Eversons International Ltd (in liq) v Stewart

[2020] NZHC 3188

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2020-409-000192

[2020] NZHC 3188

UNDER

Part 12 of the High Court Rules 2016

IN THE MATTER

of an application for summary judgment

BETWEEN

EVERSONS INTERNATIONAL LIMITED

(In Liquidation) First Plaintiff

AND

VIVIAN JUDITH FATUPAITO and ELIZABETH HELEN KEENE

Second Plaintiffs

AND

EVAN KERRY STEWART

Defendant

Hearing:	2 November 2020
Appearances:	S L Hawksworth for First Plaintiff K W Clay for Defendant
Judgment:	3 December 2020

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 3 December 2020 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

EVERSONS INTERNATIONAL LTD (In Liq) v STEWART [2020] NZHC 3188 [3 December 2020]

The application

[1]                 The first plaintiff (Eversons) is a company in  liquidation.  The defendant  (Mr Stewart) was the sole director and shareholder of Eversons.

[2]                 Eversons has pleaded two causes of action. The first cause of action seeks to recover an amount said to be owing to it by Mr Stewart in his shareholder current account. The second cause of action alleges breach of duty as a director.

[3]                 This judgment concerns Eversons’ application for summary judgment on its first cause of action only. Eversons seeks summary judgment for $2,074,876 which it is alleged is the amount Mr Stewart’s shareholder current account was overdrawn by at the date of liquidation. In the alternative, Eversons seeks summary judgment as to liability on the first cause of action and directions for trial on the issue of amount.

[4]                 The summary judgment application is opposed by Mr Stewart who says he has an arguable defence to the claim on the grounds:

(a)there are demonstrable errors in Eversons’ evidence which make this claim unsuitable for summary judgment;

(b)his shareholder current account is not overdrawn;

(c)if his shareholder current account is overdrawn it should be cleared by retrospectively declaring him a substantial salary; and

(d)the claim is time barred under s 11 of the Limitation Act 2010.

The background

[5]                 Mr Stewart was at all material times the sole director and shareholder of Eversons.

[6]                 Eversons was placed into liquidation on 9 April 2018 by special resolution of its shareholders.

[7]                 Eversons owes a substantial debt, which now exceeds $3,766,118, to the Inland Revenue for unpaid tax (this sum includes interest and penalties).

[8]                 Initially, Andrew Oorschot was appointed  liquidator  of  Eversons,  but  on 30 January 2020 the second plaintiffs were appointed the joint and several successor liquidators of the company. Affidavit evidence in support of Eversons’ summary judgment application is given by the second-named second plaintiff, Elizabeth Keene (Ms Keene).

[9]                 Eversons operated a business relating to the importation and sale of synthetic legal high products. The business was very profitable. However, due to an unexpected change in the law on 7 May 2014 banning the sale of Eversons’ products, the business was lost. Eversons was bound to purchase back all products retained by retailers and to destroy any raw material and stock held.

[10]              Following the appointment of the second plaintiffs they investigated Eversons’ affairs. Ms Keene says they have reconstructed Eversons’ financial records using its bank statements. They believe they have identified payments made to or for the benefit of Mr Stewart which were not debited to his shareholder current account. The payments are as follows:

(a)an internet transfer of $2,000,000 on 1 May 2014 to an account belonging to Mr Stewart;

(b)a cheque withdrawal for $300,000 on 13 May 2014 paid to an account belonging to Mr Stewart;

(c)a cash withdrawal of $50,000 on 13 May 2014 which was signed for by Mr Stewart; and

(d)an internal banking transfer of $16,000 on 23 February 2015 to “NZNUTS (2014) Ltd” with the reference “E K Stewart drawings”.

[11]              The liquidators also  identified  that  Eversons  received  a  payment  from  Mr Stewart of $270,000 on 23 October 2014.

[12]Based on this information, Eversons filed this claim alleging that as at the date

of the liquidation Mr Stewart’s shareholder current

$2,074,876 which is made up as follows:

Credit balance of shareholders current

account was overdrawn by

account as at 31 March 2014

$21,124

Payments to or for the benefit of Mr Stewart

($2,366,000)

Funds received from Mr Stewart

$270,000

Total owing

($2,074,876)

[13]              This calculation proceeds on an erroneous basis in so far as Mr Stewart’s shareholder current account was in fact overdrawn on 31 March 2014 by $21,124.     I will return to the significance of this.

[14]              Correspondence has passed between the liquidators and Mr Stewart.   On    17 February 2020, the liquidators wrote to Mr Stewart advising of their appointment and requiring him to meet with them and provide information and documents under  s 261 of the Companies Act 1993. The letter also advised Mr Stewart that under s 274 of the Companies Act he was required to identify and deliver assets of the company to the liquidators. He was required to provide to the liquidators a list of the company’s assets and the whereabouts of those assets by 28 February 2020. Mr Stewart did not reply to that letter.

[15]              On 13 March 2020, the liquidators made demand on Mr Stewart for payment of his overdrawn shareholder current account by 20 March 2020. On 20 March 2020, Mr Stewart emailed the liquidators refuting their “assumption” his shareholder current account was overdrawn. He referred to Eversons’ 2015 financial statements (which show a credit in his current account) and to a spreadsheet he said had been prepared by his account manager that was used by his tax accountant Ronald Whiteley to prepare the financial statements. Foreshadowing the argument he now makes, he somewhat cryptically referred to investments of the company when he wrote:

You appear to conveniently overlooked [sic] or disregarded [sic] this information held by your firm and you cannot make any assumptions without being at or privy to discussions regarding these investments.

[16]              On 20 March 2020, the liquidators responded to Mr Stewart’s email stating, amongst other things, that:

(a)Mr Stewart had failed to provide the company’s information to the liquidators and attempts to contact him had been unsuccessful;

(b)the 2015 financial statements were unsigned but recorded his shareholder current account was overdrawn by $207,022 (this was also an error);

(c)the liquidators were required to look at the underlying transactions in the company’s accounts which showed advances to him totalling

$2,366,000; and

(d)according to a spreadsheet provided to the former liquidator the advances (other than the $16,000 transfer) had been referred to as “Evan Stewart Overseas Investments” and “Overseas Investments” and no information had been provided to suggest these investments belonged to the company, nor had Mr Stewart provided any details as to where those investments were located.

[17]The liquidators did not receive any further information from Mr Stewart.

A preliminary issue

[18]              Eversons objects to me considering an affidavit of Mr Whiteley, the filing of which was not provided for in timetable directions made by the Court. I have decided that  I  should  consider  the  affidavit  as  the   interests   of  justice  require  that.   Mr Whiteley’s affidavit deals with matters directly in issue. There does not appear to be any prejudice to Eversons in me receiving the affidavit as it was filed well before the hearing and Eversons could have responded to it had it wished to do so.

The summary judgment principles

[19]Rule 12.2(1) of the High Court Rules 2016 provides:

12.2 Judgment when there is no defence or when no cause of action can succeed

(1) The court may give judgment against a defendant if  the  plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[20]              The principles of summary judgment have been summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd:1

[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

Eversons’ position

[21]              Eversons sees this as a straightforward matter for the recovery of debt. It submits there is no dispute that Mr Stewart received the payments from Eversons’ bank account and they should properly be debited to his shareholder current account. The defences raised by him are said to be mere assertions unsupported by company records or other contemporaneous documentation.

[22]              In support of the claim Ms Hawksworth identified the following company law principles.

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.

[23]              First, that advances to shareholders are debts owed to the company which are repayable on demand.2

[24]                Second, funds withdrawn from a company’s bank account for the benefit of a shareholder must be debited to that shareholder’s current account.3 In Madsen-Ries v Petera the Court said:4

[18]   … the lack of company records meant that the liquidators were forced to reconstruct the company’s transactions using bank statements obtained from the banks. This process led the liquidators to conclude that [the shareholders] had withdrawn or used substantial sums from the company’s bank accounts for their own purposes. In the absence of any contemporaneous records regarding the purpose of these payments, the liquidators have treated the payments as drawings that must be debited to the shareholders’ current account.

[19]      There can be no dispute that drawings of this type are debts owed by the shareholder to the company, and are repayable on demand. They retain that status unless and until a resolution of the shareholders or directors provides them with a different characterisation or classification.

[25]              Third, the liquidator is entitled to rely on company records to establish the nature of transactions involving the company and where there are deficiencies in the company records that is the responsibility of the director. Ms Hawksworth referred to McKay Builders Ltd (in liq) v McKay where Mander J said:5

[14] … It is a director’s duty to ensure that a company’s records correctly record and reflect the company’s transactions, and a director will be accountable for a failure to keep and maintain proper accounting records.

…

[18] … A director is obliged to account to the company for its funds, and it is incumbent upon him or her to explain what has become of the company’s property in their hands.

2      East Coast Aluminium Ltd (in liq) v Perry [2018] NZHC 317 at [19].

3      Madsen-Ries v Petera [2015] NZHC 538 at [18]; McKay Builders Ltd (in liq) v McKay [2017] NZHC 1202 at [13].

4      Madsen-Ries v Petera, above n 3 (footnotes omitted).

5      McKay Builders Ltd (in liq) v McKay above, n 3 (footnotes omitted).

Grounds of defence

Errors in the liquidators’ approach

[26]              Mr Clay submits that there are demonstrable errors in the liquidators’ evidence and disputes of fact which make this case unsuitable for summary judgment.

[27]              First, the claim is based on a misreading of Eversons’ financial statements. The liquidators have proceeded on the basis that Mr Stewart’s shareholder current account was in credit as at 31 March 2014 and in debit in each of the following three financial years. In fact, Mr Stewart’s shareholder current account was in debit for $21,124 as at 31 March 2014 and is shown in the financial statements for the 2015, 2016 and 2017 years to have been in credit for $207,022, $207,340 and $212,830 respectively. The liquidators do not dispute this, but they do not accept the 2015, 2016 and 2017 financial statements are correct.

[28]              Second, Ms Keene says that because there were “no finalised and signed company records or financial statements after 2014” Eversons’ financial records were reconstructed. However, it appears the financial statements for 2015, 2016 and 2017 were finalised and submitted to the Inland Revenue Department. As Eversons was a closely held company the Inland Revenue Department did not require the financial statements to be signed.

[29]              Third, although not raised by Mr Clay, I am not satisfied the liquidators have reconstructed Eversons’ financial statements. They have produced no reconstructed financial statements. The only reconstruction appears to relate to Mr Stewart’s shareholder current account. In that regard, all the liquidators appear to have done is identify five transactions and applied them to what they incorrectly understood was the balance in Mr Stewart’s shareholder current account as at 31 March 2014. On the basis of that they assert the resulting sum represents a debt owed by Mr Stewart as at the date of liquidation. There has been no apparent consideration of other transactions between Eversons and Mr Stewart from 31 March 2014 to 9 April 2018 (when Eversons went into liquidation) or any attempt to reconcile his shareholder current

account balances as shown in the 2015, 2016 and 2017 financial statements. The liquidators’ claim therefore rests on an unsatisfactory foundation.

[30]              Mr Stewart also takes issue with matters pleaded in the statement of claim concerning Eversons’ solvency as at 31 March 2014 and its dealings with the Inland Revenue which he says are factually incorrect As these relate to Eversons’ second cause of action I need not consider them.

[31]              The consequence of the matters referred to above in [27]-[29] is that I cannot be satisfied as to the integrity of the liquidators’ reconstruction exercise. Even if I considered all or some of the payments in issue were advances to Mr Stewart, the amount (if any) for which he is indebted could not be determined on this application. That would leave open the possibility that judgment might be entered against him on liability but, for reasons that follow, that is not appropriate.

Is the shareholder account overdrawn?

[32]              Mr Stewart’s position is that his shareholder current account is not overdrawn. He relies on the financial statements that show his account was in credit in all of the 2015, 2016 and 2017 years. In respect of the four payments Eversons claims were advances to him, Mr Stewart says:

(a)the internet transfer of $2,000,000 on 1 May 2014 was not an advance but an investment made in Australia on behalf of Eversons;

(b)the cheque withdrawal for $300,000 on 13 May 2014 was not an advance but was an amount held by him to pay residual GST on behalf of Eversons that was subsequently deposited back into Eversons’ bank account for that purpose (being the payment of $270,000 on 23 October 2014);

(c)he accepts the cash withdrawal of $50,000 on 13 May 2014 should properly be recorded as drawings but says it would have been included as such in the 2015 financial statements; and

(d)he accepts the internal banking transfer of $16,000 on 23 February 2015 was drawings but says it was already taken into account in calculating the credit balance in his shareholder current account.

The $2,000,000 payment

[33]              In April 2014 Eversons had a substantial amount in the bank. Mr Stewart says he decided it would be prudent to invest through his lawyer on behalf of Eversons in Australia but leaving enough in the bank to cover GST payable one week later. He says he was unaware at the time the law was about to change and cut Eversons’ cashflow overnight.

[34]              Eversons’ bank statements show on 1 May 2014 a credit balance of $3,421,236 and a withdrawal of $2,000,000 that day. There is then a further withdrawal on 7 May 2014 of $1,051,729, which I understand is said to be for GST.

[35]              Mr Whiteley is a registered tax practitioner. He acted for Eversons from its incorporation. Consistent with Mr Stewart’s evidence, Mr Whiteley says in late-April 2014 he gave Mr Stewart advice that it would be prudent to make investments using Eversons as the vehicle because of favourable tax rates.

[36]              Ms Hawksworth argues I can safely reject Mr Stewart’s evidence. She refers to the absence of any company records which adequately explain that investments were made for the benefit of Eversons. She submits that as the sole director of Eversons Mr Stewart was responsible for keeping such records and providing them to the liquidators.

[37]              Ms Hawksworth’s submission is not strictly correct. All of Eversons’ financial statements have balance sheet entries for “Overseas Investments”. The financial statements in the year to 31 March 2015 record an increase in the value of these overseas investments from $4,016,327 to $6,592,166, an increase of more than

$2,500,000. That is also consistent with Mr Stewart’s evidence.

[38]              Ms Hawksworth also submits a spreadsheet provided to the liquidators by  Mr Oorschot contradicts explanations given by Mr Stewart as to the nature of the

payments. In the case of the payments of $2,000,000, $300,000 and $50,000, these are recorded in the spreadsheet as “Evan Stewart Overseas Investments”. She says there is nothing in the spreadsheet that identifies what those overseas investments were or that they were for the benefit of the company rather than Mr Stewart personally. She notes also that the payment of $50,000 is coded in the same way as the other two payments and Mr Stewart now accepts that is to be treated as an advance.

[39]              However, against that, Mr Whiteley has given evidence that had the payments been intended to be personal drawings they would have been coded as non-GST personal expenses which they were not. He also says he coded the payments into his ledger system as  “7470  Property  Investment”  according  to  his  knowledge  of  Mr Stewart’s intention that these were overseas investments.

[40]              There is reason to view Mr Stewart’s evidence with scepticism. He has not co- operated with the liquidators. He has not provided details of the investments or relevant company records. I have had cause to comment on this in other related proceedings.6 Despite Eversons’ financial statements indicating the company had, as at 31 March 2017, overseas investments exceeding $6,592,166, the liquidators have not been able to locate any overseas investments belonging to the company and have not seen  any  documents  that  prove  such  investments  exist.  As  noted  above,  Mr Stewart has failed to respond to a request by the liquidators under ss 261 and 274 of the Companies Act seeking, amongst other things, details of the company’s assets and also basic company records. It is notable also that Mr Clay advised at the hearing that his instructions did not allow him to assist the Court further as to the nature of the investments.

[41]              However, standing back and looking at all the evidence before me I cannot, on an application of this kind, be satisfied Mr Stewart’s defence that the $2,000,000 payment was not an advance is unarguable. There is evidence, including the company’s financial statements, which provide support for Mr Stewart’s assertion that the money was invested on behalf of Eversons. There are further inquiries that the liquidators can and will need to make to determine the correct position. There are, of

6      Eversons International Ltd (in liq) v Bionutrient Customs Ltd [2020] NZHC 2989 at [42].

course, many tools available to them under the Companies Act and by way of discovery (including non-party discovery) in this litigation to do so. However, the issue raised by Mr Stewart cannot be determined in a summary judgment context.

The $300,000 payment

[42]              Mr Stewart says that on 13 May 2014, and after being shocked by the unexpected law change, he withdrew $300,000 from Eversons’ bank account as he knew this would be needed to pay residual GST. He says the $270,000 deposited into Eversons’ bank account on 23 October 2014 was used to pay the GST. On this basis he was holding the $300,000 on behalf of Eversons for its later use to pay its tax liability and it was not an advance.

[43]              Eversons’ bank statements show a withdrawal of $300,000 on 13 May 2014. On 23 October 2014, the opening balance in the account was just $26,669 and an amount of $270,000 was deposited that day. On 28 October 2014, two payments were made from the account to Inland Revenue totalling $269,505.

[44]              Mr Whiteley says that upon the Government law change on 7 May 2014 he advised Mr Stewart that he would have to account for approximately $300,000 of GST up to the end of September 2014. He also says he suggested this amount be removed to enable the payment to be made.

[45]              There is in evidence a letter on 4 April 2018 from Dale Lester, then a barrister engaged by Mr Stewart, to Mr Oorschot. Mr Lester’s letter is not altogether clear but at the time it does not appear to have been contemplated a claim would be made against Mr Stewart for recovery of his shareholder current account. There are aspects of the letter that might be considered  broadly  consistent  with  Mr Stewart’s  evidence.  Mr Lester wrote:

In addition, Mr Stewart paid into the company some $270,000.00 from his own funds to meet the company’s GST obligations, given the trust status of GST funds. Again, the only reason Mr Stewart had removed these funds from the company was that he had a completely reasonable expectation that GST would be met from ongoing cashflow. Further, the company had to meet the costs of disposal of the product, which had to be destroyed in accordance with strict requirements as imposed by the Government and under Police

supervision. The approximate cost of that exercise was a loss of $5m in lost raw materials, wasted processing and packaging costs.

[46]              Ms Hawksworth submits there is no evidence the $270,000 introduced  by  Mr Stewart comprised the same funds withdrawn in May 2014. She also says it is not clear why Mr Stewart thought it necessary to remove $300,000 from the bank account to pay GST five months before it fell due. She again referred to the spreadsheet and also to the absence of any explanation from Mr Stewart as to what happened to the balance of $30,000 that was not repaid to Eversons.

[47]              There is force in Ms Hawksworth’s submissions but again I am unable on this application to resolve a factual dispute as to the nature of the payment. Mr Stewart’s explanation is to my mind implausible but not sufficiently so for me to reject it summarily. Mr Whiteley’s evidence suggests Mr Stewart was acting on his advice and is consistent with the payment of the $270,000 to Eversons at a time when it would not otherwise have been able to pay its GST. Again the issue is unsuitable for determination in a summary judgment context.

The $50,000 and $16,000 payments

[48]              It is now accepted that these amounts are to be treated as drawings. In the case of the $16,000 payment Mr Stewart says it has already been taken into account. In any event, Eversons’ financial statements in the 2015, 2016 and 2017 years show  Mr Stewart had credit balances in his shareholder current account exceeding the sum of these two payments (as well as the balance of $30,000 from the $300,000 payment it appears he retained). The liquidators have not reconciled his current account balances in any of those years and I cannot be satisfied the financial statements cannot be relied upon. I cannot therefore be satisfied that Mr Stewart is indebted to Eversons in any amount.

Any current account debt should be cleared.

[49]              Mr Stewart argues that if his shareholder current account is overdrawn as a result of the liquidators reconstructing the company’s financial statements he should

be entitled to retrospectively classify any additional drawings as salary. I reject that submission. The issue arose in Madsen-Ries v Petera where Lang J said:7

[45] It is not now possible for Mr and Mrs Petera to attempt to reclassify the funds that they withdrew or spent from the company’s bank accounts as wages or salary when neither they nor the company have ever classified them in that way before. They may well have caused the payments to be made in the belief or expectation that they would ultimately be classified as salary or wages. Unfortunately, however, that step was never taken. The payments therefore retain their status as advances or drawings that are repayable on demand.

[50]              Mr Clay submitted that Madsen-Ries is distinguishable on the basis Mr Stewart received salary in previous years. I do not accept that submission. As Lang J made clear, even if there is an expectation that drawings will ultimately be classified as salary, that is of no consequence if the step is not taken.

The limitation defence

[51]              Mr Stewart relies upon a limitation defence. Mr Clay argues any advances made to Mr Stewart were repayable by him without the need for Eversons to have made any formal demand.8 As the $300,000 and $50,000 payments  were made on  13 May 2014 (and the $2,000,000 payment some time earlier) Mr Clay argues that time began to run for the bringing of a claim to recover them from 13 May 2014 and had expired by 13 May 2020 when this claim was filed. He disregards the $16,000 payment as it was always, he says, treated as personal drawings in the financial statements and should not form part of the claim.

[52]              Ms Hawksworth did not directly challenge that analysis and both counsel appeared to proceed on the basis that Eversons’ claim was arguably time barred subject only to time beginning anew if the payment of $270,000 made by Mr Stewart was a part-payment in respect of his liability engaging s 47 of the Limitation Act 2010. I do not consider this is correct.

7      Madsen-Ries v Petera, above n 3, citing Thom Contractors Ltd (in liq) v Thom HC Auckland CIV-2008-404-6829, 28 April 2009 at [26] and Chesterton Holdings Ltd v Durney HC Napier CIV-2011-441-007, 19 May 2011 at [27].

8      Garden v Bruce (1868) LR 3 CP 300; Anchorage Management Ltd v Oldham (1997) 11 PRNZ 110 (HC) at 114; Joseph Lynch Land Company v Lynch HC Palmerston North CP43/92, 25 June 1992 at 6-7 and Thomas Gault (ed) The Laws of New Zealand (online edition, LexisNexis) Limitation of Civil Proceedings at [61].

[53]              Eversons is making a money claim subject to a six-year limitation period under s 11(1) of the Limitation Act. Section 11(1) provides:

It is a defence to a money claim if the defendant proves that the date on which the claim is filed is at least 6 years after the date of the act or omission on which the claim is based (the claim’s primary period).

[54]              The words in s 11(1) “at least 6 years after the date of the act of omission on which the claim is based” engage s 35(2) of the Interpretation Act 1999 which provides:

A period of time described as beginning from or after a specified day, act, or event does not include that day or the day of the act or event.

[55]              Applying s 35(2), as the payments of $300,000 and $50,000 were made on  13 May 2014 Eversons’ claim to recover them would not be time barred until 14 May 2020. As the claim was filed on 13 May 2020 it was in time.9

[56]              The position is different in respect of the $2,000,000 payment as it was made on 1 May 2014. It is therefore necessary to consider Eversons’ argument that s 47 of the Limitation Act was engaged.

[57]              Under s 47, where a claimant proves 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.

[58]Section 47 relevantly provides:

47 Acknowledgment or part payment

(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.

9      JC Corry Limitation Act Handbook (Lexis Nexis, Wellington, 2011) at 11 and Perrott-Hunt v Johnston [2018] NZHC 2568.

(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.

(4)       …

[59]              Ms Hawksworth submits that when Mr Stewart made the payment of $270,000 into Eversons’ bank account that was a payment in respect of his overdrawn current account.   Ms  Hawksworth argues there was no  other debt owed to Eversons by   Mr Stewart to which the funds introduced could be assigned and time began to run afresh. She referred me to GL Investment and Development Ltd (in liq) v Gao where the High Court considered the effect of a part-payment in the context of a claim for a shareholder current account under the predecessor of s 47.10 There, the Court held that payments made by Mr Gao to the company were payments in respect of his shareholder debt and, therefore, the six year limitation period began to run from the date of the last payment. The Court said:11

… There is no dispute that Mr Gao made such payments and, in my view, the only inference to be drawn is that Mr Gao made them “in respect of” his current account debt. There was no other reason for him to make the payments. Accordingly the six-year limitation period on the debt began to run on 5 May 2010, and the proceedings were brought within time.

[60]              I am unable to accept Ms Hawksworth’s submission. In the present context, before s 47 is engaged, a part-payment must be in respect of Mr Stewart’s liability for which Eversons sues. The character of the payment is critical.

[61]              In Surrendra Overseas Ltd v Government of Sri Lanka Kerr J said concerning s 23(4) of the Limitation Act 1939 (UK):12

A part-payment, like an acknowledgment, can only revive the cause of action and start time running afresh if it provides evidence in the form of an admission by the debtor that the debt remains due despite the passage of time.

10     GL Investment and Development Ltd (in liq) v Gao [2018] NZHC 868, [2019] NZCCLR 17.

11 At [42].

12     Surrendra Overseas Ltd v Government of Sri Lanka [1997] 1 WLR 565 (QB) at 576.

This is consonant with the authorities. In Cottam v Partridge (1842) 4 Man & G. 271, 280 the doctrine of part-payment was in my view correctly described in the argument as “payment of money in part-payment of the whole debt, which is an acknowledgment of a debt being due, not in words, but by an act done.” Tindal CJ said, at p 287:

The ground on which part-payment was previously held to take the case out of [the Limitation Act 1623] was, that a payment of a part was an admission of the rest by inference, and that, from such payment, a jury might conclude that the rest was due.

In In re Oliver [1927] 2 Ch 323, 331 Tomlin J said:

But the common law has always recognised that payment on account of something in respect of which the statute is set up may amount to a fresh promise to pay and found a fresh cause of action … It seems to me plain that any payment which is to have that effect must be a payment made in respect of that which it is sought to recover.

And in In re Footman Bower & Co Ltd [1961] Ch 443, 449 Buckley J said:

For a payment to have this effect it was necessary that it should amount to an acknowledgment of the debt and import a new promise to pay the outstanding balance. The mere act of the creditor appropriating a payment to a statute-barred debt could not have this effect, for such an acknowledgment and promise could only come from the debtor. Since the enactment of the Limitation Act, 1939, the position is different, for section 23(4) now contains a statutory provision applicable to simple contract debts whereby any payment in respect of a debt will make time start to run afresh in respect of that debt. There is no longer need to establish a new promise to pay. In my judgment, however, one must still look at the act and intention of the debtor to see whether the payment is made in respect of the particular debt. Payment is in this subsection dealt with in close conjunction with acknowledgment. Just as an acknowledgment can only acquire that character by the act of the debtor or his agent, so also, I think, a payment can for the purposes of this subsection only acquire the characteristics of being made “in respect of” the debt by the act of the debtor or his agent.

[62]              Here Eversons cannot satisfy me that s 47 is engaged because there is a dispute of fact that I cannot determine as to the nature of the $270,000 payment. Mr Stewart says it was not made in respect of a current account liability as he did not have any such liability. In making the payment he was, he says, returning money he was holding for the company to pay its GST liability and there does not appear to be any dispute that is in fact what it was used for. This case is distinguishable from GL Investment & Development Ltd (in liq) v Gao because on the evidence there is another reason provided for the payment made by Mr Stewart other than to reduce a current account liability.

[63]              I am satisfied that in respect of the $2,000,000 payment there is an arguable defence that Eversons’ claim to recover that as a debt is time barred.

Result

[64]The first plaintiff’s application for summary judgment is dismissed.

[65]              The Registrar is to set the case down for its first case management conference in the New Year and counsel shall file preferably a joint memorandum not later than three working days before the conference addressing all Schedule 5 High Court Rules matters.

[66]              Mr Clay has asked to be heard on costs. The usual rule is that costs in these circumstances are reserved.13 If, despite that and the findings I have made concerning Mr Stewart’s failure to co-operate with the liquidators, Mr Stewart wishes to pursue a claim for costs, he may file submissions within seven days with seven days reserved to Eversons to respond.

O G Paulsen Associate Judge

Solicitors:

Simpson Grierson, Auckland

Layburn Hodgins Limited (D K Quirk), Christchurch

13     NZI Bank Ltd v Philpott [1990] 2 NZLR 403, (1990) 3 PRNZ 695 (CA).