STEWART'S CYCLE CITY LIMITED (NOW KNOWN AS TRAFALGAR TRADERS LIMITED) V SHEPPARD INDUSTRIES LIMITED HC NEL CIV-2012-442-000490

STEWART'S CYCLE CITY LIMITED (NOW KNOWN AS TRAFALGAR TRADERS LIMITED) V SHEPPARD INDUSTRIES LIMITED HC NEL CIV-2012-442-000490 [19 February 2013]IN THE HIGH COURT OF NEW ZEALANDNELSON REGISTRYCIV-2012-442-000490[2013] NZHC 256IN THE MATTER OF Section 290 of the Companies Act 1993BETWEEN STEWART'S CYCLE CITY LIMITED(NOW KNOWN AS TRAFALGARTRADERS LIMITED)ApplicantAND SHEPPARD INDUSTRIES LIMITEDRespondentHearing: 15 February 2013Appearances: G C Engelbrecht for ApplicantS Galbreath for RespondentJudgment: 19 February 2013JUDGMENT OF ASSOCIATE JUDGE MATTHEWS[1] Trafalgar Traders Limited (Trafalgar), formerly Stewart's Cycle City Limited, operated a retail bike shop in Nelson, trading as AvantiPlus Nelson. The majority of the product sold in the shop was supplied by Sheppard Industries Limited (Sheppard), manufacturer of Avanti cycles. It was provided to Trafalgar on credit terms requiring payment by the 20th day of the month following the date of invoice. From November 2007 Trafalgar traded outside these terms. Sheppard held aregistered security under the Personal Property Securities Act 1999 over Trafalgar'sstock and on 17 August 2012 issued a notice of demand and repossessed it. On 17 October 2012 Sheppard issued to Trafalgar a demand under s 289 of the Companies Act 1993 requiring payment of the sum of $195,241.77, the sum said tobe owing under Trafalgar's overdue account for cycles, parts and accessories supplied in 2011 and 2012.[2] On 19 October and 31 October Sheppard passed two credits to Trafalgar'saccount in the sums of $76,560.54 and $1,374.25 respectively, leaving a net sum owing of $117,306.98.[3] Trafalgar did not meet the demand. On 31 October 2012 it filed this application for an order setting it aside.[4] Section 290(4) of the Companies Act 1993 provides that the Court may set aside a statutory demand if there is a substantial dispute on whether or not the debt is owing or is due, or 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 the demand ought to be set aside on other grounds.[5] Section 290(5) provides that a demand must not be set aside by reason only of a defect or irregularity, unless the Court considers that substantial injustice would be caused if it were not set aside. Section 290(6) provides that a defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.[6] The principles to be applied by the Court in determining an application to set aside a statutory demand are well-established,1 and in this case I need refer only to certain of them. First, it is for the applicant to show that, arguably, there is a genuine and substantial dispute as to the existence of the debt. It is not the task of the Court, in its Companies Act jurisdiction, to resolve a dispute which has been shown to exist.[7] Secondly, if an applicant alleges that there is a counterclaim, cross demand or set-off, similarly it must show that this is reasonably arguable.[8] Thirdly, disputes of fact cannot usually be resolved on affidavit evidence alone.1 The principles are summarised and discussed, with reference to the cases by which they have been established, in Brookers Insolvency Law and Practice at paragraphs 290.02 and 290.03.[9] Fourthly, a governing consideration for the Court is whether allowing the notice to form the foundation of an application for liquidation savours of unfairness or undue pressure. It must at all times be remembered that a statutory demand is an evidentiary procedure to establish a presumption of insolvency under s 287.The case for the applicant[10] First, Mr Engelbrecht submits that the statutory demand is defective as it demands $195,241.77, yet just two days after it was the respondent passed a credit reducing the sum claimed by $76,560.54, and a few days later passed another credit, finally reducing the sum claimed to $117,306.91. Mr Engelbrecht says that as the goods which formed the basis of the credit had been uplifted some two months before the notice was issued, the respondent must have known that the notice was inaccurate. Recognising the need to show, also, that a substantial injustice would be caused by this defect if the notice were not set aside, Mr Engelbrecht accepted that if time were now given to meet the notice, amended to refer to the sum actually claimed, any injustice caused by the exorbitantly over-stated demand would be cured.[11] Secondly, Trafalgar says that at Christmas 2010, again at Christmas 2011, and at other times Sheppard breached its supply agreement by delivering stock required for retail sale late, resulting in poor sales and a loss of profits, particularly from Christmas demand. This, Trafalgar says, resulted in its being unable to pay the credit facility on time. It estimates lost profit at $20,000.[12] Thirdly, Trafalgar says that the sudden repossession of its stock, without any warning, left it in a position where it could not trade, resulting in loss of profit of approximately $30,000. In addition, Trafalgar says that restarting the business with a new supplier will take a substantial time, and it estimates that ongoing loss of profits would be well in excess of $50,000.[13] Fourthly, Trafalgar disputes a handling fee of $7,397.15 charged to itsaccount, said to represent the cost of uplifting and storing Trafalgar's stock. It says that Sheppard took this step for its sole benefit and for "nefarious" purposes andTrafalgar has not agreed to be liable for a handling fee in those circumstances. The reference to the circumstances of the repossession has its basis in the view of Mr Watson, the director of Trafalgar, that the seizure of the stock took place because Sheppard had entered a supply arrangement with another AvantiPlus retailer opening a new store in Richmond, near Nelson. He considers that Sheppard acted in bad faith, if not in breach of its supply agreement with Trafalgar.[14] The same view underpins Trafalgar's fifth point. Mr Watson disputes Sheppard's right to a profit margin on the goods it provided to Trafalgar, which hedescribes as entirely unreasonable and inappropriate given that his company's stockwas repossessed entirely for the benefit of Sheppard, as he sees it. He says it would be a fair and equitable outcome for Sheppard to be only entitled to recover its cost of purchasing the cycles, parts and accessories, which it resold to Trafalgar.[15] Sixthly, Trafalgar says that Sheppard is estopped from claiming any sum owing, given the 27 year relationship between Trafalgar and Sheppard, the fact that Sheppard has not, at least over the period for which the debt is claimed, strictly applied or enforced the contractual terms for payment of invoices on credit but, rather, has allowed Trafalgar to trade well in breach of its obligations, and that itrenewed Trafalgar's supply agreement when its indebtedness was at or around itspeak. Further, in December 2011, the then managing director of Sheppard expressed in an email to Trafalgar a strong hope that it would be able to trade through extendedand tough retail conditions, said that it had Sheppard's full support to do so, andexpressed confidence that the business was able to trade positively, as it was at that point, and make progress with debt reduction. The email advised that at that time Sheppard had not entered into any agreements for a new AvantiPlus shop, though it was looking at options, and its objective was to increase market share so it would notbe looking at foreclosing on Trafalgar's own business simply to replace it withanother store.[16] Mr Engelbrecht says Trafalgar relied on the course of business established over a prolonged period, and the statements of its then managing director, in continuing to operate its account in breach of its contractual obligations, and did not take steps to set up an arrangement with an alternative supplier, nor, I assume, tobring the account into line or to refinance the core debt, which throughout 2012 appears to have varied within a range of only approximately $30,000.2[17] Mr Engelbrecht relies on Pramukh Enterprises Ltd v Johal Enterprises Ltd3as establishing that where an applicant can make out a fairly arguable case that an estoppel exists, therefore preventing the creditor from claiming the debt, this may undermine the foundation of the statutory demand and be sufficient to establish a substantial dispute within the terms of s 290(4)(a).[18] Mr Engelbrecht says that the dispute in relation to the handling fee, the cross claims which I have outlined, and the claim that Sheppard should be estopped from now claiming repayment of the current account debt should be argued at trial rather than in the context of an application to set aside a statutory demand.The case for the respondent, and discussion[19] In response to Mr Engelbrecht's first submission, Mr Galbreath accepts that the statutory demand claimed payment of a sum of money which, whilst accurate on the day it was issued, took no account of credits which were in the pipeline at that time. He relies, however, on 21st Century Investments Ltd v ANZ National Bank Ltd,4 where the Court said:[41] Secondly, ... a statutory demand can be allowed to stand in respect of items which are not open to dispute. United Homes (1998) Ltd v Workmanis a good example. In that case, statutory demands had been issued by shareholders in respect of amounts claimed to be owed to them by three companies, for $6,093.33, $9,821.43, and $154,957.25 respectively. The companies applied to set aside the demands. The Court of Appeal said:[44] It is at least fairly arguable on the material presented that the accounts (and behind that the dividends) on which the Workmans base the greater proportion of their various statutory demands did not come into effect. With that being so, it is at least fairly arguable that the Workmans are not owed the greater part of the current account indebtedness shown in the accounts.[45] There can be and is no dispute, on the other hand, that the Workmans were and are owed small residual balances ...2 This figure comes from a document titled Dealer reconciliation which shows sums said to be due at the end of each month. However, evidence interpreting these figures was scant.3 Pramukh Enterprises Ltd v Johal Enterprises Ltd HC Auckland CIV-2004-404-1870Associate Judge Lang, 1 July 2004.4 21st Century Investments Ltd v ANZ National Bank Ltd [2011] NZCA 548.[20] In United Homes the Court of Appeal went on to say:[46] Under s290(5) and (6) a statutory demand is not to be set aside by reason only of material misdescription of the debt unless the Court considers substantial injustice would be caused if it were not set aside. Obviously it would be a substantial injustice to allow the demand to stand so far as including dividend-based current account items over and above those residual balances. They are significant sums which could cause liquidity embarrassment. The courts have come to recognise that statutory demands can be allowed to stand in reduced figures representing items not open to dispute ...[47] Applying those principles to the present case the statutory demands should be set aside except in relation to those residual balances. There is no call to alter the 31 May 2001 deadline for payment given the small sums involved.[21] The difference between the sum demanded and the sum now said to be owing is substantial. The debt now claimed is only 60 per cent of the debt demanded. In my opinion this is a substantial difference. Sheppard plainly erred in issuing a statutory demand for a current account when the passing of a credit for stock which it had seized several weeks before was imminent. There is no dispute that the demand should be set aside for the sum credited. The issue is whether there would be a substantial injustice if the demand were not set aside in its entirety, because it overstated the position (s 290(5)).[22] Trafalgar did not identify any specific injustice which would result from the demand having been overstated, and in my opinion none can be found on the evidence. Within a few days the correct position emerged. There is no evidence of Trafalgar taking any steps to raise any money from any source to pay either the sum demanded or the lower amount, nor having acted to its detriment, on the basis of the inflated, and premature, demand. Sheppard could have withdrawn the notice and replaced it with a notice for the actual current account balance as soon as it was established, which would have been well within the period for the demand to be met. As Mr Engelbrecht accepted, giving Trafalgar additional time now to meet the demand at the correct sum, after setting it aside for the balance, would meet any possible injustice that may have occurred. That can only happen, however, if the demand survives the other grounds on which it is challenged.[23] Before dealing with these, reference must be made to the terms of the agreement between Trafalgar and Sheppard. Clause 2 states:TERMS AND CONDITIONS OF SALE3. PRICE AND PAYMENT1 ...2 Payment in full must be made immediately the Company has supplied the goods. Where the Company agrees to extend credit to the buyer, the buyer agrees to pay the Company the amount invoiced by the 20th of the month following the date of the invoice. No exception or extensions will be allowed and time is of the essence. The buyer may not set off any payments owing to the Company against any payments owed by the Company to the buyer, or any claim which the buyer may have against the Company.[24] Mr Galbreath argues that this is a complete answer to all the bases upon which Trafalgar maintains that it should not be liable to be pay the current account debt. He relies on Browns Real Estate Ltd v Grand Lakes Properties Ltd.5 At [17] Glazebrook J said:[17] ... In our view a contractual no set-off provision of the type at issue inthis case would normally result in the court's discretion being exercisedagainst 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. ...[25] In that case the clause in issue was contained in a lease, and read:Payment: the Lessee shall in each year during the Term, pay the Rent and any other money required to be paid by the Lessee pursuant to this Lease, to the Lessor without demand from the Lessor and free of any deduction, withholding, set-off or reduction on any account.[26] Although phrased differently from clause 2 in the contract between the parties in this case, the latter is sufficiently broad in my view for the same principle to be applied. Apart from the dispute raised in relation to the handling fee, and the submission that an estoppel should apply, each of the other three claims Trafalgar advances is a claim which it says it should be entitled to bring against Sheppard in a civil proceeding. And it says it should be entitled to set off against the sum owing5 Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425.on its current account the amount it recovers on each claim. That is within the prohibition contained in clause 2 and in my opinion the decision in Browns Real Estate Ltd applies.[27] For that reason Trafalgar's claims in relation to loss of profit for non-deliveryof stock, loss of profit when the stock was seized, and for a refund of Sheppard'sprofit on goods supplied to Trafalgar over the previous two years cannot be grounds to set aside the statutory demand.[28] In case I am wrong in that conclusion, I will refer briefly to each of these grounds, in turn. First, the claim in relation to damages for loss of profits caused by late supply of goods is an unquantified claim for damages. In Yummy Tums Ltd v Foodwise Ltd,6 Associate Judge Sargisson said:[21] For the purpose of dealing with this question, however, it is unnecessary to determine the arguability of the various causes of action on which the counterclaim is based. This is because even assuming that Yummy Tums were able to show that it has an arguable counterclaim based on one or other of the four actions it claims to have, there is no evidence that indicates the counterclaim would be for the required minimum amount.Yummy Tums' alleged loss was advanced on the basis of the value of the business it says it would have been able to sell but for Foodwise's conduct.Ms Hume deposes that the business was worth far more than the amount ofFoodwise's statutory demand. But there was no attempt to identify what thatvalue might be, or to provide some confirmation of that value. The Courthas only Ms Hume's assertion that the company had the kind of value sheclaims. That does not go far enough to satisfy the proviso in s 290(4)(b).[29] The evidence for Trafalgar in relation to the losses it alleges it has suffered is scant. As in Yummy Tums, the Court only has Mr Watson's assertion in relation tothe losses. So far as the claim for late delivery of stock is concerned, in his first affidavit Mr Watson says that on various occasions Sheppard failed to supply the necessary bicycles, parts and accessories which the applicant required. He says that due to the exclusive nature of the agreement this meant that Trafalgar had an inadequate supply of these items which resulted in reduced sales than would otherwise have been achieved. He goes on to say:6 Yummy Tums Ltd v Foodwise Ltd HC AK CIV 2009-404-876, 9 December 2009.10. As a direct result of the Respondent's breach of its contractualresponsibilities pursuant to the supply Agreement the Applicant'sturnover decreased by approximately $50,000 during that period, which equates to a loss of profit of approximately $20,000.[30] Later in the same affidavit he repeats this assertion, but on each occasion does so without reference to any document, for example sales records, which might have substantiated his assertion, nor even to the period or periods during which loss of profits are said to have been incurred. The evidence does not lay any foundationfor the assertions made by Mr Watson in relation to this item of Trafalgar's claim.Nor is there any more detailed evidence in relation to its claim that the seizure of the stock led to a loss of profits of $50,000. Leaving aside the obvious difficulty faced by Trafalgar in asserting that Sheppard acted in breach of contract in repossessing the stock, which it had an express right to do under cl 8.5 of the terms and conditions, the quantum of this claim is completely unsubstantiated. As her Honour noted in Yummy Tums:[23] In Datasouth Holdings Ltd v Melco Sales (NZ) Ltd HC CHCH M41/96 17 May 1996, the Court held that contingent and unquantified counter- claims or set-offs cannot assist an applicant to set aside a statutory demand because under s 290(4)(b) the counter-claim or set-off must be quantified so the Court can determine whether the amount specified in the demand less the amount of the counter-claim or set-off is less than the prescribed amount. Likewise, in Alfex Doors and Windows Ltd v Alutech Windows and Doors Ltd (2001) 16 PRNZ 963, the Court of Appeal held that an unquantified claim for liquidated damages will not generally meet the generally acceptedthreshold of a "fairly arguable basis".[31] For these reasons, these two grounds to set aside the notice fail.[32] The claim that Sheppard should refund to Trafalgar the profit component of the cost to Trafalgar of items it supplied and repossessed is without foundation in law. Logically, it amounts to an assertion that if it could be shown at trial that Sheppard breached its contract with Trafalgar by contracting with another retailer,the damages recoverable would be Sheppard's profit when supplying the goods itrepossessed. There is no basis on which that could be the case. Damages awards compensate for certain losses incurred by the innocent party. The profits of the party in breach are irrelevant in a claim of this type.[33] This contention seems to be based on Mr Watson's view that Sheppard hasacted entirely unreasonably, and it is inappropriate for it to expect to retain its profitmargin "in circumstances where they seized the stock entirely for its own benefit".This appears to be a reference to his overall premise that Sheppard acted in bad faith, deliberately demanding repayment of Trafalgar's debt and seizing the stock in theshop because it wanted to support another retailer setting up as an AvantiPlus outletin Richmond. I am unable to derive from Mr Watson's evidence any foundation forthat claim, apart from it plainly being his firmly held opinion. I accept, to a degree,counsel's submission that there appears to have been a change of heart by Sheppardfrom a reasonably supportive approach to its business relationship with Trafalgar late in 2011, to the taking of a harder line, culminating in repossession of the stock and demanding payment of the outstanding account, and it seems that the timing of this was coincident with the setting up of another retail outlet. However, during 2012 pressure was being applied to Trafalgar to clear the debt, and it is quite another matter on the evidence before the Court to draw the conclusion that Mr Watson has drawn.[34] Further, Sheppard was entitled to contract with another retailer in Richmond. There is no clause in the agreements between the parties that gives Trafalgar an exclusive right to operate on AvantiPlus stock in any specified region.[35] Accordingly this ground to set aside the notice fails.[36] The basis of Trafalgar's claim that it should be refunded the handling feecharged by Sheppard is that in Mr Watson's view the stock seized from his premiseswas probably stored and supplied to the new retailer at Richmond. There is no evidence to support that contention. On the other hand although counsel for Sheppard informed me that the handling fee had been assessed at 10 per cent of the value of the stock recovered, he did not refer me to any contractual provision entitling Sheppard to charge a flat rate fee for handling the repossession, nor is one apparent in the portions of the credit agreement produced in evidence. Certainly Sheppard is entitled to recover its costs by clause 7, but that clause does not refer to charging a fee as a percentage of goods recovered, and recovery of costs should, in the absence of a different definition, be taken to mean just that.[37] On the evidence before me I am satisfied that there is an arguable defence to liability for payment of the handling fee which has been charged. It is not a set-off, so is not within clause 2 of the terms and conditions ([23] above).[38] In relation to Mr Engelbrecht's argument that Sheppard should be estoppedfrom demanding repayment of the current account debt, Mr Galbreath refers first to a summary of a meeting with the managing director of Sheppard, Mr Carrington, on 2 November 2011. Mr Carrington's notes contain entries referring to the businessappearing to be trading cashflow negative with a result that funding must be coming from other suppliers or from debts such as credit cards, the sustainability of which is doubtful. He notes that priority needs to be given to further reducing overheads andas a top priority Sheppard's debt must be reduced. There is reference to a propertybeing on the market and the need for a realistic approach to sale price to be taken. Mr Carrington refers to a need to reduce the account balance to $200,000 by the end of February 2013 either from trading or from capital injection. He notes the need for Mr Watson to reconfirm that this is a realistic expectation. Trafalgar was required to complete weekly cashflow summaries to assist Sheppard with understanding financial progress, and a statement of assets and liabilities was to be produced by 16 November.[39] This is the context in which Mr Carrington went on to write his email of 16 December, to which I have referred ([15]). Certainly that email is supportive in that Mr Carrington expressed confidence that the business was able to trade positively, and was making progress with debt reduction. On the other hand, it does not say or suggest that Sheppard would stand aside from enforcing its contractual rights, other than giving an assurance that Sheppard would not foreclose on Trafalgar"simply to replace it with another store" as its objective is to increase market share.The supportive paragraph relied on strongly by Trafalgar in this case is couched in conditional terms:Our very strong hope is that you are able to trade through extended and tough retail conditions. You have our full support to do so while we are confident the business is able to trade positively (as it is now) and making progress with the debt reduction.[40] Mr Watson replied to this email on 16 December. The greater part of the email consists of a description of assets and liabilities, commented on by Mr Watson in the following terms:There aren't too many assets left that Sheppards could turn into cash if youwanted to see us out of here.We have no equity as I think I already told you on your visit. So as you can see we are worth nothing if we settled up today.[41] There is then a short list of figures headed "Assets and Liabilities" followed by a comment from Mr Watson "Equals no equity". After enquiring about Sheppard's intentions in relation to supporting an alternative AvantiPlus retailer,Mr Watson concludes:Carl I appreciate the tolerance I have enjoyed with my account up until now and I will continue to pay off my debt if allowed to continue trading. If you have a buyer who would pay enough to get me free I would be equally happy to go if that was your plan.[42] On 18 April the general manager of finance and operations of Sheppard, Mr Schnell, wrote to Mr Watson. He noted a deadline of 30 April:outlined in Carl's letter (copy attached) to receive your quarterly rebateeither by bringing your account up to date or agreeing to provide us with financial information and ongoing transparency as to store performance.The letter referred to was not produced but there is sufficient in the passage I have quoted to establish the options Sheppard had given. Mr Schnell continued:Your account position with Sheppards is currently significantly overdue and we need a much greater level of information and financial transparency from you going forward to ensure not only payment of April Quarterly rebates but our continued ongoing support.We require this information to be sure we are all working effectively together to move trading and the overall situation forward positively.I know you are providing us with weekly cashflow reporting already - thank you for this. In addition can you please provide the following information to meet the following timelines:[43] There follows a requirement for immediate provision of a personal statement of assets and liabilities including interests in trusts, and a copy of the 2011 annual financial statements, together with a repayment plan for the overdue account.Mr Schnell also requested, by 30 June, statutory annual accounts to 31 March, and required that the personal statement of assets and liabilities be reviewed byTrafalgar's accountant and certified as true and correct.[44] There is no evidence on whether a repayment plan for the overdue account was provided.[45] This email, written four months before the stock was repossessed and the demand issued, indicates that Trafalgar was under pressure from Sheppard. Significantly more detailed information was required in relation to the business andin relation to Mr Watson's personal position (including interests as a beneficiary) and a repayment plan for the overdue account was required "immediately".[46] In my opinion, this email should have made it clear to Trafalgar that the overdue current account had to be dealt with by way of a repayment plan, greatertransparency was required in relation to Trafalgar's financial affairs, and a moredetailed statement of assets and liabilities certified as accurate by the company'saccountant was required. Nothing in this email suggests that Sheppard had any inclination not to enforce its contractual rights to repossess the stock or require full repayment of the current account. To the contrary, a repayment plan was expressly required.[47] Mr Watson swore an affidavit after these documents were produced by Sheppard in its affidavit in opposition but he did not refer to this email, nor respond to it. Rather, he concentrated on expressing his opinion about Sheppard's actions insupporting the setting up of another AvantiPlus store.[48] I am satisfied that by the time this email was sent, if not before, Sheppard had reached the point where it was no longer prepared to allow the current account indebtedness of Trafalgar to remain outstanding. Even taking into account the extended period over which tolerance on this point had been evident, and the qualified expression of support from Mr Carrington the previous December, it should have been plain to Trafalgar that it could no longer rely on Sheppard to finance its stock by a current account operating well outside the contractually agreedterms of trade. To the extent that by April a firming of Sheppard's position hadtaken place, that was plainly discernible and was in my opinion reasonable notice to Trafalgar that it must put its current account into line with its contractual obligation. When that did not occur, a statutory demand was issued. In my view this was a commercial inevitability. The events of 2012, even in the context described in paragraph [15], do not give rise to an estoppel against Sheppard.[49] I find that a defence based on estoppel is not reasonably arguable.Outcome[50] The statutory demand is set aside as to the following sums:(a) $76,560.54 and $1,374.25, being the two credits passed to Trafalgar'scurrent account on 19 and 31 October respectively.(b) The sum of $7,397.15, being the handling fee debited to the current account by Sheppard.[51] In relation to the balance of the sum claimed, $109,909.76, the demand is not set aside.[52] Pursuant to s 291(1)(a) I make an order that Trafalgar is to pay this sum within 15 working days, and in default of payment Sheppard may make an application to put Trafalgar into liquidation.[53] The statutory demand has been reduced by the sums for which credits were passed shortly after it was issued, and this has been known to Trafalgar since then. If Trafalgar had accepted that it owed the balance of the sum claimed, this application would not have been required. In relation to the balance claimed by Sheppard, Trafalgar has largely failed in its application to set it aside. There is no reason why costs should not follow the outcome. Sheppard is entitled to costs on a 2B basis plus disbursements fixed by the Registrar._______________________J G MatthewsAssociate Judge____________________________________________________________________Solicitors:McFadden McMeeken Phillips, PO Box 656, Nelson – gerhard@mmp.co.nzDuncan Cotterill, Nelson – s.galbreath@duncancotterill.com