Sullivans International (NZ) Limited v Esdot

[2015] NZHC 1898

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2015-485-122 [2015] NZHC 1898

UNDER

The Insolvency Act 2006

IN THE MATTER OF

the bankruptcy of Mark Esdot

BETWEEN

SULLIVANS INTERNATIONAL (NZ) LIMITED

Judgment Creditor

AND

MARK ESDOT Judgment Debtor

Hearing:	5 August 2015
Counsel:	N Davis for the Judgment Creditor M Esdot in Person
Judgment:	11 August 2015

JUDGMENT OF ASSOCIATE JUDGE SMITH

[1]      Mr Esdot applies to set aside a bankruptcy notice dated 19 February 2015. The amount claimed in the notice is $2,420.06, being the amount of a judgment obtained by the judgment creditor (Sullivans) against Mr Esdot in the District Court at Hutt Valley on 19 November 2014.

[2]      The judgment against Mr Esdot in the District Court was entered by default, the  claim  being  for  a  liquidated  sum  and  Mr Esdot  having  failed  to  file  a statement of defence.

[3]      Applications to set aside bankruptcy notices are governed by s 17 of the

Insolvency Act 2006 (the Act). That section materially provides:

SULLIVANS INTERNATIONAL (NZ) LIMITED v MARK ESDOT [2015] NZHC 1898 [11 August 2015]

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

(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[…]

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

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

…

(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.

[4]      Execution of the District Court judgment has not been stayed, and Mr Esdot has taken no step to set aside the judgment.

Background

[5]      Mr Esdot   operates   a   retail   shop   in   Wainuiomata   under   the   name Join The Dots.  In September 2012, he opened a credit account with Sullivans online, and between June and August 2013 he ordered certain goods from Sullivans which were supplied and invoiced to him.  He was also supplied with a stand for the display of the goods in his shop, but it appears that ownership of the stand remained with Sullivans.  He was allowed 90 days credit for paying for the goods.

[6]      Mr Esdot found that he was unable to sell the goods, and his account fell into default.  Mr May, the general manager of Sullivans, says that Mr Esdot advised on

15 November 2013 that his business was lacking funds and that he was happy to return the stand which Sullivans had provided.

[7]      Sullivans responded by email stating that it was unhappy that outstanding invoices had not been paid, but would accept the return of the stand and the items in it for credit on certain conditions. Those conditions were:

(1)      Mr Esdot’s account would only be credited for what was returned.

(2)      All returns were to be in undamaged condition.

(3)      Mr Esdot was to pay for the freight cost of the return.

(4)Sullivans would charge a 25 per cent re-stocking fee for all items returned.

[8]      As an alternative, Sullivans indicated that it would accept regular monthly payments of $150 in reduction of the account.

[9]      Mr Esdot did not accept the conditions.  He sent an email on 10 December

2013 advising that he thought he had said that he would  “pay the $150”.   He indicated that he thought it was a pity the parties could not continue to do business, but the public were not buying Sullivans’ products.

[10]     On 17 December 2013, Sullivans wrote to Mr Esdot pointing out that it had not received anything since he made a payment of $100 in October 2013.  It advised that unless full payment of the amount then due ($1,248.86) was made that week, the account would be handed to Baycorp for collection.    Sullivans’ accounts administrator nevertheless advised that if Mr Esdot could make a substantial part payment that week, with a plan for the balance, he would put that proposal to the general manager of Sullivans for his consideration.

[11]     On  20  December  2013,  Sullivans’  account  manager  wrote  to  Mr Esdot advising that Sullivans was about to close for the Christmas break, and stating “I suggest if you are interested in avoiding Baycorp then you should pay a minimum of

$150 today.”  He advised that Sullivans would look again at the situation when the office resumed following the holiday break, but nothing could be promised.

[12]     Mr Esdot  responded  by  email  on  21  December  2013,  demanding  that Sullivans arrange to remove its stock from his store by the end of January 2014.  He said that no further payment would be made, and that failure to collect the property would result in its disposal.  He said that any debt with Sullivans “is now considered ceased, this means you have no ability to attempt to collect any further monies purported to be owed to your company”.

[13]     No resolution was reached.   Mr Esdot continued to demand that Sullivans take the goods back.   Sullivans was not prepared to collect the stock at its own expense.  It passed the matter to Baycorp for collection.

[14]     There were some further efforts to resolve the dispute, but they came to nothing.  On 31 March 2014 Mr Esdot sent an email saying:

For us to return the stock, two things are required. (1)      Return authorisation and freight tickets

(2)      An address to send the goods to

Or

(3)      One of your representatives to arrange a time to collect the goods.

[15]     He rejected the re-stocking fee, claiming that it had not been brought to his attention at the time he purchased the goods.   Sullivans replied the same day, reiterating that it would not collect the stock at its own expense.

[16]     Thereafter the email exchanges became acrimonious, and it became obvious there would be no agreed resolution.   Sullivans issued its proceeding in the Hutt Valley District Court.

[17]     Mr Esdot  acknowledges  that  he received  the notice of proceeding in  the District Court  proceeding.     He  further  acknowledges  that  he  did  not  file  a statement of defence, saying that he could not afford the $75 filing fee, and could not

get legal aid.   While the documents filed by him in this Court show that he is articulate  and  able  to  express  himself  perfectly  well,  he  filed  nothing  in  the District Court in opposition to Sullivans’ claim.

Mr Esdot’s arugments

[18]     Much of what Mr Esdot advanced in support of his application to set aside the bankruptcy notice consisted of argument that he was entitled to return the goods. But he was unable to point to any clause in Sullivans’ trading conditions which gave him any absolute right to return the goods, and it appears that, although Sullivans indicated a willingness to take the goods back, it was only prepared to do so on the basis of conditions which Mr Esdot could not or would not accept: he would not pay the freight for the return of the goods, and he refused to accept the 25 per cent re- stocking fee.

[19]     Mr Esdot submitted that he did agree to meet the freight costs of returning the goods (in his email dated 31 March 2014 which is referred to in para [14] above), but I do not regard that email as expressing any such willingness.  Nor did Sullivans read the email in that way.

[20]     At the hearing, Mr Esdot submitted that his intention in writing the 31 March

2014 email was that he would cover the cost of the return freight, and that all other matters (including the various conditions imposed by Sullivans on any return of the goods) would be addressed at some later time, after the goods had been returned.

[21]     I do not accept Mr Esdot’s submissions on this point.   The request that he made for “freight tickets” clearly implied that he wanted Sullivans to arrange the freight.  That interpretation is also far more compatible with the alternative offered by Mr Esdot in his email, namely that a Sullivans representative arrange a time to collect the goods from Joint The Dots.  If Mr Esdot really intended to pay the return freight, it would surely have been pointless to offer Sullivans the alternative of having one of their own representatives collect the goods at Sullivans’ cost.

[22]     Summing the evidence  up,  there  appears to  have been  no  agreement  by

Sullivans to sell the goods on a “sale or return” basis, and Mr Esdot has been unable

to identify any contractual provision under which he was entitled to return the goods. Certainly Sullivans agreed to take the goods back, but only on conditions which I find were never agreed to by Mr Esdot.

[23]     In an effort to establish a “cross-claim” under ss 17(1)(d)(ii) and 17(4) of the Insolvency Act, Mr Esdot made claims for the costs of storing the goods in his shop. He also alleged that Sullivans had been guilty of harassment and/or defamation in emails sent to him (and later in Mr May’s affidavit filed in this Court).  But if (as I have found) Sullivans was under no obligation to take the goods back, I do not think Mr Esdot’s claim for approximately two years’ storage costs is reasonably arguable.

[24]     Mr  Esdot  also  referred  generally  to  the  Credit  Contracts  and  Consumer Finance Act  2003,  but  his  contract  with  Sullivans  was  not  a  “consumer  credit contract” as that expression is defined in s 11 of that Act, as Mr Esdot did not enter into the contracts with Sullivans “primarily for personal, domestic or household

purposes”:1 he purchased the goods for sale at retail.  Nor is there sufficient evidence

to support any finding that Sullivans acted oppressively in declining to take the goods back.  In terms of s 17(1)(d)(ii) of the Act, I am not satisfied that he has shown that there are any grounds for setting aside the bankruptcy notice based on the storage costs claim.

[25]     Nor has he satisfied me that he has any cross-claim for defamation.  Certainly there can be no such claim in respect of statements made by Mr May in his affidavit filed in this Court, or in counsel’s submissions made in this Court: such statements are entitled to absolute privilege under the Defamation Act 1992.2   And there is no evidence that emails sent to Mr Esdot by Sullivans were published to any other person, or (if they were) that they caused Mr Esdot loss in a sum equal to or greater

than the judgment debt.

[26]     The  result  of  the  present  application  was  put  beyond  any  doubt  when

Mr Esdot frankly acknowledged in his submissions that his various complaints could all have been raised in the District Court proceeding.  Under s 17(7)(b) of the Act, a

1      Credit Contracts and Consumer Finance Act 2003, s 11(1)(b).

2      Defamation Act 1992, s 14.

cross-claim will only avail a judgment debtor if the cross-claim could not have been used as a defence in the action or proceeding in which the judgment was obtained. In this case, Mr Esdot could easily have put forward his various complaints in the District Court proceeding without the assistance of a lawyer, just as he has done in this case.  His claim made in his oral submissions that he could not afford to pay the filing fee on the statement of defence is simply not credible in the absence of sworn evidence of his financial position at the time, or (in the event of him being genuinely unable to pay) enquiries made of the registry staff to see if the $75 filing fee could be

waived.3

[27]     In Clark v UDC Finance Ltd, Casey J considered that the inability to use the cross-claim as a defence which was referred to in the forerunner of the present s 17(7)(b) is primarily a legal inability – a mere failure to take advantage of the opportunity to raise the cross-claim will not be enough.4   His Honour noted that there may be room to take into account supervening circumstances which may have made it practically impossible for the debtor to do anything about the claim at the time, “but the primary emphasis on the legal nature of the impediment suggests that such other reasons must be carefully scrutinised, and certainly simple neglect to take even

the  elementary  step  of  seeking  further  information  or  advice  cannot  avail  the

debtor”.5

[28]     In this case there is no evidence that Mr Esdot sought advice about how to raise  the  matters  which  he  now  seeks  to  raise  by  way  of  cross-claim.    The Court of Appeal decision in Clark makes it clear that they cannot be raised now.

[29]     Considering all the evidence and submissions, Mr Esdot has failed to satisfy me that he has a cross-claim against Sullivans.   The application to set aside the bankruptcy notice is accordingly dismissed.

[30]     Sullivans is entitled to costs on the application, which I fix on a scale 2B

basis.   It is also entitled to recover any disbursements: they are to be fixed by the

Registrar.

3      District Court Fees Regulations 2009, r 5.

4      Clark v UDC Finance Ltd [1985] 2 NZLR 636 (CA), at 640.

5      At 640.

Associate Judge Smith

Solicitors:

Whitlock & Co, Auckland for the judgment creditor