Eversons International Ltd (in liq) v Bionutrient Customs Ltd
[2020] NZHC 2989
•12 November 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2020-409-000289
[2020] NZHC 2989
UNDER Part 16 of the Companies Act 1993 IN THE MATTER
of a proceeding to put BIONUTRIENT CUSTOMS LIMITED into liquidation
BETWEEN
EVERSONS INTERNATIONAL LIMITED
(In Liquidation) Plaintiff
AND
BIONUTRIENT CUSTOMS LIMITED
Defendant
Hearing: 4 November 2020 Appearances:
S L Hawksworth for Plaintiff K W Clay for Defendant
Judgment:
12 November 2020
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 12 November 2020 at 11.00 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
EVERSONS INTERNATIONAL LTD v BIONUTRIENT CUSTOMS LTD [2020] NZHC 2989 [12 November 2020]
The application
[1] This is a proceeding for an order putting the defendant company into liquidation. The defendant did not file a statement of defence within the time prescribed by r 31.17 of the High Court Rules 2016. The matter before me is an application by the defendant for an extension of time to file a statement of defence pursuant to High Court Rule 31.22.
[2]The application is opposed by the plaintiff.
The facts
[3]The plaintiff was formed in 2006 and manufactured controlled legal highs.
[4] At relevant times, Evan Kerry Stewart (Mr Stewart) was the sole director and shareholder of the plaintiff.
[5]Mr Stewart is also the sole director of the defendant.
[6] The plaintiff’s business was very profitable. Between 29 April 2013 and 16 April 2014, it made 19 transfers by way of cheque payments totalling
$3,154,917.92 to the defendant company’s bank account (the Payments). The defendant paid out the amounts received upon or very shortly after receipt. The purpose of these transactions, who received the funds and how they were used are all in issue.
[7] There was a sudden law change in May 2014 outlawing legal highs. The plaintiff’s business was effectively terminated overnight. It had incurred a large tax liability and went into voluntary liquidation on 9 April 2018. Andrew Oorschot (Mr Oorschot) was appointed liquidator. Mr Oorschot subsequently resigned and on 30 January 2020, Elizabeth Helen Keene and Vivian Judith Fatupaito were appointed successor liquidators.
[8] The Commissioner of Inland Revenue has filed a claim in the plaintiff’s liquidation for income tax (and resulting penalties and interest) totalling
$3,766,118.05.
[9] On 24 October 2018, Mr Oorschot made demand on the defendant for payment of $2,999,417.92. His letter advised the defendant that:
(a)the plaintiff had made the Payments to the defendant totalling
$3,154,917.92;
(b)the plaintiff’s financial statements showed that it owed $155,500 to the defendant; and
(c)after setting off the amount owed to the defendant, the defendant was liable to pay the plaintiff $2,999,417.92.
[10] On 25 October 2018, Mr Stewart wrote to Mr Oorschot. Mr Stewart stated that the defendant was used as a vehicle to facilitate payments to Australia by the plaintiff and could not make payment of the sum demanded. Thereafter, Mr Oorschot did not take any active steps to recover the Payments.
[11] On 20 March 2020, Simpson Grierson, engaged by the successor liquidators, wrote to the defendant making demand for payment of the $2,999,417.92. Correspondence then passed between Simpson Grierson and Mr Stewart but no resolution was reached and no payment made by the defendant.
On 8 May 2020, the plaintiff served a statutory demand upon the defendant for
$2,999,417.92 as:
…being money due and owing in respect of payments made by Eversons International Limited (In Liquidation) in the period 29 April 2013 to 16 April 2014, full details of which have been supplied to you …
[13]The defendant did not apply to set the statutory demand aside.
[14] On 10 July 2020, the plaintiff commenced this proceeding and served the defendant on 15 July 2020.
[15] The defendant was required by r 31.17 to file a statement of defence by 29 July 2020 but did not do so. On 6 August 2020, the defendant purported to file a statement of defence but it was out of time.
[16] On 14 August 2020, the defendant filed its application for an extension of time to file a statement of defence.
Rule 31.20
[17]The defendant relies upon r 31.20. It provides:
If a person who is entitled to file a statement of defence or an appearance in a proceeding commenced by the filing of a statement of claim under rule 31.3 fails to file a statement of defence or an appearance within the time prescribed, that person must not, without an order for extension of time granted on application made under rule 31.22 or the special leave of the court, be allowed to appear at the hearing of the proceeding.
[18] There is no substantial difference between counsel as to the relevant principles to be applied which I set out below.
[19] Liquidation proceedings should not be protracted for procedural reasons as the rules of the Court are designed to assist the speedy resolution of such proceedings.1
[20] An applicant seeking an extension of time under r 31.20 must produce material of substance to justify the Court exercising its discretion or, in other words, that there is a proper foundation for the application.2
[21] To obtain an extension of time under r 31.20, the applicant must establish that it has a genuine and arguable defence to the claim. If the applicant can establish that threshold requirement the Court may also consider whether the applicant is solvent, whether the applicant’s failure to file a statement of defence is reasonably explained and whether there is any prejudice to the plaintiff in granting an extension. The
1 Hurunui Estate (2002) Ltd v Hurunui Hotel (2004) Ltd, [2015] NZHC 1152 at [10].
2 Day v Ost (No 2) [1974] 1 NZLR 714 (SC) at 717 citing Ratnam v Cumarasany [1965] 1 WLR 8 (PC) at 12; Platinum Direct Ltd v Micheel Ltd [2014] NZHC 125 at [3]; Hurunui Estate (2002) Ltd v Hurunui Hotel (2004) Ltd, above n 1, at [9].
ultimate consideration that informs the exercise of the Court’s discretion is the overall justice of the case.3
[22] There is authority that even if an applicant has an arguable defence to a plaintiff’s claim leave to file a statement of defence out of time should not be granted if the applicant is insolvent.4 In my view, consistent with the exercise of a discretion, the correct approach is more nuanced. It is as set out in Body Corporate 62870 v Health Distributors (Holdings) Ltd, where Associate Judge Osborne said:5
As recognised in Hurunui Estate (2002) Ltd v Hurunui Hotel (2004) Ltd, the insolvency of the defendant is an important consideration. In some cases it may not be decisive but it is a strong factor against the exercise of the discretion. A proper concern for the Court is that an insolvent company might waste funds on the defence of a case which might, more properly, [be] handled by a proof of debt before the Company’s liquidator.
Does the defendant have an arguable defence?
[23]The plaintiff argues that the Payments were either:
(a)on-demand loans; or
(b)repayable as money had and received to the plaintiff’s use.
[24]The defendant asserts it has an arguable defence to the claim as:
(a)the Payments were not loans, but the plaintiff’s investments transferred to Australia using the defendant’s banking facilities;
(b)the remedy of money had and received is not available when the Payments were dealt with in accordance with the plaintiff’s wishes and for its benefit; and
(c)the claim is time barred under the Limitation Act 2010.
3 Body Corporate 62870 v Health Distributors (Holdings) Ltd [2018] NZHC 1717 at [8].
4 Matthew Mini Coaches Ltd (in liq) v Scotch Myst Ltd [2019] NZHC 3015 at [24].
5 Body Corporate 62870 v Health Distributors (Holdings) Ltd, above n 3, at [24] (footnotes omitted).
[25]I deal with the limitation defence first.
Limitation defence
[26]I understand the following are accepted by the plaintiff:
(a)the plaintiff is making a money claim subject to a six-year limitation period under s 11(1) of the Limitation Act;
(b)time had begun to run for the bringing of its claim to recover the Payments by 16 April 2014 (the date of the last transfer to the defendant’s account);
(c)this proceeding was not commenced until 10 July 2020, which is more than six years after 16 April 2014; and
(d)the plaintiff’s claim is time-barred unless s 47 of the Limitation Act is engaged.
[27] Under s 47, where a claimant proves that a defendant acknowledged to the claimant in writing a liability or made a payment in respect of that liability the claimant is deemed to have a fresh claim on the day after the date on which the acknowledgment or part payment was given or made.
[28]Section 47 relevantly provides:
(1)This section applies if the claimant proves that, after the start date of a claim’s primary period, longstop period, or Part 3 period, the defendant—
(a)acknowledged to the claimant in writing a liability to, or the right or title of, the claimant…
(b)made a payment to the claimant in respect of a liability to, or the right or title of, the claimant.
(2)If this section applies, the claimant is deemed for the purposes only of this Act to have a fresh claim on the day after the date, or the latest of the dates, on which an acknowledgment or part payment was given or made.
(3)An acknowledgment or part payment of the kind specified in subsection (1) —
(a)is binding on the defendant’s successors; and
(b)may be given or made by the defendant or an agent of the defendant and to the claimant or an agent of the claimant.
…
[29] In Inicio Ltd v Tower Insurance Ltd, I found that case law under s 25(4) of the Limitation Act 1950 and UK equivalents provide guidance concerning what amounts to an acknowledgement of a liability to a claimant.6
[30] In determining whether a document is a sufficient acknowledgment it must be read as a whole and construed having regard to the circumstances under which it is written and in the manner the writer intended to convey to the recipient. There is no requirement for proven reliance upon an acknowledgment (or part payment). A defendant can acknowledge liability for an amount that is less than the whole claim, in which case it would constitute an acknowledgement as to the lesser sum only.
[31] Surrendra Overseas Ltd v Government of Sri Lanka, concerned s 23(4) of the Limitation Act 1939 (UK), where Kerr J said:7
What I draw from these authorities, and from the ordinary meaning of ‘acknowledges the claim’ is that the debtor must acknowledge his indebtedness and legal liability to pay the claim in question. There is now no need to go further to seek for any implied promise to pay it. That artificiality has been swept away. But taking the debtor’s statement as a whole as it must be, he can only be held to have acknowledged the claim if he has in effect admitted his legal liability to pay that which the plaintiff seeks to recover. If he has denied liability whether on the ground of what in pleaders’ language is called ‘avoidance’, or on the ground of an alleged set-off or cross-claim, then his statement does not amount to an acknowledgment of the creditor’s claim.
[32] Here, what the plaintiff relies on for the purposes of s 47 is Mr Stewart’s letter to Mr Oorschot of 25 October 2018 that was sent in response to Mr Oorschot’s letter of demand of 24 October 2018. Mr Stewart wrote to Mr Oorschot as follows:
Dear Andrew,
In reply to your letter dated 24th October 2018, I wish to advise that Bionutrient Customs Limited did receive the payments as per your attached list.
6 Inicio Ltd v Tower Insurance Ltd [2020] NZHC 90 at [37].
7 Surrendra Overseas Ltd v Government of Sri Lanka [1977] 2 All ER 481 at 489.
These were on forwarded to Australia and my company was only used as a vehicle to facilitate this. Accordingly Bionutrient Customs Limited does not have access to any funds in relation to these transactions.
I therefore further advise it cannot make payment of $2,999,417.92 as requested.
[33] Ms Hawksworth argues that Mr Stewart’s letter is a sufficient acknowledgement of liability because:
(a)it contains no outright denial of liability;
(b)it acknowledges the defendant received the Payments; and
(c)there was no need for Mr Stewart to state the defendant was unable to pay the sum demanded unless the defendant accepted a liability to do so.
[34] The starting point is that the letter does not contain an express acknowledgement of liability. The plaintiff’s argument is an acknowledgment must be inferred from the circumstances and the words used.
[35] The letter is a response to Mr Oorschot’s demand. The subject matter concerned transactions that had occurred over four years previously. Mr Oorschot identified the Payments but did not say anything about the circumstances under which the Payments were made, nor did he seek any explanation for the Payments. Against that background, it is not surprising that Mr Stewart provides an explanation for the Payments. He states they were received by the defendant; the defendant was used as a vehicle to facilitate the transfers; and the defendant does not have access to them. These are assertions of fact. Nothing in them is an acknowledgment of liability.
[36] Ms Hawksworth argues the words “cannot make payment” implies a liability to do so. I do not agree. This submission overlooks what it was that Mr Oorschot was demanding which was “repayment” of the Payments. It is perfectly understandable that Mr Stewart would respond the defendant did not have the Payments and could not make payment. It is not reasonable to infer that Mr Stewart was, on the defendant’s behalf, accepting the defendant nonetheless had a liability to repay the Payments.
Such a possibility was plainly not contemplated and Mr Stewart was denying the defendant had any liability to the plaintiff.
[37] As a back-up argument, Ms Hawksworth argues that documents delivered to the offices of Simpson Grierson on 22 May 2020 after service of the statutory demand amounted to an acknowledgment for the purposes of s 47. The documents contained an offer of $10,000,000 “to discharge all alleged debts” of the plaintiff, the defendant and Mr Stewart. The evidence is that the documents were prepared by an associate of Mr Stewart. It is difficult to know what to make of them. They are doggerel. In any event, they cannot be construed as an acknowledgement of liability. They purport to offer “under Duress” a promissory note to the value of $10,000,000 to pay the “alleged debts” of Mr Stewart and his companies on terms. The terms are set out but it is beyond my comprehension to give any meaning to them.
[38]The defendant has an arguable defence the plaintiff’s claim is time barred.
On-demand loans
[39] Mr Stewart says the Payments were the plaintiff’s investment in his father’s health food business in Australia transferred using the banking facilities of the defendant. He says that in recognition for the investment the plaintiff “would receive a large parcel of shares in this joint venture”.
[40] Christopher Holmes provides support for this and says he was the accounts manager for both the plaintiff and the defendant and Mr Stewart instructed him to transfer funds from the plaintiff’s bank account to Australia. The funds were transferred using the defendant’s overseas currency account and they were not loans.
[41] Ms Hawksworth submits Mr Stewart’s evidence is unconvincing because there is no documentary evidence the Payments were invested in Australia other than a spreadsheet provided to Mr Oorschot and not all amounts were coded as investments or transfers to Mr Stewart’s father in Australia. There is no documentary evidence of a joint venture in Australia or what the Payments were ultimately used for and how
the plaintiff benefitted from them. There is, for instance, no evidence that the plaintiff has received any shareholding in a joint venture.
[42] Mr Stewart has not been cooperative with the liquidators. He has not responded helpfully to correspondence and he has not provided information that was requested of him. As examples, Mr Stewart did not provide information requested by the liquidators in a letter of 17 February 2020 under s 261 of the Companies Act 1993, nor did he respond constructively to a request for information by Simpson Grierson concerning the ultimate recipients of the Payments in a letter of 29 April 2020. Mr Stewart has not provided details of the investments and what the plaintiff received for them. In circumstances where the plaintiff has nothing to show for the Payments and has failed to pay over $3,000,000 in tax this is a serious concern. That said, Mr Stewart’s reticence is but one factor. There are other factors indicating the Payments were not loans.
[43] Mr Clay submits the transfer of the Payments immediately upon, or very shortly after, receipt by the defendant is inconsistent with them being loans and the defendant did not have the use of the Payments. There is no explanation why, given the modest nature of the defendant’s trading activities (as shown in the 2013/2014 financial statements), the plaintiff would make such large loans to it.
[44] The defendant’s financial statements do not record loans between the plaintiff and the defendant. Related to this, Mr Clay submits that when the Payments were made the plaintiff was trading profitably and had no knowledge of the Government’s intention to change the law which ended its business. In those circumstances, he submits, if the Payments were loans they would have been recorded in financial statements.
[45] There is a factual dispute as to the nature of the Payments. It is not usually possible on an application of this kind to resolve disputed questions of fact on affidavit evidence alone particularly when, as here, issues of credibility arise. Based on what is before me, I accept there is an arguable case the Payments were not on-demand loans.
Money had and received
[46] The plaintiff then argues the Payments are recoverable as money had and received. Ms Hawksworth submits that the defendant received the Payments without giving consideration and at that point its cause of action was complete.
[47]She referred me to Nimmo v Westpac Banking Corp where Blanchard J said:8
An action for money had and received is based on receipt of the money by a defendant who no longer has the right to retain it or has improperly disposed of it. Other than that, the claim does not depend on proof of any wrongdoing or fault on the part of the recipient. The cause of action is complete when the money is received.
[48] However, as Ms Hawksworth also recognised the remedy of money had and received is a response to a defendant’s unjust enrichment. In Civil Remedies in New Zealand the authors state:9
The claim for money had and received is available to reverse the defendant’s unjust enrichment where the subject matter of the enrichment was money. The principal circumstances in which it is used are in respect of money paid by mistake, under duress or compulsion, and where there has been a failure of basis or consideration.
…
A claim in money had and received is thus now properly regarded as a claimed response to the defendant’s unjust enrichment. The obligation imposed upon the defendant to repay the money arises as a response to the defendant’s unjust enrichment (the point at which the money is had and received).
[49] Here, I have already found there is uncertainty as to the basis upon which the defendant received the Payments. If, as the defendant contends, the Payments were investments received by it and forwarded to Australia in accordance with the plaintiff’s instructions there can be no suggestion that they are recoverable as money had and received. In such circumstances, the defendant has not improperly disposed of the Payments or been unjustly enriched by them.10
8 Nimmo v Westpac Banking Corp [1993] 3 NZLR 218 (HC) at 238.
9 P Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Brookers Ltd, Wellington, 2011) at [9.2.2].f
10 Martin v Pont [1993] 3 NZLR 25 at 28 and Nimmo v Westpac Banking Corp, above n 8, at 225.
[50]The defendant has an arguable defence to this claim also.
Is the defendant solvent?
[51] Mr Stewart asserts the defendant has always been solvent and all trade creditors, taxation liabilities, customs duties and freight accounts are paid up to date. He also says the defendant currently has no bank overdraft and has never had access to large funds. He has produced an email from a supplier as evidence of the defendant’s good financial standing.
[52] Mr Clay advised me from the Bar that the defendant’s most recent financial statements are for the year ending 31 March 2019. These are in the defendant’s bundle of documents but they are not in evidence. The plaintiff fairly objects to me considering them. In any event the accounts say nothing about the defendant’s present financial circumstances.
[53] The defendant is presumed to be insolvent as it failed to comply with the plaintiff’s statutory demand or apply to set the statutory demand aside. Mr Stewart’s evidence is simply a bare assertion of solvency. His assertion is unsupported by any meaningful documentary evidence of the defendant’s ability to meet its debts as and when they fall due or as to its balance sheet position.
[54]Due to a lack of evidence I am not satisfied the defendant is solvent.
Reasons for the delay
[55] Mr Clay urged me to consider the defendant’s failure to file its defence on time in the context of the COVID-19 pandemic and the disruption to businesses throughout New Zealand. He also submits that while the defendant failed to respond to the plaintiff’s statutory demand or file a defence to the claim Mr Stewart has made attempts by correspondence to deal with the plaintiff’s claim.
[56] Mr Stewart’s evidence is that following service of the statutory demand and this proceeding he was preoccupied managing his business due to the COVID-19 pandemic. He says, also, that he regarded the non-acceptance of his explanations by
the liquidators as bully-like tactics resulting in severe frustration. These pressures caused him, he says, to put the papers to one side which, in hindsight he accepts was wrong.
[57] The plaintiff argues Mr Stewart’s explanation is not reasonable. Ms Hawksworth submits the defendant could have complied with the prescribed timeframes but Mr Stewart chose to ignore them. The explanation that Mr Stewart was under pressure does not hold water because the COVID-19 pandemic restrictions had been eased to Level 1 when this proceeding was filed.
[58] I do not dismiss Mr Stewart’s explanation for the defendant’s failure to file a defence. To do so would be to overlook the extraordinary circumstances of the COVID-19 pandemic and the adverse effects it has had on businesses and members of the community. Those effects did not end when the pandemic restrictions were eased. I accept it is quite possible that the pandemic was a contributing factor to Mr Stewart’s failure to give this proceeding the attention it required.
Prejudice
[59] The plaintiff submits its creditors may be prejudiced by further delays if the defendant is granted leave to defend. There is no evidence of any actual prejudice. Rather, it is submitted the defendant will continue to trade while insolvent and its financial resources may diminish. The expressed concern loses its force when one considers the plaintiff was put into liquidation on 9 April 2018 and it was not until 8 May 2020, more than two years later, that a statutory demand was issued to recover the Payments. The plaintiff has not pursued its claim diligently to date.
Where does the overall interests of justice require?
[60] There are factors for and against granting the defendant an extension of time to file a defence. The defendant has not provided adequate evidence of its solvency and Mr Stewart has not cooperated with the liquidators or provided any detail of what he says are the plaintiff’s investments in Australia. There are weighty factors against exercising my discretion in favour of the defendant.
[61] Against that, the plaintiff’s claim is for a large sum and the defendant has satisfied me it has an arguable defence. Mr Stewart has provided an explanation for the defendant’s failure to file its defence on time. The defence was filed only a few days late. The plaintiff has not diligently pursued its claim since it was put into liquidation. These factors support the exercise of the Court’s discretion in favour of the defendant.
[62] Ultimately, weighing these factors, I have decided that the overall justice of the case requires the defendant be granted an extension of time to defend the plaintiff’s claim. To refuse the defendant leave to do so could lead to a miscarriage of justice.
Result
[63] The defendant’s application for an extension of time is successful. The defendant is granted leave to file a statement of defence in the form attached as exhibit A to Mr Stewart’s affidavit of 4 September 2020 by no later than 18 November 2020.
[64] This proceeding is listed for mention on 10 December 2020. Counsel are to confer and shall file a joint memorandum by no later than 8 December 2020 with a timetable for the steps necessary to dispose of this matter.
[65] The defendant has been successful but has been granted an indulgence and I have made observations concerning a lack of cooperation with the liquidators. My inclination is that costs should lie where they fall but that is not a final view. If any party seeks costs they may file memoranda within 14 days and there shall be seven days for replies. Submissions may be no longer than five pages.
O G Paulsen Associate Judge
Solicitors:
Simpson Grierson, Auckland
Layburn Hodgins Limited (T K Quirk), Christchurch
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