due course, Lumberland obtained plans and specifications for the shed from an engineering concern called MiTeck NZ Ltd, that Mr Sinclair says he was assured accommodated his requirements. These plans and specifications were identified as FB53302.

[5] Lumberland submitted an application to the Manawatu District Council for consent and in due course the Council granted consent for the erection of the kit-set pole shed in accordance with FB53302.

[6] For reasons that are not explained in the evidence, after the Council had granted consent, Lumberland had MiTek prepare amended plans and specifications which were identified as FB53302(B).

[7]Around mid-2018 work commenced on the erection of the kit-set pole shed.

[8] Mr Sinclair says that RBL breached its obligations by failing to build the kit-set pole shed in accordance with either FB53302 or FB53302(B).

[9] During the course of the hearing Mr Sheppard went to considerable lengths to demonstrate the extent of the alleged deviations from the first and second (unconsented) plans and specifications, and the other defects from which Mr Sinclair says the as-built kit-set pole shed suffers. At a later stage Mr Sinclair obtained a report from HABiT Manawatu (2017) Ltd, a surveying concern. This report itemised the extent to which the kit-set pole shed deviated from the first and second plans and

1…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] NZHC 1857
Decision Date: 29 July 2020

CaseChat Overview and Summary

In this case, the applicant, Mr Jeremy Sinclair, sought an order under the Insolvency Act 2006 to set aside a bankruptcy notice issued by the respondent, Rural Builders Ltd (RBL). The bankruptcy notice was based on a judgment debt obtained by RBL in the Disputes Tribunal, which had ruled in favour of RBL and against Mr Sinclair. The central issue before the Court was whether Mr Sinclair had a triable cross claim against RBL that was not pursued in the Disputes Tribunal proceedings, and whether this cross claim could not have been used as a defence in the Tribunal proceeding due to its monetary jurisdiction limit.

The Court found that Mr Sinclair had a triable cross claim against RBL for an amount exceeding the judgment debt. This cross claim arose from allegations that RBL had breached the contractual obligations by failing to build the kit-set pole shed in accordance with the agreed plans and specifications. The Court held that Mr Sinclair was aware of his cross claim and had taken steps to pursue it, but did not avail himself of the opportunity to do so in the Disputes Tribunal due to its monetary jurisdiction limit. The Court rejected the argument that the monetary limit of the Disputes Tribunal constituted a legal impediment to Mr Sinclair's ability to defend the claim in that forum.

Associate Judge Johnston held that the legal impediment required by s 17(1)(d)(ii) of the Insolvency Act must be such that it made it impossible for Mr Sinclair to rely on his cross claim as a defence. The Judge found that while Mr Sinclair could not pursue his full cross claim in the Disputes Tribunal, he was not legally precluded from defending RBL’s claim by raising his cross claim in that forum. The Judge concluded that Mr Sinclair could have initiated proceedings in the District Court for the full amount of his cross claim and applied for joinder and removal of the proceedings. Therefore, the application to set aside the bankruptcy notice was dismissed.

The Court also noted that RBL, as the successful party, is entitled to costs on a 2B basis together with such disbursements as may be allowed by the Registrar. The parties were expected to finalise the costs, with an option to return to the Court if necessary.

Orders