Alleged misrepresentation by Bunnings that weatherboards NZ made

Sunrise Management Limited v Bunnings Limited

The case we review this month concerns the supply of weatherboards by Bunnings which they represented were NZ made. The key question for the Court being, could a counterclaim based upon this alleged misrepresentation form the basis of setting aside a statutory demand. 

Sunrise Management Limited (a building company) protested a claim for an unpaid supply invoice, on the basis that Bunnings had made a representation that it did not sell Chinese weatherboards. Sunrise proceeded to build a number of houses using what it understood was Bunning’s ‘New Zealand’ weatherboards, until discovering the weatherboards it used were in fact from China. The weatherboards failed and had to be removed and replaced, costing Sunshine over $300,000 to remediate, which Sunrise claimed is the loss suffered as a result of the alleged breach of contract by Bunnings.

Bunnings brought statutory demand proceedings against Sunrise for non-payment of invoices of $202,312.11 for supplied building materials. This invoked the liquidation procedure under the Companies Act 1993, and was premised on the basis that Sunrise had no defence available to it to defeat the liquidated demand. 

The key question the Court had to consider in the context of the application brought by Sunrise to set aside the statutory demand, was whether there was a substantial dispute that the debt was owing. 

In the first instance the Court ruled that it was reasonably arguable that Bunnings had mispresented to Sunrise that it only supplied weatherboards from NZ, when in fact it had supplied weatherboards from China. The Court also ruled that it was reasonably arguable that these representations induced Sunrise to enter into the supply contract. 

No set off clause

The terms of trade between Bunnings and Sunrise contained a ‘no set off’ clause, which in general terms operated in such a way that any counterclaim could not be used to prevent the amount sought for goods provided, to be used as a basis to avoid payment. It brings into play contractually a ‘pay now argue later’ regime.

Bunnings relied upon the strong statement of law contained in the Court of Appeal decision in Browns Real Estate to the effect that the efficacy of a no set off clause would be undermined if statutory demands could be set aside on the basis of a set-off, counterclaim or cross-demand. 

Associate Judge Sussock noted here that Browns Real Estate had not set down a black letter rule and there remained cases where there are grounds that tell against the recognition of a statutory demand notwithstanding a no set-off clause. The Court also noted some parallels may ultimately be made out with the Court of Appeal’s decision in Industrial Group Ltd v Bakker where it was held that if deceit were established, the contractual documentation would no longer be able to be relied upon because the “fraud unravels all”. 

Whilst it was noted by the Court that deceit was not being pleaded by Sunrise, the nature of the allegations made against Bunning were serious, in that there were the misrepresentations to the effect that it only supplied NZ made weatherboards, invoices were rendered for NZ weatherboards when in fact weatherboards imported from China were being supplied. The Court also referenced the broad powers under section 43 of the Fair Trading Act 1986, which allowed the Court to void or vary the contract even if a claim in deceit had not been brought. 

The Court therefore ruled that it was reasonably arguable that the no set off clause does not apply. 

The Court was also unwilling to accept an argument to the effect that the counterclaim that Sunrise purported to bring to defeat the claim, was not directly connected to the claim brought. The Court ruled the statutory wording was broad enough to include any counterclaim, and that any limitation clause in Bunning’s terms of sale were open to variation by method of section 43 of the Fair Trading Act 1986.

Associate Judge Sussock went further in ruling that even if the Court was bound to rule that the no set off clause continued to apply, in these circumstances it would be unconscionable for Bunnings to rely on it. The Court ruled firstly that Brown 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. The Court of Appeal had qualified 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”. 

In this instance Sunrise had voluntarily entered into a “pay now argue later regime” on the basis of a representation that Bunnings supplied weatherboards manufactured in NZ only. If it was reasonably arguable that in fact this condition had been breached by Bunnings then it would be unconscionable for Bunnings to simply enforce its pay now argue later clause, and for the Court to let the statutory demand stand. The statutory demand was ultimately set aside. 

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by TM Bates & Co. Barristers / Solicitors to anyone who relies on the information contained in this article. All copyright in this article is retained by TM Bates & Co.