Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425, 20 September 2010
- Court
- Court of Appeal
- Judgment
- 20 September 2010
- Neutral
- [2010] NZCA 425
Areas of law
Judgment analysis
AI-generated summary
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Facts
Grand Lakes served a statutory demand on Browns for $134,931.00 for money owing under a lease. Browns applied to set aside the demand under s 290(4)(b) of the Companies Act 1993, arguing it had a counterclaim exceeding the demanded sum. The counterclaim was based on alleged misrepresentations made by Grand Lakes' predecessor in title during lease negotiations in 2006. The lease contained a 'no set-off clause' (cl 3.1) requiring rent to be paid without deduction, set-off, or reduction. In the High Court, Associate Judge Osborne accepted Browns had an arguable counterclaim but held that cl 3.1 precluded Browns from raising it as a reason for not paying rent, and thus refused to set aside the demand. Browns appealed this decision to the Court of Appeal.
Held
- A contractual 'no set-off' clause preventing a lessee from making any deduction or set-off from rent payments on any account is effective to preclude the lessee from relying on a counterclaim under s 290(4)(b) of the Companies Act 1993 to set aside a statutory demand for unpaid rent.
- Where commercial parties have expressly agreed by contract that a set-off, counterclaim or cross-demand cannot be raised to justify non-payment, the court's discretion should normally be exercised against setting aside a statutory demand based on such a claim, in order to give effect to the parties' bargain.
- An inability to pay a debt subject to a statutory demand, without recourse to a contractually barred counterclaim or set-off, demonstrates insolvency for the purposes of the Companies Act 1993.
The appeal is dismissed.
Key passages3
The Court may grant an application to set aside a statutory demand if it is satisfied that 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.
“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”
By analogy with the Construction Contracts Act 2002, where a statute precludes giving effect to a counterclaim, a debtor is prevented from relying on it to set aside a statutory demand. Similar reasoning applies where there is a contractual no set-off provision.
“The Laywood reasoning was driven by the view that to give effect to a counterclaim, set-off, or cross-demand would recreate the problems that led to the enactment of the CCA and frustrate the underlying purpose of the statute.”
A contractual no set-off provision would normally result in the court’s discretion being exercised against an applicant if the sole ground for setting aside a statutory demand was a contractually barred set-off, counterclaim or cross-demand.
“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.”
Cases mentioned in judgment
Legislation mentioned
- Companies Act 1993, s 290(4), s 290(4)(b), s 290(4)(c), s 4(1)
- Construction Contracts Act 2002, s 79