Moorwand Ltd v K Wearables Ltd

In winding-up proceedings, a debtor company may resist the petition by raising a serious and genuine cross-claim which appears to equal or exceed the petition debt. The cross-claim need not amount to a contractual defence to the debt. A contractual clause excluding set-off or other representations does not, at the petition stage, prevent reliance on a claim for fraudulent misrepresentation and rescission. The court may consider whether the claim is genuine, when it was first raised, and why it has not been litigated, but there is no requirement to explain the delay as a precondition to relying on it. Such disputed matters should ordinarily be tried in ordinary proceedings rather than determined summarily in winding-up proceedings.

Moorwand presented a winding-up petition against K Wearables for unpaid fees under an issuing agreement. K Wearables accepted that the invoices were contractually due but alleged, first, that the agreement had been induced by fraudulent misrepresentation concerning Moorwand’s ability and willingness to provide acquiring services and, secondly, that Moorwand had provided poor and substandard services.

The company sought rescission and relied on alleged losses exceeding the petition debt. The central issue was whether the alleged claims were sufficiently serious and genuine to prevent the debt being treated as undisputed in winding-up proceedings.

1. Petition dismissed. The company established a serious and genuine cross-claim, and the petition was not an appropriate matter for determination in winding-up proceedings.
2. The relevant inquiry was whether the cross-claim was genuine and serious and appeared capable of equalling or exceeding the petition debt. The court could consider when the claim was raised, whether the company genuinely believed in it, and why it had not previously been litigated. However, there was no requirement to explain the failure to litigate before the claim could be relied upon.
3. The evidence raised a properly arguable claim that Moorwand had represented that it could and would provide acquiring services, including Visa acquiring, while knowing or being reckless as to the truth of that representation. The evidence also supported reliance and potential loss. Those issues required a trial.
4. The contractual prohibition on deductions and set-offs did not prevent the company from raising a cross-claim in winding-up proceedings. The expression cross-claim was sufficiently wide to include a claim which would not otherwise constitute a defence to the contractual debt.
5. The non-representation and entire-agreement provisions did not defeat the claim at this stage. The alleged claim was formulated as fraudulent misrepresentation and rescission. If rescission succeeded, obligations under the agreement might cease to be enforceable. The direct migration costs claimed exceeded the petition debt.
6. The alternative claim concerning poor and substandard services was not established because the evidence did not sufficiently identify its value. That conclusion did not affect the successful fraudulent-misrepresentation cross-claim.

Costs were to be addressed at the hand-down hearing.