Jaques v Sirdar Limited HC Wellington CIV 2010-485-421
[2010] NZHC 828
•30 April 2010
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2010-485-421
UNDER the Companies Act 1993
IN THE MATTER OF an application to liquidate a company
BETWEEN DAVID ARTHUR JAQUES Plaintiff
ANDSIRDAR LIMITED Defendant
Hearing: 29 April 2010
Appearances: D.A. Jaques - the plaintiff in person
N.W. Hughes - counsel for the defendant
Judgment: 30 April 2010 at 30 April 2010
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment was delivered by Associate Judge Gendall on 30 April 2010 at 3.00 pm pursuant to r 11.5 of the High Court Rules.
Solicitors: Hughes Robertson, Lawyers, PO Box 2513, Wellington 6011
DA JAQUES V SIRDAR LIMITED HC WN CIV-2010-485-421 30 April 2010
Introduction
[1] Before the Court is an application by the defendant for orders first, restraining advertising of an application by the plaintiff to place it into liquidation and secondly, staying those liquidation proceedings. The application is brought pursuant to Rules 31.9 and 31.11 High Court Rules. The application is opposed by the plaintiff.
Background Facts
[2] There are two debts alleged to be owing by the defendant which are the subject of this proceeding. Statutory demands were issued by the plaintiff and served on the defendant on 17 December 2009. The plaintiff was until 11 December 2009 an employee under a “Contract for Services” of the defendant and the debts claimed are for wages and expenses payments said to be due to the plaintiff for work he carried out under this contract.
[3] The first debt in question is for the sum of $1,177.30 and it relates to reimbursement of expenses said to be incurred by the plaintiff as part of his services undertaken for the defendant for which he claims no payment has been received from the defendant. The second debt in question is for $5,625.00 and, according to the plaintiff, represents unpaid contract wages for work completed by the plaintiff for the defendant for the period 30 November 2009 to 11 December 2009.
[4] In its present application the defendant contends that these debts are strongly disputed. The defendant maintains that in actual fact it is the plaintiff who is potentially liable to the defendant here. This is said to be for significant damages relating to what the defendant alleges are substantial breaches of the plaintiff’s services contract with the defendant.
[5] As I have noted, the plaintiff was employed by the defendant under a “Contract for Services” signed by the parties on 28 April 2009 for a period commencing 30 March 2009 to carry out work in a position described as “Lead Expedition Manager”.
[6] Under this Contract for Services the plaintiff was under obligations both as to restraint of trade and as to confidentiality with regard to the employment relationship. In particular the plaintiff agreed under a restraint of trade clause during the 6 month period following termination of the contract for services not to solicit, interfere with or endeavour to entice away from the defendant any of its customers or to solicit the services of or entice away from the defendant any partner employee or consultant of the defendant.
[7] In addition, in the Contract for Services the plaintiff agreed under a confidentiality clause to the following:
12.1 Any commercial information or material regarding any of the Sirdar companies, or its clients businesses, which the contractor comes into contact with is confidential to and the commercial property of Sirdar.
12.2During the contract or after the termination of the contract, the contractor will not disclose to any unauthorised person any confidential information relating to the operations of Sirdar or its clients, acquired by the contractor in the course of exercising any responsibilities under this contract.
12.3 The names, addresses, and contact numbers of the clients of Sirdar constitute commercial information and may not be used except as authorised by the Chief Executive.
[8] The defendant’s position here is that the plaintiff has breached both the restraint of trade clause and the confidentiality obligations under the Contract for Services. It is said he has done this by, amongst other things, attempting to usurp the clients of the defendant by falsely asserting to them that the defendant had ceased to trade and that they should now deal with him direct. It is the defendant’s position that this occurred at least in part during December 2009 when the plaintiff was still employed by the defendant (and during periods for which he claims wages and expenses in the invoices which are the subject of the statutory demands).
[9] At present, as I understand the position, proceedings are in progress in the District Court between the plaintiff and the defendant by way of claim and counter claim to resolve these issues.
[10] A further matter has been brought in issue here. This relates to a Share Sale
Agreement entered into on 7 September 2009 by the plaintiff as purchaser and Carl
Michael Bates and Raewyn Ann Bates (as trustees for Sirdar Global Group Limited) as vendors for a 40% share-holding in a related group company, Sirdar Global Group Limited. This contract requires the plaintiff to pay $100,000.00 for the 40% shareholding and the Share Sale Agreement provides that, once paid, this
$400,000.00 would be made available by the vendors by loan to the Sirdar Group of which the defendant forms part.
[11] According to the defendant the plaintiff has defaulted in completing this Share Purchase Agreement. There seems no doubt that the $100,000.00 payment has not been made. The plaintiff for his part contends that the Share Sale Agreement has been “frustrated” and he is not required to complete settlement.
[12] The exact relevance of this share sale issue to matters directly before the Court is not entirely clear to me at this point. I will leave this aspect on one side as it will be seen later that it is not likely in any event to affect the ultimate outcome here.
[13] Returning to the grounds advanced by the defendant in support of its present application, the plaintiff responds to these asserting first, that his invoices which are the subject of the statutory demands are not effectively disputed by the defendant here and secondly, that in any event the defendant is insolvent and matters should proceed to a full liquidation hearing.
[14] These contentions are strongly disputed on the part of the defendant.
Counsel’s Arguments and My Decision
[15] The present application as I have noted is brought pursuant to Rules 31.9 and
31.11 High Court Rules which, where relevant, state:
31.9 Advertisement of Application
(1) A proceeding commenced by a statement of claim under r 31.3 must be advertised at least 5 working days before the hearing.
..................
(3) This rule is subject to r 31.10 and to any order made on an application under r 31.11.
...............
[16] Rule 31.11, where relevant, states:
31.11 Power to Stay Liquidation Proceedings
(1) If an application for putting a company into liquidation is made under r 31.3, the defendant company, or, with the leave of the Court, any creditor or shareholder of that company or the Registrar of Companies, may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the Court –
(a) for an order restraining publication of an advertisement required by r 31.9 or any other information relating to that statement of claim; and
(b) for an order staying any further proceedings in relation to the liquidation.
[17] The principles to be applied in considering applications under these rules were outlined in Nemesis Holdings Limited v North Harbour Industrial Holdings Limited (1989) 1 PRNZ 379 at 385. There, Wallace J, summarised these principles in the following way:
(a)The Court has an inherent jurisdiction to stay winding up proceedings where the debt upon which such proceedings are founded is the subject of a genuine dispute. In those circumstances the plaintiff cannot show it has the status of a creditor or that there has been neglect by the company to pay.
(b) The jurisdiction is an inherent one to prevent abuse of process. There is no inflexible rule.
(c) The governing consideration is whether the proceeding suggests unfairness or undue pressure.
(d)It is a serious matter to stay winding up proceedings so the decision to do so is never made lightly. The onus is on the applicant and it is normally necessary to demonstrate “something more” than the balance of convenience considerations which are usually considered on an application for interim injunction. If the defendant company has had an opportunity to file appropriate affidavits such defendant is required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds or show that there are clear and persuasive grounds for a stay.
(As to all these matters see McGechan on Procedure at para. HR31.11.02.)
[18] In addition, the Court of Appeal in Kim v Wasan International Company Limited, 4 October 2006, CA39/06 in dealing with an application of this type, stated at paragraph 27:
27. Where a statutory demand has been made and the party on which it has been served either seeks to set it aside or applies later to stay liquidation proceedings, it is not uncommon for detailed evidence of solvency to be given or for the money in question to be paid into Court (or perhaps a solicitor’s trust account). We are, however, aware of no rule to the effect that detailed evidence of solvency is required. As well, the High Court does not, as a matter of routine, require a disputed debt to be paid into Court (or otherwise secured) cf Maru Industries Ltd v Don Forbes Construction Limited (1989) 2 PRNZ 176 (HC) ................
[19] I turn now to consider the broad grounds advanced by the defendant applicant in support of the present application.
[20] The first ground put forward by the defendant in support of its present application is that the debt on which the plaintiff’s liquidation application is based is strongly disputed and the plaintiff is, in fact, liable to the defendant in significant damages. Here, it is accepted by both parties that the plaintiff’s employment with the defendant terminated on or about 11 December 2009. And the plaintiff’s demand in particular for the second debt totalling $5,625.00 relates to wages for work completed whilst he was an employee of the defendant during the period 30
November 2009 right up to 11 December 2009.
[21] On this, the defendant contends that the plaintiff by his conduct over this period especially, has seriously breached his contract of services and wounded the defendant financially. He has done this by first, systematically contacting clients of the defendant in December 2009 advising them that the defendant and its related companies had ceased trading and offering services to and obtaining those parties as clients for himself and secondly, by communicating with Australian employees of the defendant’s group by email communications at the time, significantly alienating the Australian arm of the defendant’s operations.
[22] According to the defendant unequivocal evidence of these matters is contained in Exhibits A, B, C, D and E of the affidavit of Raewyn Ann Bates filed in this proceeding sworn 9 April 2010. Certainly on their face, the relevant parts of
those exhibited emails appear to show messages to and from the plaintiff directly to various parties which might well be seen ultimately to support the allegations of the defendant here. Indeed on 15 December 2009 the solicitors to the defendant wrote to the plaintiff directly addressing these issues.
[23] Before me the plaintiff did not appear to dispute that any of these emails had been sent. He endeavoured to suggest however as best as I could tell that there was some other explanation for them. All this was not entirely clear from his submissions however. What did appear clear was that a major dispute has arisen between the parties over the plaintiff’s involvement in and departure from the defendant company, and that this is now before the District Court in proceedings recently filed there.
[24] A further submission from the defendant advanced before me was that the evidence before the Court, including the plaintiff’s own affidavit evidence, makes clear that around the time of his departure from the defendant’s employ, the plaintiff made significant contact with creditors of the defendant company which again is in breach of his confidentiality obligations under the contract of services in an attempt to disrupt the affairs of the defendant as much as possible.
[25] Again, the plaintiff appears to dispute that these contacts which he does acknowledge were made, were in fact in breach of his confidentiality obligations under the Services Contract. For present purposes, on the material before the Court, there is a reasonable argument, in my view, however, that this may not be the case.
[26] Finally, as to the issue of whether the invoices from the plaintiff are disputed by the defendant, it is clear from the 15 December 2010 letter from the defendant’s solicitors to the plaintiff (noted as Exhibit “F” of Ms Bates, 16 March 2010 affidavit) that there is a dispute. This letter specifically advises the plaintiff that:
We have instructions to issue proceedings to recover the damages caused by your conduct and in the mean time any monies you may be expecting to be paid for contractual services, expenses, or other services performed for the company will be off-set against any such damages.
[27] And significantly, in a further letter dated 15 January 2010 from the solicitor for the defendant to the plaintiff it was confirmed that this firm held in its trust account the sum of $6,880.10 on behalf of the defendant, which was effectively security for both of the invoices issued by the plaintiff.
[28] In the present case the plaintiff endeavoured to submit that the defendant’s account of recent events which had occurred is wrong and sharply conflicts with his contentions. What does appear clear, however, is that the plaintiff, who was at one stage a director of the defendant but subsequently resigned and was a significant and senior employee from 30 November 2008 to 11 December 2009, less than 1 week after his resignation as an employee, issued the two statutory demands against the defendant for amounts totalling nearly $7,000.00. This it seems was done in possibly questionable circumstances at a time when monies to cover the invoices were available and subsequently held in the Trust Account of the solicitors acting for the defendant, when questionable emails were being sent by the plaintiff to clients, customers and other employees of the defendant and finally when significant letters warning the plaintiff to desist from these actions were being sent to him by the solicitors for the defendants.
[29] As I have noted at paragraph [23] above, the substantial disputes between the parties relating to the present “debts” and their claims and counter claims are already before the District Court. In my view it is clearly sensible for these disputes to be resolved first. The alleged liability of the defendant to the plaintiff under the present statutory demands is clearly subject to serious argument between the parties and this must be dealt with before any liquidation proceedings can be properly considered.
[30] That said, I am satisfied that the debts upon which the plaintiff’s present liquidation proceedings are founded are the subject of a genuine dispute here and the defendant’s application for orders restraining advertising and staying this proceeding should be granted. Orders to this effect are to follow.
[31] For the sake of completeness, however, I also turn to mention briefly the second argument raised by the plaintiff in opposition to the present application to the effect that the defendant is insolvent.
[32] Although it is clear from the decision in Kim v Wasan International Company Limited that there is no rule applying here to the effect that applicants are required to provide detailed evidence of solvency in bringing applications of the type which are presently before the Court, nevertheless the plaintiff has alleged that the defendant is insolvent.
[33] On this question of solvency, there is evidence before the Court confirming that from at least 15 January 2010 an amount to cover the debts in question was paid by the defendant and held in its solicitor’s trust account. As McGechan on Procedure notes in part at paragraph HR31.11.04:
In a case where the full amount [of a debt] has been paid over as security, it is difficult to imagine a situation where a liquidation order would be justified ...
This approach was approved by Master Thompson in Airborne Freight Limited v
Fastway Express Parcels (NZ) Limited (1994) 7 PRNZ 372 ....
[34] In the present case, although there is only limited material before the Court regarding the solvency of the defendant, the draft annual accounts and financial reports for the company to 31 March 2009 provided as Exhibit “F” to the affidavit of Ms Bates sworn 9 April 2010 do assist to a limited extent.
[35] The plaintiff in turn has put little of independent substance before the Court to impugn suggestions that the defendant may be solvent here.
[36] In my view the turning point on this issue must be the matter I noted at paragraph [33] above that amounts to cover the debts here claimed by the plaintiff were paid into the defendant’s solicitor’s trust account.
Conclusion
[37] As I have noted in paragraph [30] above the application by the defendant here succeeds.
[38] Orders are now made as follows:
(a)Restraining publication of an advertisement required by r 31.9 of the High Court Rules or any other information relating to the statement of claim filed in this proceeding.
(b)Staying any further proceedings herein in relation to the liquidation of the defendant company.
[39] As to costs, before me the defendant has sought indemnity costs from the plaintiff. On this, it must be said that under all the circumstances here, the actions of the plaintiff can scarcely be regarded as commendable. Nevertheless, this is a relatively straight forward matter and, in my view, by a fine margin, this is a case where scale costs are appropriate.
[40] Costs are awarded to the defendant on this application against the plaintiff on a Category 2B basis together with disbursements as fixed by the Registrar.
‘Associate Judge D.I. Gendall’
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