Sunrise Management Limited v Bunnings Limited
[2022] NZHC 317
•28 February 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1290
[2022] NZHC 317
UNDER Part 16 of the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand under s 290 of the Companies Act 1993
BETWEEN
SUNRISE MANAGEMENT LIMITED
Applicant
AND
BUNNINGS LIMITED
Respondent
Hearing: 2 November 2021 Appearances:
P Ahern for the Applicant
T Lindsay for the Respondent
Judgment:
28 February 2022
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 28 February 2022 at 4.30pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Morrison Kent, Auckland Lindsay & Francis, Auckland
SUNRISE MANAGEMENT LTD v BUNNINGS LTD [2022] NZHC 317 [28 February 2022]
Introduction
[1] Sunrise Management Limited applies to set aside a statutory demand dated 25 June 2021 served by Bunnings Limited, the revised amount of which is $202,312.11.
[2] The statutory demand was served following the failure to pay for building supplies including Gib board, cedar panelling, flashings and other such supplies for the construction of residential buildings.
[3] Sunrise’s application to set aside Bunnings’ demand relies on s 290(4)(b) of the Companies Act 1993: that Sunrise has a reasonably arguable counterclaim against Bunnings which exceeds the amount of the demand.
[4] Sunrise’s counterclaim relates to the supply of weatherboards by Bunnings. Sunrise says that Bunnings made clear representations prior to it becoming a commercial customer that it did not sell imported weatherboards – specifically, not weatherboards from China. Sunrise submits that contrary to those representations and to Sunrise’s order and Bunnings’ invoices for the weatherboards, the weatherboards supplied were manufactured in China.
[5] Sunrise says that before it became aware of the origin of the weatherboards, they were used in the construction of four houses. The weatherboards on two of the houses have since been replaced and, at the time of the hearing, Sunrise was waiting to reclad the remaining two. As a result of the alleged breach of contract, Sunrise says it has suffered loss exceeding $300,000, with a claim filed in the District Court to recover this loss shortly after the application to set aside was filed.
[6] Bunnings says that Sunrise’s weatherboard claim is without merit, that Bunnings is disputing it vigorously in the District Court including on the grounds of limitation and remoteness of damage and has brought a counterclaim for the amounts owing in respect of the weatherboards of $37,414.31. In any event, Bunnings submits that the no set-off clause in its terms of trade prevents Sunrise from relying on any counterclaim in seeking to set aside the demand.
[7] Bunnings says that in the circumstances the Court of Appeal’s judgment in Browns Real Estate v Grand Lakes Properties Ltd1 applies and the statutory demand ought to stand.
[8] I record that to succeed in its application to set aside the statutory demand on the basis of a counterclaim, Sunrise does not have to prove its counterclaim. Sunrise is only required to establish that its position is reasonably arguable on the affidavit evidence.
Issues
[9]The issues are:
(a)Is it reasonably arguable that the misrepresentations in relation to weatherboards were made?
(b)If so, is it reasonably arguable that those misrepresentations induced entry into the contract?
(c)If so, is it reasonably arguable that the no set-off clause in Bunnings’ terms and conditions does not apply?
(d)If it is reasonably arguable that the no set-off clause does not apply, is there a reasonably arguable cross-claim?
(e)If the no set-off clause does still apply, is it reasonably arguable that the circumstances of this case are not in the normal run of cases as referred to in Browns Real Estate v Grand Lakes Properties Ltd?
Factual background
[10] Sunrise is a building company involved in residential developments. In August 2019 Ms Liu, the director of Sunrise, deposes that she was approached by Mr Yu of Bunnings who encouraged Sunrise to move its business to Bunnings. During the completion of the necessary application processes Ms Liu sought further information through the exchange of messages with Mr Yu on WeChat.
[11] Ms Liu annexes copies of these messages to her affidavit filed in support of this application, with her translation as follows:
1 Browns Real Estate v Grand Lakes Properties Ltd [2010] NZCA 425.
MsLiu: “I want to ask if the weatherboard is imported from China, is it made in China? Frankie told me that it is from China”.
… (re application process)
Mr Yu: “Not from China”.
MrYu: “Clelands is locally made. He (Frankie) is saying rubbish, kind of toxic competition. You can go research; it is made in NZ”.
MrYu: “For cladding material, we are scared of selling imported products. We can’t afford if problems occur. Before we’ve imported Canadian red wood cladding, as they cracked easily, so stopped importing”.
MsLiu: “Yes, this is not a joke. We must be careful about cladding material because if problems occur, saving some money is not worth it. We need to be very careful; but I trust that Bunnings is a very big company and won’t sell faulty products. Although, can you send the brand to me? Which local manufacturer makes it?”
MrYu: “Yes, Bunnings is a big, famous company and won’t take this risk. If there are any problems, we won’t deflect responsibility. It’s my first time hearing that someone said Bunnings imported weatherboard from China. Earlier, we’ve imported products from Russia and red wood from Canada. Then we stopped importing it because it cracked easily”.
[12] Mr Yu from Bunnings says in response “I do not accept Ms Liu’s description of how Sunrise became a client of Bunnings” but does not dispute the translation of the above messages. He refrains from setting out his version of events, instead saying that he understands those matters are the subject of separate proceedings in the District Court.
[13] The alleged misrepresentations occurred on 29 August 2019 according to the WeChat records. The application form and security agreement are dated 28 August 2019 and the guarantees provided by Ms Liu and Mr Si Feng Liu, 31 August 2019. Sunrise’s evidence is that “the documents required to complete the application process” were sent to Bunnings on 2 September 2019. Bunnings does not dispute this, setting out when the guarantee was provided from, not when they were received.
[14] Shortly following completion of the application process, Bunnings provided Sunrise with a quote for weatherboards using the product code 0309373. This is the SKU code for Pineclad weatherboards manufactured in New Zealand from New Zealand timber. It is not disputed that Bunnings only advertised New Zealand made weatherboards, Pineclad, on its website.
[15] Sunrise ordered weatherboards using the above code on 14 January 2020 for use in the construction of four houses (with copies of customer order forms annexed to Ms Liu’s affidavit confirming this). Bunnings delivered the weatherboards on 17 January 2020 with the invoice from Bunnings again recording the code for the product as 0309373, the code for Pineclad.
[16] As it transpired, although invoicing and contracting to supply Pineclad, Bunnings in fact supplied a product called Pinetrim XT which is a weatherboard imported from China.
[17] Bunnings accepts that the weatherboards supplied were Pinetrim XT but Mr Yu deposes that “at the time of delivery and prior to installation, Sunrise was made aware that Pinetrime (sic) XT weatherboards are manufactured in China”. Bunnings says it offered Sunrise the opportunity to return the weatherboards upon or shortly after delivery.
[18] Both Ms Liu in her original affidavit and Mr Weng Bin, the builder and manager for Sunrise, in his reply affidavit strongly dispute that they were aware in January that the weatherboards were imported.
[19] Mr Bin deposes that following the first delivery, he noticed that there were two joints in the middle of the weatherboards. As a result, he sent a message to Mr Yu by WeChat expressing his concern that the joints may cause the weatherboards to twist and asked Mr Yu to ask the manufacturer to confirm.
[20] The translation of Mr Yu’s message in reply put forward by Mr Bin is “[i]t won’t be a problem, don’t worry, we’ll credit for the defect ones”. (Mr Yu disputes this translation but not materially). Mr Bin deposes that he then said “[t]he key thing
is the whole delivery has this problem”. Mr Bin then asks Mr Yu to come on site and have a look. Mr Yu however apparently replied that he asked the factory and “Ian confirmed absolutely no problem”.
[21] Mr Yu deposes that during the exchange he emailed copies of photos of the weatherboards to the supplier copying in Mr Bin. The supplier then emailed back confirming that the weatherboards were Pinetrim XT and attaching an information sheet confirming that Pinetrim XT complies with NZ building standards and that it is manufactured in China.
[22] Mr Yu annexes a copy of the email forwarding this email to Mr Bin on 28 January 2020. Mr Yu says that he also forwarded a copy to Ms Liu but does not annex a copy of that email.
[23] Mr Bin’s evidence is that he does not recall receiving the email at the time and, in any event, as he had already received an assurance as to quality from Mr Yu, would not have been concerned to read the email.
[24] Mr Bin denies that he was aware in January 2020 that Bunnings had in fact supplied weatherboards imported from China and says if he had known they would have been returned immediately. Mr Bin deposes that he only discovered that the weatherboards were from China in May 2020. He annexes copies of WeChat messages with Mr Yu following that discovery which he says make it clear that not only he and Sunrise were not aware but that Mr Yu from Bunnings was not aware at the time the weatherboards were delivered.
[25] Considering the email from the supplier, it only confirms that the product is Pinetrim XT without confirming its country of manufacture. The information sheet attached is for both Pineclad, the New Zealand product, and Pinetrim XT. It does record that Pinetrim XT is manufactured in China but this would have required Mr Bin to open the attachment.
[26] Whether Sunrise became aware that the product supplied was imported from China in January 2020 as Bunnings alleges, or May 2020 as Sunrise alleges, is a matter which needs to be resolved in a full hearing with oral evidence and cross-examination.
[27] Sunrise says that by the time it became aware in late May 2020 that the product supplied was not Pineclad, two of the houses had been fully constructed and the other two partially constructed.
[28] The two partially constructed houses were reclad with a New Zealand weatherboard. The two houses that had been completed were still awaiting recladding at the time of the hearing. Sunrise’s evidence is that the cost of the recladding for all four houses is in excess of $300,000.
[29] With that background, I now set out the relevant legal principles before considering the issues for determination.
Relevant legal principles for setting aside
[30]Section 290(4) of the Companies Act relevantly provides:
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.
…
[31] The Court of Appeal helpfully confirmed the principles a court should apply when exercising the s 290(4) discretion in Confident Trustee Limited v Garden and Trees Limited:2
2 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
[16]The general principles under s 290(4) are well settled:
(a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to the existence of the debt. The Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion that a dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved first in ordinary civil proceedings before any statutory demand is issued.
(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
(e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.
(footnotes omitted)
[32] In Covington Railways Ltd v Uni-Accommodation Ltd the Court of Appeal gave guidance as to what an applicant seeking to set aside a statutory demand must prove in relying on a set-off or counterclaim:3
[11] Where a company which is the subject of a liquidation application is indisputably in debt to the applicant creditor, it may nonetheless be able to show it has a claim against the applicant which reduces the net balance owing to the creditor or even offsets it altogether. Where there are liquidated sums due each way, that is simply an arithmetical exercise. It is more difficult if, on the applicant’s side, there is an indisputable liquidated sum, but the other party’s claim is for an unliquidated sum with liability and/or quantum in dispute. Then, in order to impeach the statutory demand and overcome the presumption in s 287(a) that the company is unable to pay its debts when it has failed to comply with the demand, it must be able to do more than merely assert that there is an available set-off. It must be able to point to evidence before the court showing that it has a real basis for the claim to set-off and that accordingly the applicant’s claim to be a creditor, to the extent of the set-off, seriously in doubt. In the words of Buckley LJ in Bryanston Finance Ltd v de Vries (No 2) [1976] CH 63 at p78, it must show that there are “clear and persuasive grounds” for the set-off claim. Where this can be done, the party who has issued the statutory demand against the company will be shown to be using the statutory demand in liquidation procedures improperly because there is a “genuine and substantial dispute” about the net amount of the company’s indebtedness (Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 at p299). The dispute should then be resolved in the ordinary way – except as to any undisputed balance – rather than upon the hearing of a liquidation application.
3 Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA) at [11].
[33] In addition to establishing that its counterclaim is reasonably arguable, an applicant must show that it has suffered quantifiable loss arising from its alleged counterclaim that exceeds the amount of the statutory demand.
[34] The Court of Appeal in Browns Real Estate v Grand Lakes Properties Ltd explained how a court ought to exercise its discretion under s 290(4)(b) where the parties had agreed to a no set-off provision: 4
[16] … 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 (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.
[17] 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 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 in 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. …
(footnotes omitted)
[35] Sunrise submits that the no set-off clause does not apply as a result of alleged misrepresentations by Bunnings inducing entry into the contract. I consider the issues relating to the alleged misrepresentations first before going on to consider the position if Bunnings is prevented from relying on the no set-off clause and the position if the no set-off clause applies.
4 Browns Real Estate v Grand Lakes Properties Ltd, above n 1, at [17].
Is it reasonably arguable that Bunnings made the alleged misrepresentations that it did not supply weatherboards from China?
[36]The answer to this is yes.
[37] Mr Yu does not deny that the WeChat messages relied on by the applicant took place or that these communications preceded Sunrise completing the process of applying to become a customer of Bunnings other than saying he does not accept Ms Liu’s description of how Sunrise became a customer. It is, therefore, reasonably arguable that the alleged misrepresentations were made by Bunnings.
Is it reasonably arguable that the misrepresentations induced entry into the contract with Bunnings?
[38] Sunrise says that having received the assurances above, it proceeded to complete the customer application process. Bunnings disputes that the representations were made prior to the application process being completed.
[39] Clause 2 of Bunnings Terms of Trade records that the contract is formed “from the date of the application immediately upon Bunnings giving notice that the agreement has been confirmed or an order is accepted or purchase made by the Customer (whichever is the earlier)”.
[40] There is no evidence of Bunnings giving notice that the agreement had been confirmed.
The WeChat messages refer to the security agreement and guarantees during the message exchange in relation to the weatherboards and the evidence filed by Bunnings says it is standard practice for Bunnings to require guarantees from principals of smaller or new customers like Sunrise. It appears that there is an argument therefore that the contract would not have been formed until after the guarantees were provided.
[41] The guarantees appear to have been signed after the alleged representations were made.
[42] It is therefore reasonably arguable that the misrepresentations were made prior to the contract being formed.
[43] Sunrise’s evidence is that it would not have entered into the contract if it had not received assurances from Bunnings about the origins of the weatherboards it supplied. This evidence is not disputed by Bunnings.
[44] Furthermore, Ms Liu’s evidence that the only vertical shiplap weatherboard advertised on the Bunnings’ website at the time was Pineclad, a New Zealand Product. This is not disputed by Bunnings.
[45]In addition, Ms Liu says in her affidavit:
My understanding is that Bunnings advertises the New Zealand made Pineclad, accepts orders for the New Zealand made Pineclad and invoices customers for that product, but at its discretion supplies either Pineclad or PinetrimXT. This was the explanation provided to me by Jay when (on about 28 May as refer to later) we questioned how it was that we had been provided with an imported product when we had ordered a NZ product, had been invoiced for a NZ product, and had received clear assurances that they would not supply such an imported product.
[46] Mr Yu does not respond to this in his affidavit other than by saying he does not accept Ms Liu’s description of how Sunrise became a client of Bunnings. This does not respond to that part of Ms Liu’s statement relating to the explanation given by Mr Yu (Jay) after Sunrise was supplied with the product from China.
[47] From the above, it is reasonably arguable that the misrepresentations were made prior to formation of the contract and that the misrepresentations may have induced entry into the contract.
If so, is it reasonably arguable that the no set-off clause in Bunnings’ terms of trade does not apply?
[48] Bunnings submits that the Court of Appeal’s decision in Browns Real Estate v Grand Lakes Properties Limited5 applies, and that Browns makes it clear that the no set-off clause continues to apply even if there were the misrepresentations alleged.
5 Browns Real Estate Ltd v Grand Lakes Properties Ltd, above n 1.
[49] Counsel for Bunnings submits that in Browns, similarly to the present case, the applicant alleged that the lease under which the obligation to pay rent arose had been procured by misleading conduct. Notwithstanding that the Court of Appeal acknowledged that such a claim was arguable, and arguably caused loss to the applicant, the Court still gave force to the no set-off clause and upheld the statutory demand.
[50] Bunnings accepts the Court of Appeal recognised in Browns that it was not laying down a black letter rule and that there may be cases where there are grounds that tell against the recognition of a statutory demand notwithstanding a no set-off clause.6 Bunnings submits, however, that this is not one of those cases.
[51] Bunnings further relies on Herbert Construction Company Ltd v Carter Holt Harvey Ltd.7 In that case, after referring to the rule in Browns not being a black letter rule, Associate Judge Bell commented:8
A typical case for the court not to exercise its discretion in favour of the counterclaim is where the creditor is owed an undisputed debt, but the company asserts a claim for unliquidated damages based on some matter that is not directly connected to the debt the subject of the demand.
[52] Counsel for Bunnings says that this is exactly the case here, that Bunnings is owed an undisputed debt by Sunrise for the building supplies and so Sunrise cannot assert a claim for unliquidated damages based on some matter that is not directly connected to that debt.
[53] However, the facts in Herbert Construction Company Ltd v Carter Holt Harvey are very different to the facts in this case. Importantly there was no allegation of any misrepresentation by Carters made by Herbert.9
[54] Here, Sunrise submits that it was deceived into entering into the commercial arrangement with Bunnings because of the alleged misrepresentations made in respect of the imported weatherboards. Sunrise relies on the Court of Appeal’s decision in
6 At [17].
7 Herbert Construction Company Ltd v Carter Holt Harvey Ltd [2013] NZHC 780.
8 At [52].
9 At [17].
Industrial Group Ltd v Bakker,10 where the Court held that if deceit were established, Mr Bakker, and likely Mrs Bakker, would not be able to rely on the contract documentation in any way, as “fraud unravels all”.11
[55] Bunnings responds that deceit is not pleaded in the claim filed in the District Court and that in Bakker the Court was dealing with incredibly serious allegations of misconduct. Counsel for Bunnings contrasts that with the conduct here which, as the pleadings stand, alleges breaches of the Fair Trading Act 1986. Counsel submits that that is directly analogous to the situation in Browns where Browns alleged misrepresentations had induced the lease.
[56] In Browns, however, although the High Court found that the claim for misrepresentation was arguable, Associate Judge Osborne (as his Honour then was) came to the preliminary view that the arbitration and two-year time bar provisions in clause 20 of the lease precluded the cross-demand or counterclaim asserted by Browns.12 That view was upheld by the Court of Appeal which considered that there were “strong grounds for considering that the claim by Browns is barred by cl 20 of the lease”.13
[57] Furthermore, there was no allegation of deceit in Browns. Counsel for Bunnings submits that such an allegation cannot be sustained on the facts of this case, with the elements of a claim in deceit including fraud by the maker of the statement, in the sense that the maker knew the representation to be false. These are not matters that can be determined in this application, but are required to be explored in a full hearing.
[58] Sunrise is making serious allegations against Bunnings. It alleges not only that Bunnings made misrepresentations prior to entry into the contract but also that, when Bunnings did supply weatherboards to Sunrise, despite Sunrise’s order for New
10 Industrial Group Ltd v Bakker [2011] NZCA 142.
11 At [22], citing HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 1 All ER (Comm) 349 at [15] per Lord Bingham of Cornhill.
12 Browns Real Estate Ltd v Grand Lakes Properties Ltd, above n 1, at [4] – [8], summarising Browns Real Estate Ltd v Grand Lakes Properties Ltd HC Invercargill CIV-2009-425-670, 10 March 2010.
13 At [18].
Zealand weatherboards and Bunnings’ quote and invoices for New Zealand weatherboards, Bunning’s instead supplied weatherboards manufactured in China.
[59] In contrast to Browns, a claim has already been brought in the District Court including alleging breach of the Fair Trading Act. Section 43 of that Act provides the Court with broad powers including to void or vary the contract even if there is no claim in deceit brought. The fact that the pleadings in the District Court claim may be required to be amended does not prevent Sunrise establishing that it has a reasonably arguable claim.
[60] I conclude, therefore, that it is reasonably arguable that the no set-off clause does not apply.
If it is reasonably arguable that the no set-off clause does not apply, is there a reasonably arguable cross-claim?
[61] If set-off is not prevented, Sunrise needs to establish in the usual way that it has a reasonably arguable counterclaim exceeding the amount of the claim demanded.
[62] Bunnings submits that the debt that is the subject of the demand is undisputed, and that the counterclaim is unliquidated and is pursuant to a separate contract to the contract in respect of the building supplies that are the subject of the statutory demand.
[63] The words of s 290(4)(b) make it clear that any counterclaim, cross-demand or set-off does not need to be connected to the debt owed or pursuant to the same contract. Nor is the debt that is the subject of the demand required to be disputed. Section 290(4)(b) is an alternative to s 290(4)(a) which is concerned with whether the debt that is the subject of the demand is disputed.
[64] Furthermore, s 290(4)(b) does not prevent parties relying on unliquidated claims. The question for the Court instead being whether it is reasonably arguable, not only that there is a claim, but also that any claim exceeds the amount of the demand. Sunrise has filed evidence as to the actual cost of recladding two of the houses and a schedule setting out the estimated costs for the recladding of the third and fourth houses. Sunrise’s evidence is that the cost incurred for the actual reclad of
one of the houses will be the same as that required for the two remaining houses. It, therefore, bases its estimates for the two remaining houses on the actual costs for the house that is already completed. The total cost to re-clad all four properties, taking both the actual and estimated costs into account, is $305,050. In my view the counterclaim is sufficiently quantified.
[65] Bunnings further submits that Sunrise’s counterclaim is without merit, including on the basis that it is time barred by Bunnings Terms of Trade. This argument relies on the relevant clause of the Bunnings Terms of Trade remaining operative. The District Court proceedings may lead to variation of those terms. I cannot, therefore, discount the counterclaim on this basis.
[66] Finally on this issue, Bunnings submits that there is lack of a causal nexus between Sunrise’s loss and the misrepresentations made by Bunnings, relying on a report by Hardy Compliance and Consulting Ltd.
[67] If set-off is not prevented, Sunrise is not confined to relying on misrepresentations prior to entry into the contract but can rely on any counterclaim arising including any breach of the contract to supply weatherboards if, as appears to be arguable, the quote, order and invoice were all for Pineclad, the New Zealand product, yet the product supplied was Pinetrim XT. Whether Sunrise can establish a sufficient causal nexus will depend on the basis on which the loss is claimed and is not a matter I am able to determine in the context of an application to set aside.
[68] I consider therefore that it is reasonably arguable that Sunrise has a counterclaim that exceeds the value of the statutory demand. The statutory demand ought therefore to be set aside on this basis.
[69] In case I am wrong in holding that it is reasonably arguable that Bunnings is not able to rely on the no set-off clause, I consider below the position if the no set-off clause does apply.
If the no set-off clause does apply, should the statutory demand be set aside?
[70] Even if the no set-off clause continues to apply, I consider that this case is not in the normal run of cases and that it would be unconscionable for Bunnings to be able to rely on the no set-off clause in the circumstances.
[71] The Court of Appeal in Browns Real Estate did not decide the question of whether parties could oust the jurisdiction of the Courts to consider a counterclaim, set-off or cross-demand.14 Furthermore, the Court qualifies its statement that “commercial parties should be required to honour the bargain they have made” by adding “absent other grounds that tell against the recognition of a statutory demand”.15
[72] Sunrise’s position is that it entered into the “pay now argue later” contract on the basis of alleged representations as to whether Bunnings supplied weatherboards manufactured in China. I have found that it is reasonably arguable both that the alleged misrepresentations were made and that those misrepresentations induced entry into the contract.
[73] It is reasonably arguable, therefore, that Sunrise’s agreement to the “pay now argue later” contract was on terms including that condition. If there is a reasonably arguable basis for finding that condition to have been breached, then it would not be conscionable to enforce the “pay now argue later” aspect of the contract by letting the statutory demand stand. I would, therefore, set aside the demand even if the no set- off clause does continue to apply.
Result
[74] For the reasons set out above, the statutory demand served by Bunnings on Sunrise dated 25 June 2021 for the revised amount of $202,312.11 is set aside.
14 At [17].
15 At [17].
Costs
[75] As Sunrise has succeeded in its application, my preliminary view is that it is entitled to costs. I expect that counsel ought to be able to agree costs. If that is not possible, memoranda (of no more than five pages) may be filed on behalf of the applicant within 15 working days of this judgment and on behalf of the respondent within a further 10 working days of service.
Associate Judge Sussock
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