Spurr v CRT Fuel Limited

[2012] NZHC 3307

IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY

CIV-2012-476-000237 [2012] NZHC 3307

IN THE MATTER OF     the Insolvency Act 2006

AND

IN THE MATTER OF     the bankruptcy of STUART GRAEME SPURR

BETWEEN  STUART GRAEME SPURR Applicant

ANDCRT FUEL LIMITED Respondent

Hearing:         3 December 2012 (Heard at Dunedin)

Appearances: B C Nevell for Applicant/Judgment Debtor

M B Couling for Respondent/Judgment Creditor

Judgment:      7 December 2012

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to setting aside of bankruptcy notice]

[1]      Mr Spurr operated a service station in Timaru (through a company).  I will refer to the company and Mr Spurr collectively as “Mr Spurr”.  He entered into a fuel retailer agreement with CRT.  He personally guaranteed payment of all amounts payable to CRT under the agreement.  He had trading difficulties from an early stage and through 2011 was experiencing serious cash-flow issues.  In January 2012 CRT ceased supplying Mr Spurr with fuel and took steps to recover the debt then owed.  It obtained a summary judgment for $160,067.06 against both Mr Spurr and his company.

[2]      The next month, CRT served Mr Spurr with a bankruptcy notice.

SPURR V CRT FUEL LIMITED HC TIM CIV-2012-476-000237 [7 December 2012]

[3]      Mr Spurr applies to set aside the bankruptcy notice.

The grounds of Mr Spurr’s application

[4]      Mr Spurr does not challenge the validity of the summary judgment.

[5]      Mr Spurr invokes the provisions of s 17(1)(d)(ii) Insolvency Act 2006.  He says that he has a cross claim against CRT which exceeds the judgment debt so as to meet the requirements of s 17(7)(a) of the Act.

[6]      He says that, as a matter of law, he could not have used the cross claim as a defence in the summary judgment proceeding as cl 39 of the retailer agreement expressly forbade the setting up of a cross claim.1    He adds that he could also not have pursued the cross claim in practical terms because he had no money to pay his lawyers to do so.

[7]      Mr Spurr’s cross claim is based on two (alternative) causes of action: (a)      A breach of contract by CRT by:

(i)       ceasing to supply fuel to the company on 10 January 2012;

(ii)failing  to  provide  the  company  with  written  notice  of  its decision to cease fuel supply; and

(iii)requiring payment of all funds outstanding before fuel supply recommenced  rather  than  requiring  payment  of  only  the balance above a $65,000 credit limit.

(b)A breach of s 9 Fair Trading Act 1986 by reason of misleading and deceptive conduct and trade through:

(i)without  notice  to  the  company  purporting  to  amend  the contractual terms of payment from five days credit to cash on delivery at the time of the 9 January 2012 delivery;

(ii)making  that  decision  on  the  basis  that  the  company  had exceeded  a  proposed,  but  not  agreed,  $65,000  credit  limit which the company had not previously enforced;

(iii)     imposing  new  payment  terms  on  the  company  after  the  9

January 2012 delivery had already taken place so that the company had no opportunity to vary the size of delivery or arrange further financing to enable it to pay for that delivery and to meet its existing obligations to pay for the 30 December

2011 delivery;

(iv)implying that the $42,157.54 paid on 9 January 2012 had been directed towards the payment of the 9 January 2012 delivery (leaving the 30 December 2011 invoice in default) when the CRT tax invoice dated 31 January 2012 payment was  in fact directed towards payment of the 30 December 2012 delivery; and

(v)relying on non-payment of the 30 December 2011 delivery as grounds for ceasing fuel supply when the 30 December 2011 delivery had actually been paid in full.

[8]       Those are the matters Mr Spurr asserts through the written submissions filed on his behalf by Mr Nevell on 22 November 2012.

[9]      They represent a substantial development upon the grounds stated in Mr

Spurr’s interlocutory application which read simply:

(a)      that  he  has  a  cross  claim/set-off/cross-demand  which  equals  or exceeds the amount of the judgment debt which he could not be set up (sic) in the action in which the judgment was obtained; and

(b)      in the alternative that the bankruptcy notice is an abuse of process.

[10]     Mr Nevell has not pursued the abuse of process argument and I therefore focus on the cross claim ground issue.

Preliminary issue as to the scope of Mr Spurr’s grounds

[11]     The hearing of this application was initially to take place on 18 September

2012.   Close to that date, Mr Nevell was instructed to act for Mr Spurr.   On Mr Nevell’s application, the hearing was vacated and adjourned to this hearing with a timetable for the filing of further affidavit evidence and possibly amended pleadings.

[12]     Mr Couling has made something of the fact that the notice of application was not subsequently amended.  I do not find anything should turn on that.  The general statement  of  the  first  ground  in  the  application2   was  and  remains  a  sufficient indication that Mr Spurr is invoking s 17(1)(d)(ii) of the Act.  It would have been better  practice  for  the  application  to  state  that  Mr  Spurr  was  relying  on  the proposition that CRT’s conduct constituted a breach of the Fair Trading Act as well as a contractual breach but the form of the application falls to be read with the supporting affidavits and the manner in which they identify the conduct relied upon.

[13]     The evidence filed in accordance with the High Court Rules or as directed by

Minute has been:

31 May 2012 - Mr Spurr’s affidavit in support.

22 June 2012-4 July 2012 – CRT’s (three) affidavits in opposition.

13 September 2012 – Court direction requiring Mr Spurr to file any

further supporting affidavits by 27 September 2012; CRT to file further opposition evidence within further 10 working days; and Mr Spurr to file

reply evidence within further 10 working days.

27 September 2012 – Mr Spurr’s further affidavit in support.

11 October 2012 – CRT’s further (two) affidavits in opposition.

25 October 2012 – Mr Spurr’s further affidavit in reply.

(All the above documents were filed either in  accordance with the Rules or in accordance with the specific directions made on 13 September 2012).

Subsequently there have been filed:

16 November 2012 – Mr Spurr’s second affidavit in reply.

30 November 2012 – CRT files a further (M D Bayly) affidavit.

[14]     Mr Spurr did not apply for leave to file his 16 November 2012 affidavit.  Nor did CRT seek leave for the filing of Mr Bayly’s final affidavit (although I note that his affidavit was in part to deal with matters which Mr Bayly said were new matters raised by Mr Spurr’s final affidavit).

[15]     Mr  Couling,  for  CRT,  initially  filed  a  submission  that  Mr  Spurr’s  final affidavit ought to be excluded, as out of time and, in any event, containing new evidence and evidence which ought to have been given in September.

[16] In the event, Mr Couling and Mr Nevell conferred and the parties reached a consent position whereby the Court was requested to grant leave by consent to the filing of the evidence I have referred to at [15] above. I accordingly granted such leave by consent at the start of the hearing.

The agreement to exclude cross claims

Clause 39 of the retailer agreement

[17]     Mr Spurr explained his decision not to defend the CRT summary judgment proceeding partly by reason of cl 39 of the retailer agreement.

[18]     That clause relevantly provides:

The Retailer acknowledges and agrees that its obligation to pay all sums due to CRT Fuel under this Agreement and the rights of CRT Fuel in and to such moneys shall be absolute and unconditional and shall not be subject to any reduction, set-off, defence, counter-claim or recoupment whatsoever including, without limitation, reductions, set-offs, defences counter-claims or recoupments due or alleged to be due to or by reason of any past, present or future claims, if any, which the Retailer has against CRT Fuel.

The nature of such clauses

[19]     I have previously described a clause expressed in very similar terms to cl 39 as being:3

…  traditional  no  set-off  … clause  designed  to  deal  with  the  principles recognised by the Court of Appeal in Grant v NZMC Ltd 4 …

The relevance of the no cross claim agreement – Section 17(1)(d)(ii) Insolvency Act
2006

[20]     It was initially Mr Spurr who put cl 39 to the front of his case in order to come within s 17(1)(d)(ii) of the Act.  Section 17(1) of the Act 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

3      Browns Real Estate Ltd v Grand Lakes Properties Ltd HC Invercargill CIV-2009-425-670, 10

March 2010 at [12]; upheld on appeal (2010) 20 PRNZ 141 at [6] and [14].

4      Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 13.

(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),—

(i)       complied with the requirements of the notice; or

(ii)      satisfied the Court that he or she has a cross claim against the creditor.

[21]     “Cross claim” is defined in s 17:

(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.

[22]     In the light of s 17 of the Act, and the express provisions of cl 39 of the contract, Mr Nevell in his written synopsis submitted that Mr Spurr was legally unable to raise his cross claims in the summary judgment proceeding and that he was also factually unable to do so.

[23]     The  principles  applicable  in  this  area  (and  there  was  no  issue  between counsel as to the principles) are as follows:

(a)      An applicant must show that he has a genuine, triable counterclaim, set-off, or cross-demand that the applicant was unable to use as a defence in the proceeding in which the relevant judgment was obtained: Clark v UDC Finance Ltd.5

(b)The primary focus is on legal inability but, in cogent circumstances, factual inability may suffice:  Hardie v Booth.6

5      Clark v UDC Finance Ltd [1985] 2 NZLR 636 (HC); Sharma v ANZ Banking Group (NZ) Ltd

(1992) 6 PRNZ 386 (CA) at 389.

6      Hardie v Booth [1992] 1 NZLR 356 (HC), per Tipping J at 362.

(c)      A contractual provision which precludes the setting up of the cross claim which the debtor asserts (as the ground for setting aside a bankruptcy notice) is an example of a situation in which the debtor is unable to (legally) set up the cross claim in the proceeding in which the judgment was obtained.  Re Clark, ex p Mobil Oil New Zealand

Lt d is such an example,7  dealing with a summary judgment which

had been obtained in the District Court in relation to a contract which required all payments to be made by the borrower “free of any set-off or counterclaim...”.

The difference between the parties as to ability to bring the cross claim

[24]     Relying on Master Gambrill’s decision in Clark, ex p Mobil Oil New Zealand Ltd, Mr Nevell submitted that Mr Spurr had been legally unable to bring the cross claim in the summary judgment proceeding.

[25]     Mr Couling’s synopsis of submissions, in opposition, placed reliance on the decision of this Court in Oceania Furniture Ltd v Debonaire Products Ltd.8     Mr Couling relied on Oceania Furniture for the proposition that Mr Spurr, even faced with  no  set-off  clause,  could  have  invited  the  Court  when  entering  summary judgment to have stayed the judgment pending the determination of the cross claim. That submission requires a brief consideration of the jurisdiction involved in the

exercise of such a discretion.

[26]     Rule 12.12(2) High Court Rules (in the part of the Rules which deals with summary judgment) gives the Court a discretion to dismiss a summary judgment application where the defendant has a counterclaim which it appears to the Court

ought to be tried.  Rule 12.12 specifically provides:

7      Re Clark, ex p Mobil Oil New Zealand Ltd HC Whangarei B58 and 59-97, 20 July 1997, Master

Gambrill.

8      Oceania Furniture Ltd v Debonaire Products Ltd HC Wellington CIV-2008-485-1701, 3

December 2008.

12.12   Disposal of application

(1)       If the court dismisses an application for judgment under rule 12.2 or

12.3, the court must give directions as to the future conduct of the proceeding as may be appropriate.

(2)       If it appears to the court on an application for judgment under rule

12.2 or 12.3 that the defendant has a counterclaim that ought to be tried, the court—

(a)      may give judgment for the amount that appears just on any terms it thinks just; or

(b)      may  dismiss  the  application  and  give  directions  under subclause (1).

[27]     What usually happens in cases where the defendant seeks the exercise of the r 12.12(2) discretion is that the defendant also makes application for a stay under r 17.29.   This combined jurisdiction is discussed by the authors of McGechan on Procedure in this way:

HR12.12.02     Stay of execution

The  issue  of  staying  execution  of  a  summary  judgment  arises  most frequently in connection with counterclaims. Where a counterclaim amounts to a set-off, this will provide a defence to the summary judgment application. In cases where the defendant has a counterclaim which cannot be classified as a set-off, the question arises as to whether the Court should stay execution of the summary judgment pending resolution of the counterclaim. The defendant should therefore apply for a stay at the time of filing the counterclaim: Roberts Family Investments Ltd v Total Fitness Centre (Wellington) Ltd [1989] 1 NZLR 15, (1988) 1 PRNZ 88. An application for a stay is made under r 17.29: see NZ Food Group Ltd v Cannell [1986] 2

NZLR 593.

[28]     Cases in which the defendant has argued for the exercise of the discretion under r 12.12(2) (or before it) under the predecessor r 142(2) include:

Roberts’ Family Investments Ltd v Total Fitness Centre (Wellington) Ltd 9  – in which McGechan J referred to the common practice of the Court to stay execution of a summary judgment pending resolution of

a  counterclaim  (so  as  to  preclude  the  plaintiff  being  allowed  to

9      Roberts’ Family Investments Ltd v Total Fitness Centre (Wellington) Ltd [1989] 1 NZLR 15 at 21 per McGechan J.

bankrupt  the  defendant  before  the  latter’s  counterclaim  can  be

brought to judgment and offset).

Oceania Furniture Ltd v Debonaire Products Ltd10  – the plaintiff invoked an unambiguous no set-off clause leaving the defendant with no  defence to  a summary judgment  application.   Associate Judge Gendall however found that the defendant could point to alleged breaches of contract which might well constitute a valid counterclaim.11      His  Honour then reached  the conclusion  that  the appropriate course of action was to enter summary judgment accompanied by a stay of execution pending resolution of the counterclaim.12   His Honour applied the decision of Master Williams

in New Zealand Apple & Pear Marketing Board v Wallis.13   I note that

New Zealand Apple & Pear did not involve a contract with a no set- off clause.

AirNew Zealand Ltd v Air Niugini Ltd14  – a successful plaintiff’s claim for summary judgment on the first of two causes of action.  The defendant as one ground of opposition asserted a counterclaim, in reliance upon which the defendants sought a stay of the summary judgment upon the basis of the procedure outlined in Roberts’ Family Investments.  Counsel for the plaintiffs relied upon, inter alia, a clear no set-off provision in the contract.15    He also relied on such other considerations as that there had been no suggestion that refusal of a

stay might render nugatory the ability of the defendant to prosecute the counterclaim.16   In the event, for the various reasons advanced by counsel for the plaintiff (including the existence of the no set-off clause), Associate Judge Faire refused to grant a stay (although his

Honour reserved leave to later apply for such).

10     Oceania Furniture Ltd v Debonaire Products Ltd, above n 8.

11     At [49]-[63].

12 At [65].

13     New Zealand Apple & Pear Marketing Board v Wallis (1990) 4 PRNZ 713 (HC).

14     Air New Zealand Ltd v Air Niugini Ltd HC Auckland CIV-2009-404-3460, 14 October 2009.

15     At [53](b).

16     At [53](a)-(d).

Cases upholding the integrity of no cross claim clauses

[29]     In recent years, there have been decisions of high authority in New Zealand which have the effect of upholding the integrity of unambiguous no cross claim provisions.  I mention two cases in particular.

[30]     In Laywood v Holmes Construction Wellington Ltd,17  the Court of Appeal reasoned that because s 79 of the Construction Contracts Act 2002:18

... precludes a court, except in limited circumstances, from giving effect to a counterclaim, set-off or cross-demand when a sum is payable under that Act, a debtor would therefore be prevented from relying on the existence of a counterclaim, set-off or cross demand in any application to set aside a statutory demand.

[31]     In Laywood the courts were dealing (in part) with a bankruptcy notice issued under the Insolvency Act 1967.  The Court of Appeal had to consider whether under s 19(1)(d) of the Insolvency Act 1967 (now s 17(1)(d) of the Insolvency Act 2006) there existed  grounds  to  set  aside the bankruptcy notice.   The Court  noted the distinction between an application to set aside a bankruptcy notice or a statutory demand on the one hand and an adjudication of bankruptcy or order to wind up a

company on the other.19   The Court adopted the approach of Randerson J in Volcanic

Investments Ltd v Dempsey & Wood Civil Contractors Ltd,20  in which his Honour had held that “proceedings for the recovery of a debt” in s 79 of the Construction Contracts Act included the issue of a statutory demand and the institution of winding up  proceedings.    The  Court  of Appeal  considered  that  there  was  no  reason  in principle why the position in relation to the enforcement processes available should

not apply in respect of a bankruptcy notice under (then) s 19(1)(d) of the Insolvency

17     Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35; [2009] 2 NZLR 243; leave to appeal to the Supreme Court refused with the observation – “... we find the judgment below compelling and consider that the proposed appeal has no prospect of success ...” [2009] NZSC

44; [2009] 2 NZLR 24 at [2].

18     This summary of the Court of Appeal’s decision in Laywood is taken directly from the subsequent judgment of the Court of Appeal in Browns Real Estate Ltd v Grand Lakes Properties Ltd (2010) 20 PRNZ 141 at [15].

19     Laywood v Holmes Construction Wellington Ltd, above n 17 at [61].

20     Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd (2005) NZCCLR 370; (2005) 18 PRNZ 97.

Act or a statutory demand under the Companies Act.   Both are enforcement mechanisms as recognised by Randerson J.21

[32]     Importantly in the present context, the Court of Appeal then justified the strict enforcement of no set-off provisions in the insolvency jurisdictions:

[63]     If the contrary view were to be adopted, the efficacy of the s 73 process would, in our view, be undermined. Parties to construction contracts could refuse to pay an amount ordered by an adjudicator, and resist bankruptcy notices or statutory demands in relation to the debt, on the basis that they had a counterclaim, set-off or cross- demand. The effect of this would simply be to recreate similar problems to those which led to the enactment of the CCA, albeit in a different context.

[64]      We acknowledge that this approach may produce hardship. A party may have a meritorious counterclaim, set-off or cross-demand and may not raise it in the context of the CCA or by means of separate proceedings. Yet that party may be precluded from raising it in an application to set aside a bankruptcy notice or a statutory demand that follows an unsatisfied judgment issued under s 74. This seems hard. But while the adoption of the alternative view would alleviate this hardship, it would, as we have said, create another hardship – it would keep the party in whose favour the adjudicator had ruled from its entitlement under the CCA, and thereby frustrate its purpose.

[65]      We emphasise again that we were asked to consider only the first of the two  stages (namely an  application to set  aside a  bankruptcy notice or a statutory demand).  It may be that different considerations arise  at  the  point  that  the  court  must  determine  whether  it  will exercise its discretion to adjudicate a judgment debtor bankrupt or order the liquidation of a company ...   But that is a point on which we express no opinion.

[33]     In  Browns Real Estate Ltd v Grand Lakes Properties Ltd22 a judgment debtor applied for an order setting aside a statutory demand under s 290(4)(b) Companies Act 1993.   The contract pursuant to which the statutory demand had been issued contained an unambiguous no cross claim clause.  I upheld the effectiveness of the

no cross claim clause.  I dismissed the application.

21 At [62].

[34]     The Court of Appeal also enforced the no cross claim clause.  It introduced its discussion in this way:23

In our view, by raising the counterclaim in response to the statutory demand, Browns  is  seeking  to  justify  the  non-payment  of  the  rent.  In  so  doing, Browns are in breach of cl 3.1 which prohibits withholding of rent (and any other  payments  due  under  the  lease)  on  any  account.  Associate  Judge Osborne  was  correct  to  conclude  that  the  clause  at  issue  in  this  case precludes this. In our view, by raising the counterclaim in response to the statutory demand, Browns is seeking to justify the non-payment of the rent. In so doing, Browns are in breach of cl 3.1 which prohibits withholding of rent (and any other payments due under the lease) on any account. Associate Judge Osborne was correct to conclude that the clause at issue in this case precludes this.

[35]     The Court went on to provide a summary of its previous findings in Laywood v Holmes Construction Wellington Ltd, in relation to s 79 of the Construction Contracts Act 2002. The Court observed:24

The Laywood reasoning was driven by the view that to give effect to a counterclaim, setoff, or cross-demand would recreate the problems that led to the enactment of the CCA and frustrate the underlying purpose of the statute. As noted in Laywood statutory demands and bankruptcy notices are, in a practical sense, important debt enforcement mechanisms.

(footnotes omitted)

[36]     The Court then concluded:25

While it is true that the Court in Laywood was dealing with effectively a clash between two statutes, similar reasoning applies where there is a contractual no set-off provision. Just as in the CCA context, the efficacy of a no set-off contractual provision would be undermined if statutory demands could be set aside on the basis of a set-off, counterclaim or cross-demand a commercial party had by contract expressly agreed could not be raised. In such a situation, there seems no reason in principle why statutory demands and  bankruptcy  notices  should  not  be  available  as  debt  enforcement measures when, as was conceded by Browns, other enforcement measures would be (including summary judgment). Further, we accept Grand Lakes’ submission that an inability to meet the statutory demand, without recourse to the set-off or counterclaim which it is prevented from raising, would mean that Browns is insolvent: ie it would be unable to pay its debts as they become due in the normal course of business.

We do not accept Browns’ submission that a specific reference excluding the

statutory demand procedure is needed. There is a question as to whether a

23     Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425; (2010) 20 PRNZ 141

contractual provision, however worded, can totally oust the jurisdiction of the courts to consider a counterclaim, set-off or cross-demand. However, this is an issue that is more theoretical than real. In our view a contractual no set- off provision of the type at issue in this case would normally result in the court’s discretion being exercised against an applicant if the sole grounds for an application to set aside a statutory demand was the existence of a set-off, counterclaim or cross-demand which a party had expressly agreed could not be raised. We consider that commercial parties should be required to honour the bargain they have made, absent other grounds that tell against the recognition  of  a  statutory  demand.  Grand  Lakes,  rightly  in  our  view, conceded that an application to set aside the demand can be made under s

290(4)(c).  Such an application would, however, need to be on grounds other than the existence of a set-off or counterclaim.

(footnotes omitted).

[37]     Accordingly, the Court of Appeal in recent times (in Laywood and in Browns Real Estate) has had occasion to consider, in relation to both bankruptcy notices and to statutory demands, the efficacy of no cross claim clauses.  Such clauses have been held to preclude debtors’ reliance upon cross claims.  The efficacy of such clauses in an insolvency context, at least in relation to the initial stages namely bankruptcy notices  and  statutory  demands,  is  now  clearly  established.    The  undergirding principle is that the commercial parties should be required to honour the bargains they have made.   (At the same time, the Court of Appeal has reserved the position in relation to the later stage of adjudication in bankruptcy and in liquidation).

Application of the no cross claim agreement in this case

[38]     For a debtor to successfully raise a cross claim against a creditor in the context of a bankruptcy notice, the debtor must under s 17(1) of the Act satisfy the Court that  the cross claim could not have been used as a defence in the proceeding

in which the judgment was obtained.26

26     See above at [22]-[23].

[39]     The judgments to the Court of Appeal in Laywood and in Browns Real Estate reinforce the decision reached by Master Gambrill in Re Clark, ex p Mobil Oil New Zealand Ltd:27

A debtor is, in terms of s 17(7)(b) of the Act not able to use a cross claim as a defence in the original proceeding where a contractual no cross claim provision precludes it.

[40]     The decision in Oceania Furniture,28  referred to by Mr Couling, does not affect that proposition.   When the Court, in keeping with the Oceania Furniture approach, grants a stay of the judgment pending determination of a cross claim, it is not recognising or giving effect to a defence in the proceeding.  On the contrary, it is recognising that there is no defence in the proceeding but is making an order which affects the enforcement or execution of the judgment which is duly given.  Counsel did not refer me to any authority which suggests that an application for a stay in some way amounts to a “defence” as referred to in s 17(7)(b) of the Act.  The two cannot be equated.

[41]     That leaves the impact of the parties’ contractual no cross claim clause upon the  creditor’s  right  in  issuing  the  bankruptcy  notice.    The  combined  effect  of Laywood and Browns Real Estate is to confirm that an appropriately drafted contractual provision will generally oust the jurisdiction of the Courts to consider a

counterclaim, set-off or cross-demand.29

[42]     Although Mr Nevell had expressly relied upon Re Clark, ex p Mobil Oil New Zealand Ltd in relation to inability to assert cross claims at summary judgment level, neither he nor Mr Couling had in their written submissions referred to either Browns Real Estate or Laywood which bind this Court and inform the jurisdiction of the Court when recognition of a cross claim is requested.  I referred counsel at the outset of the hearing to the Court of Appeal’s and my own judgment in Browns Real Estate Ltd v Grand Lakes Properties Ltd, and thereby to the Court of Appeal decision in Laywood v Holmes Construction Wellington Ltd.  Neither was able to refer me to any

other authority which impacts relevantly on the cross claim issue before the Court.

27     Above n 7.

28     Above n 8.

29     Browns Real Estate Ltd v Grand Lakes Properties Ltd above n 23 at [17].

My own research indicates that Laywood and Browns Real Estate represent the most up-to-date authorities in this area.

[43]     I accordingly find that Mr  Spurr is not able to bring himself within the provisions of s 17(1)(d)(ii) of the Act.  He does not have a cross claim which he is entitled to maintain against CRT in response to a demand (whether by bankruptcy notice or otherwise) for payment of all sums due to CRT.

[44]   There remains the possibility of some residual discretion which might theoretically affect the otherwise total ouster of the Court’s jurisdiction to consider a cross claim.  But as the Court of Appeal recognised in Browns Real Estate:30

... this is an issue that is more theoretical than real.

[45]     The Court, in Browns Real Estate Ltd observed that a contractual no set-off provision of the type in that case would normally result in the Court’s discretion being exercised against an applicant if the sole grounds for an application to set aside a statutory demand was the existence of a set-off, counterclaim or cross-demand which  a  party  had  expressly  agreed  could  not  be  raised.    The  Court,  again, emphasised that commercial parties should be required to honour the bargain that they have made absent other grounds that tell against recognition of a statutory demand.

[46]     Once Mr Nevell chose not to pursue Mr Spurr’s second ground of application in this case (that the bankruptcy notice was an abuse of a process), the sole basis of Mr Spurr’s application was the asserted cross claim.

Mr Spurr’s asserted cross claim

[47]     I have identified31  the particulars of conduct on the part of CRT which Mr

Spurr asserts amounted to a breach of contract (or misleading intercepted conduct under the Fair Trading Act).

30 At [17].

31 Above at [7].

[48]     I have already found that Mr Spurr’s cross claim cannot be maintained on this application because of the contractual agreement precluding the assertion of cross claims as a justification for not paying what is due under the contract.

[49]     Mr Spurr swore his first affidavit in relation to this application on 31 May

2012. At that time he attached a “Statement of set-off and counterclaim by judgment debtor”.    In  the  document,  in  which  a  number  of  particulars  were  left  “to  be advised”, Mr Spurr pursued unquantified damages for, amongst other things, the lost value of his business.   He deposed that the claim was in excess of the amount of CRT’s judgment.  He indicated that he was obtaining new legal representation.  He recorded that he had not filed any claim in Court because his new legal representatives might change the claim.

[50]     Mr Spurr did not subsequently file any proceeding for damages.  He has still not done so.  At the hearing, Mr Nevell presented a further draft document entitled “Counterclaim by second defendant” which Mr Nevell had redrafted.   In the document, Mr Spurr says that he and his wife have lost shareholder value in a company (Spurr Property Limited) in the amount of approximately $510,000 as a result of the asserted misconduct of CRT.

[51]     Given the conclusions I have already reached, I will refrain from detailed comment on the subject matter of the claims which Mr Spurr indicates he is minded to pursue.   Those will fall to be determined substantively if and when any such proceeding comes to trial.  At least some of the areas of Mr Spurr’s complaints are eligible candidates for testing by cross-examination.  Into a similar category can be put his allegations as to damage.

[52]     Had my judgment not proceeded for the reasons I have already given, but had it instead had to turn on my assessment in this context of the proposed cross claims, counsel were essentially agreed on the Court’s general approach under s 17(1)(d) of the Act, some of which I have summarised above.32    Partly out of respect for the detailed and considered submissions which I received from both Mr Nevell and Mr

Couling, I will make some limited observations.

32 At [23].

[53]     Mr  Spurr’s  allegations  of  breach  of  contract  by  CRT  face  formidable

difficulties  given  the  breadth  of  discretion  preserved  to  CRT  under  the  retailer agreement which Mr Spurr had entered into.  By way of example:

CRT had the right to amend the trading terms from time to time in its

discretion by notice to Mr Spurr.

CRT reserved the right, at any time and for so long as it required, to require payment either prior to or at the time of supplying products to Mr

Spurr.

In addition to CRT’s rights of termination and other remedies under the

retailer  agreement,  CRT  could  elect  at  its  discretion  to  withhold  the supply of products to Mr Spurr for a period of time at CRT’s discretion.

The right of either party to require strict performance or observance by the other of any obligation under the agreement was not affected by any

former waiver, forbearance or course of dealing.

To the extent permitted by law it was agreed that a waiver by CRT of a breach committed by Mr Spurr of any provision of the agreement was not to be considered to be a waiver of any subsequent breach nor should it

affect or prejudice any of CRT’s rights or remedies under the agreement.

Except as expressly stated in the agreement, no variation was to be valid

or binding unless agreed to in writing by CRT and Mr Spurr.

In  the  event  of  any  inconsistency  between  the  specific  terms  and conditions of the retailer agreement and the general terms and conditions, the provisions in the specific terms and conditions were to prevail over

the provisions of the general terms and conditions.

[54]     Some limited differences existed on the affidavit evidence between Mr Spurr and the employees of CRT who were involved with him (which this Court cannot

resolve on this application), Mr Couling’s submissions cogently focussed upon the extent to which the discretions preserved to CRT under the retailer agreement cut across Mr Spurr’s cross claims.  There was also validity and force in Mr Couling’s observation that Mr Spurr’s evidence was weakened by the absence of any evidence from his daughter who had attended a very important meeting (on 9 January 2012) on which Mr Spurr’s evidence differed in some respects from that of the CRT personnel.

[55]     Mr  Spurr  sees  himself  as  a  person  who  has  been  wronged  by  a  strong corporate with whom he had entered into exclusive dealing arrangements.  His case stems, at least in part, from an expectation that indulgences or special arrangements which CRT entered into from time to time in response to Mr Spurr’s financial difficulties  would  continue  to  be  made  available,  without  cessation  of  product supply.  There is a strong case, based on the express provisions of the contract alone, against Mr Spurr’s assertion of breach by CRT either of the contract itself or of the standards of fair trading required under the Fair Trading Act.

[56]     There is no dispute as to the facts that –

Mr Spurr, in the last month of business, bought from CRT product worth

in excess of $140,000 (the last payment being on 9 January 2012).

to date Mr Spurr has paid nothing for that product, despite having agreed

in the retailer agreement not to set off any claims against payment.

[57]     For the reasons I have developed, it is the no set-off agreement which defines the  rights  of  the  parties  on  this  application.    A more  detailed  analysis  of  the arguments as to breach may well have resulted in the same conclusion.

Costs

[58]     The Court has been informed that Mr Spurr is in receipt of legal aid for the purposes of this proceeding.

[59]     Pursuant to s 40(1) Legal Services Act 2000, the liability of Mr Spurr for an order for costs must not exceed what is reasonable for Mr Spurr to pay having regard to all the circumstances, including the means of all the parties and their conduct in connection with the dispute.  By s 40(2) there is to be no order for costs unless the Court is satisfied that there are exceptional circumstances.   Mr Couling did not submit that there were any exceptional circumstances either as identified in s 40(3) of the Act or otherwise.

[60]     Costs would normally have followed the event in this proceeding on a 2B basis.  There will accordingly be, in the order I make, an order under s 40(5) of the Act specifying what the order would have been.

Order

[61]     I order:

(a)      The interlocutory application to set aside the bankruptcy notice is dismissed;

(b)I specify that, had s 40 Legal Services Act not applied, I would have ordered costs to be paid by the applicant to the respondent on a 2B basis together with disbursements to be fixed by the Registrar;

(c)       The date for payment pursuant to the bankruptcy notice dated 15 May

2012 is extended to 21 December 2012, failing payment by which date CRT Fuel Ltd will be entitled to present an application for the

adjudication of Mr Spurr.

Solicitors:

Ben Nevell Law, PO Box 623, Dunedin

Anderson Lloyd, PO Box 1959, Dunedin 9054

Associate Judge Osborne