Food Brands Group Limited v YK Food Service Limited
[2025] NZHC 210
•19 February 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-000512
[2025] NZHC 210
BETWEEN FOOD BRANDS GROUP LIMITED
Plaintiff
AND
YK FOOD SERVICE LIMITED
Defendant
Hearing: 13 February 2025 Appearances:
U A Kuddus for the Plaintiff
G Holm-Hansen and R F Jagose for the Defendant
Judgment:
19 February 2025
JUDGMENT OF ASSOCIATE JUDGE COGSWELL
This judgment was delivered by me on 19 February 2025 at 11.30 a.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Hesketh Henry, Auckland Phoenix Law Ltd, Wellington
FOOD BRANDS GROUP LTD v YK FOOD SERVICE LTD [2025] NZHC 210 [19 February 2025]
Introduction
[1] The plaintiff issued three statutory demands to the defendant for debts it says are owing to it following the termination of a franchise.
[2] The defendant did not respond to the statutory demands and the plaintiff now seeks to liquidate the defendant.
Issues
[3]There are two issues to be determined in this application. They are:
(a)was service of the statutory demands effective; and
(b)if so, should the Court exercise its discretion not to liquidate the defendant.
Background
[4] The defendant was the franchisee of a café in the Botany Town Centre, Auckland. The plaintiff was the franchisor.
[5] The franchise was terminated on 13 December 2023. The plaintiff terminated the defendant’s licence to occupy the café premises and took possession of the café. This included taking over the employment of the defendant’s employees.
[6] Disputes existed between the parties before termination of the franchise and following its termination.
[7] The defendant commenced proceedings in the Disputes Tribunal against the plaintiff alleging it had wrongly detained its chattels. That claim was filed on 7 January 2024.
[8] On 15 February 2024 the plaintiff issued three statutory demands for amounts it claimed were outstanding. The statutory demands relate to debts for unpaid franchise fees, rental and various other amounts arising from the franchise business.
[9] The defendant says that it has defences and set offs to each of the statutory demands.
[10] At a hearing in the Disputes Tribunal on 27 February 2024, the plaintiff advised the Tribunal that they had commenced a claim against the defendant in the District Court seeking damages. As a result of that advice, the Disputes Tribunal transferred its claim to the District Court to be heard together with the plaintiff’s claim. The plaintiff had not in fact commenced a claim against the defendant at that time.
[11] There are now two proceedings on foot in the District Court, one between the plaintiff and guarantors under the franchise agreement and one between the defendant and the plaintiff. The two proceedings have been consolidated and are scheduled to be considered at a judicial settlement conference allocated as a backup fixture on 26 February 2025, and a firm fixture on 6 June 2025.
Procedural issue
[12] On 10 February 2025 the plaintiff filed a memorandum seeking orders that the Disputes Tribunal be directed to release a transcript of the 27 February 2024 hearing and that this application be adjourned to allow that to occur.
[13] This is because there is a dispute about whether the Disputes Tribunal forwarded copies of the three statutory demands to the defendant at the hearing on 27 February 2024.
[14] This liquidation proceeding has been on foot for almost 12 months. The plaintiff’s reply evidence was originally directed to be filed by 15 November 2024. No reply evidence has been filed.
[15] The application for an order that the Disputes Tribunal transcript be released is declined. The plaintiff knew from the statement of defence dated 8 April 2024 that
the defendant denied receipt of the statutory demands. It has had ample time to seek the transcript and to give evidence on the issue of service. The Court is not prepared to adjourn this hearing to allow that late application to proceed.
Service
[16] The plaintiff’s statutory demands were to be served in accordance with s 387 of the Companies Act 1993 (Act).
[17] All were served together on the same date. The statutory demands were served at the defendant’s registered office.
[18] The process server says that he served the defendant by leaving the statutory demands at the registered office of the defendant by handing the demands to Lisa Lam, who advised the process server that she was an employee of the defendant. Specifically, he said:
The documents were accepted by an employee Lisa Lam who confirmed that she was an employee of [the defendant] and that the location was [the] registered office of [the defendant]… I believe it was [the defendant] that I served because the person who accepted the documents acknowledged that they were an employee of [the defendant].
[19] One issue raised in the hearing was whether Ms Lam was an employee of the defendant or not. That issue is not determinative of the service point.
[20] Ms Lam was not an employee of the defendant at the time the statutory demands were served. That is because the plaintiff cancelled the defendant’s licence and occupied the business premises from 13 December 2023, running the café and employing the employees from that time.
[21] Counsel for the plaintiff attempted to persuade the Court that the process server’s evidence that Ms Lam confirmed she was an employee of the defendant must be accepted. However, applying a common sense approach to the process server’s evidence demonstrates that that cannot have been correct. That is no criticism of the process server, he was reporting what he was told.
[22] Ms Lam cannot have been an employee of the defendant in February 2024 as the defendant was not in occupation of the premises, the plaintiff was. Perhaps Ms Lam misunderstood what she was being asked.
Compliance with s 387(1)(b) – service by delivering the demands to an employee of the defendant at the defendant’s head office or principal place of business
[23] In Richard Zhao Lawyers Ltd v Chen,1 the Court held that there was no compliance with s 387(1)(b) of the Act where a document was left with a person who was not an employee of the defendant and there was no compliance with s 387(1)(c) either because the document was not physically left at the registered office. There was no evidence that the document had been brought to the attention of the defendant.
[24] If the demands were left with an employee of the defendant at the defendant’s head office or principal place of business, that would be compliance with s 387(1)(b). Ms Lam was not an employee of the defendant. It is not known what she did with them. By February 2024, the address where service occurred was neither the defendant’s head office nor its principal place of business. There was no compliance with s 387(1)(b) of the Act.
Compliance with s 387(1)(c) – service of the demands by leaving them at the defendant’s registered office or address for service
[25]The demands were left at the defendant’s registered office.
[26] The defendant admits that it had not changed its registered office address as at the date of service. I find that the technical service requirement of s 387(1)(c) of the Act was achieved by service of the demands at the defendant’s registered office. That is even though the act of service may have been by handing the demands to a person at the registered office who was not an employee.
1 Richard Zhao Lawyers Ltd v Chen [2015] NZHC 3230.
[27] In Denize Trustee Company Ltd v Waimauri Limited,2 the Court held that handing the documents to a person at the registered office was technical service under s 387(1)(c) of the Act. The Court held that it would be strange to hold otherwise where service at the registered office could be carried out by leaving documents on the ground; throwing them down at a person’s feet; leaving them on a counter or table in front of a person; pushing the documents through a letter box; wedging them under a door or affixing them to a front door.
[28]In this case, therefore, technical service occurred.
[29] That being so, the next question is what effect the defendant’s lack of knowledge of the demands has on the effectiveness of service.
The two-stage approach to service
[30] In Denize the Court considered s 387(1)(c) of the Act and held that the section requires a two-stage approach: first, determining whether there is technical compliance with s 387(1)(c) of the Act, and second, whether the service was “effective” in the sense of there having been some reasonable prospect of the notices being brought to the defendant’s attention so as to ensure no miscarriage of justice would result from allowing the notices to stand and the mortgagee sale to proceed.
[31] That second stage of the assessment could involve a consideration of the following matters:
(a)whether any shortcomings in the “efficacy” of service are attributable to honest mistake or ignorance or, conversely, sharp or otherwise deliberate conduct on the part of the notice-giver;
(b)whether there was a sufficient connection between a person to whom the documents were handed and the address for service;
2 Denize Trustee Company Ltd v Waimauri Ltd [2020] NZHC 1718 at [30].
(c)whether the recipient company’s unreasonable actions, especially any delinquency in registering a new address for service, have rendered achieving effective “service” impossible or impracticable; and
(d)the consequences for the recipient company if relief is not granted, and the seriousness of those consequences for the recipient company.
[32] The defendant has filed an affidavit which denies receiving the statutory demands until the plaintiff served the defendant with its substantive liquidation proceedings on 21 March 2024.
[33]Some citation from Ms Kang’s affidavit is of assistance.
[29] There was a hearing that was conducted by telephone conference. In opposing YK Foods Claim, Mr Alhardan told that Disputes Tribunal referee Food Brands had already filed proceedings against YK Foods.
[30] I understand Mr Alhardan provided copies of the statutory demands to the Disputes Tribunal’s email address on 27 February 2024. Mr Alhardan did not copy me in on that email and I did not receive it until Food Brands’ solicitor provided it to Hesketh Henry as part of Food Brands’ application to the High Court to liquidate YK Foods.
[31] I did not know anything about the proceedings that Mr Alhardan was referring to, and this was the first time I had heard anything about them. I had not seen any statutory demands.
[41] I did not receive a copy of the Demands on 16 February 2024 and did not receive any contact from Food Brands or Mr Alhardan saying that demands had been served.
[42] I first became aware of the existence of the Demands on 21 March 2024, when these Proceedings were served on me personally at my house, along with copies of the Demands. I did not receive any copies of the statutory demands before this point. I understand that Food Brands’ lawyers say the Demands were submitted to the Disputes Tribunal; however, they were not passed on to me and we only received copies from Food Brands’ lawyers as part of this proceeding.
[48] If the Demands had been brought to my attention, YK Foods would have applied to set them aside because they contain errors, are disputed, and because the disputed claims are being progressed in the District Court, which I describe below.
[34] The plaintiff’s argument on the validity of service rests squarely on an argument that technical compliance was achieved.
[35] In Denize, the Court held that it had a discretion to prevent a party relying on service validly effected under s 387(1)(c) of the Act if service was, nonetheless, not “effective”.
[36] The Court said that the efficacy of service was just part of a wider inquiry into whether reliance on the service rules would otherwise create a miscarriage of justice. That is the key question at the second stage of the analysis.
[37] A purposive and common usage approach is taken to application of s 387(1)(c) of the Act in terms of assessing technical compliance at the first stage of the analysis, but the residual discretion enables the Court to balance the conflicting policy objectives underpinning that provision. It provides appropriate protection to companies against the consequences of validly served notices of which they had not fairly become aware, which would be contrary to the purpose of the service rules.3
[38] The question in the present case is whether there would be a miscarriage of justice where the defendant has given evidence that the person served was not the defendant’s employee and the defendant never saw the demands until liquidation proceedings were served.
[39] I was asked to draw an inference that the Disputes Tribunal forwarded the statutory demands to the defendant company at the hearing in the Disputes Tribunal on 27 February 2024. However, there is no evidence to support that proposition and I do not accept it.
[40] I consider that whilst technical compliance may have been achieved, the defendant was never made aware of the substance or perhaps even the existence of the statutory demands until after the time to respond to them had well expired.
[41] The defendant gave evidence that had they received them, they would have applied to set them aside. That they would have done so is supported by their conduct.
3 Denize, above n 2, at [34]–[36].
[42] The defendant is currently engaged in proceedings in the District Court that involve claims the subject of the statutory demands. The total of the defendant’s claims, counter claims and set-offs in the District Court exceeds the amount of the statutory demands.
[43] The defendant has provided detailed evidence setting out with specificity the grounds on which it considers the statutory demands are invalid and that it has counterclaims or set offs that exceed the amount sought in those demands.
[44] Accordingly, a miscarriage of justice would occur should the plaintiff be permitted to continue to seek liquidation on the basis of statutory demands the defendant never saw.
[45]I find that:
(a)technical compliance with s 387(1)(c) of the Act was achieved by service of the statutory demands at the defendant’s registered office;
(b)notwithstanding that technical compliance, I find that service should not stand due to a miscarriage of justice, because the defendant never received copies of the statutory demands before they expired and so was deprived the opportunity to challenge them. I consider that the defendant has arguable defences to all amounts claimed in the statutory demands that should be determined.
That is sufficient to dispose of this application.
Discretion
[46] For completeness I now turn to consider whether, if service should stand, would I have exercised my discretion not to liquidate the defendant.
[47] The Court retains an unfettered discretion whether or not to appoint a liquidator, even if it is satisfied that one of the grounds in s 241(4) of the Companies
Act 1993 have been established. Liquidation orders are not appropriate where they are founded on debts which are genuinely disputed.4
[48] While a failure to respond to a statutory demand gives rise to a presumption of insolvency, the Court may still consider at the liquidation stage whether grounds are established which would have justified setting aside the statutory demand.5
[49] Had I been required to do so, I would not have made an order liquidating the defendant. The debts the subject of the statutory demands are clearly and genuinely disputed by the defendant.
[50] This is not a case where the defendant comes to Court alleging without support that there is a dispute which is yet to be explained or determined. Ms Kang’s detailed evidence raises a strong prima facie case that the debts are genuinely disputed. Each statutory demand is responded to fully, and in detail and without prevarication.
[51] I consider that the statutory demands are bona fide disputed. They were not effectively served.
[52] In all the circumstances I would not have been prepared to liquidate the company, relying on my discretion not to do so.
Orders
[53]The plaintiff’s application liquidation is dismissed.
[54]The defendant company is entitled to costs.
[55] Ordinarily these costs would be at scale 2B. The defendant company has indicated an intention to seek costs higher than scale. I invite the parties to confer regarding costs.
4 Nemesis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC).
5 Heron’s Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424.
[56] If they are unable to agree costs, then they are to file sequential memoranda as to costs of not more than five pages, with the plaintiff filing its memoranda as to costs five working days after receipt of the defendant’s memorandum as to costs.
[57]Costs will be determined on the papers.
Associate Judge Cogswell
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