Polybreeze International Limited v Manderson
[2016] NZHC 1077
•23 May 2016
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2016-404-000479
[2016] NZHC 1077
UNDER Section 290 of the Companies Act 1993 BETWEEN
POLYBREEZE INTERNATIONAL LIMITED
Applicant
AND
DAMAS MANDERSON
Respondent
Hearing: 20 May 2016 Appearances:
S Barter for the Applicant
H Thompson for the Respondent
Judgment:
23 May 2016
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
23.05.16 at 4:30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
POLYBREEZE INTERNATIONAL LIMITED v D MANDERSON [2016] NZHC 1077 [23 May 2016]
The application
[1] The applicant (Polybreeze International) applies to set aside the statutory demand served upon it by the respondent.
[2] The respondent served a statutory demand claiming repayment of funds in the sum of USD 150,000. Polybreeze International says it did not enter into any agreement for repayment of that sum and that there is a substantial dispute about whether any debt at all is owing.
[3] Mr Barter submits also that the respondent is out of time to apply for a liquidation order because an application for same was not filed within 30 working days after the last day for compliance with demand i.e. by 9 May 2016, as the Companies Act 1993 (the Act) provides.
[4] Dealing with that latter issue Mr Barter submits the Court having not made an interim order to extend the time for compliance with the demand, any presumption of insolvency arising lasts for 30 working days only after the 15 working day period from the date of service of the statutory demand1. Therefore any application for liquidation must, Mr Barter submits, be filed within that 30 day working period for beyond that, no presumption of insolvency applies any longer.
[5]The Court does not accept that assessment of the operating provisions.
[6] The filing of the application to set aside the statutory demand itself suspends the functions of the operating provisions until that application is determined. Commonly, if a Court considers the statutory demand was properly issued and payment was due then the time for compliance will be extended for a further brief period to permit payment be made or in default of that for a liquidation proceeding to be filed. The Court has the power to keep the statutory demand “alive” whilst the set aside application is heard and determined and has the power to further extend time for compliance, failing which the company is presumed to be insolvent.
1 S 288(1)
[7] The second part of the application relies upon a claim of there being a real and substantial dispute about whether there is any debt payable at all or that such debt if due is payable by Polybreeze International.
[8] Polybreeze International relies upon s 290(4) of the Companies Act 1993. That provision provides a Court may set aside a statutory demand if satisfied that there is a substantial dispute whether or not the debt is owing or due.
[9] An applicant must show there is arguably a genuine and substantial dispute as to the existence of a debt; and while an applicant needs to supply evidence in support of a claim a debt is disputed, if there is such evidence to suggest that disputes of fact are not resolvable by affidavit alone then, the Court should determine those be resolved by other dispute resolution processes.
[10] It is for an applicant to show a fairly arguable basis upon which it is not liable for the debt.
[11] Commonly the Court encounters claims of a dispute over critical facts in circumstances that might encourage the Court to defer drawing any conclusions without the benefit of oral evidence. In the end and if the Court accepts there is an essential core of complaint that supports a defence then these sorts of applications ought to be granted.
[12] Polybreeze International says it did not enter into an agreement with the respondent to repay the funds.
[13] Polybreeze International says any arrangement it made concerning the respondent’s payment of USD 150,000 was not with it but was with Polybreeze HQ Limited (Polybreeze HQ). Indeed the evidence notes that the respondent served statutory demands upon both Polybreeze International and Polybreeze HQ. Mr Barter submits therefore there is uncertainty on the respondent’s behalf as to with whom the contractual obligations lie; that the clear evidence is that the only security over the USD 150,000 investment is with Polybreeze HQ.
[14]An examination of the affidavit evidence is required.
The applicant’s evidence
[15] The applicant’s affidavit evidence is provided by Mr Bree who deposes he is a director of Polybreeze International and Polybreeze HQ. He says that in August 2015 he became involved in a trading structure known as CAP through a business contact who indicated that those were common place trading entities in the United States. He deposed:
[2] In this instance a stake of $US150,00 could net within three or four months several million dollars.
[3]I accepted the plausibility of the scheme.
[4] At about the same time I became involved with Damas Manderson, who indicted to me that he wanted to become involved in such a scheme.
[5] He had met with another business party with whom Polybreeze HQ had been doing business – a company called Ardent, a registered financial advisor. Ardent had access to a similar CAP scheme in the Unites States for whom they were working on behalf of Polybreeze HQ.
[16] Mr Breeze deposed that the respondent reviewed the Ardent scheme and then he and Mr Bree met subsequently to review a separate scheme “being put forward” by Mr Mayo of Global Outlook Limited.
[17]Mr Bree deposed it was his understanding that the respondent completely:
[8] …understood the commercial risks involved and was willing to run them because over a short period (expected to be around five weeks) of time he would receive a six fold recovery. He held himself out to be wealthy and very well versed in business.
[18] Mr Bree said the respondent wanted security and that what was provided was security only from Polybreeze HQ for the payment of the full recovery amount of his investment. Mr Bree says that the respondent “did not expect anyone to repay his stake if the CAPS did not eventuate”.
[19] Mr Bree recalls the respondent calling in to see him in October. The respondent wanted his money back and was prepared to walk away from the investment.
[20] Mr Bree has provided a copy of an email the respondent sent to him on 5 November 2015 by which the respondent asked Mr Bree to provide a figure in USD that he would be happy to pay. Mr Bree says it was clear that the respondent understood from their discussion at the time that this would be coming in from Polybreeze HQ funds expected from India.
[21] Mr Bree deposes that he took from this email to mean that the respondent would withdraw completely if Polybreeze HQ agreed to make the payment to him [of funds received from India] and this he agreed to do on behalf of Polybreeze HQ.
[22]Mr Bree deposes:
[15] The only possible way for any money to be paid outside the CAPS scheme was through Polybreeze HQ Limited. It had reached an agreement possibly entailing up to $10 million from the sale of a licence to build a Polybreeze facility in India to construct the polytheme modular homes there. Polybreeze HQ had consent from Polybreeze International Limited to enter into such a licence agreement.
[16] I then asked Mr Mayo to cancel the CAPS scheme and to refund the money. He agreed to endeavour to do so, but todate has not been able to arrange this. I advised Mr Manderson of this.
[17] I on behalf of Polybreeze HQ emailed Mr Manderson on 5 November attached hereto and marked “C” and agreed that when the Polybreeze HQ payment was received from India, Polybreeze HQ would return the USD 150,000 plus interest.
[23] Mr Bree deposes Polybreeze HQ is yet to receive any funds from India and on 6 November he sent another email to the respondent confirming that Polybreeze HQ would pay the USD 150,000 if the CAPS programme did not work.
[24]Mr Bree deposes:
[22] I always made it quite plain to him that the only recovery that he could expect or for which any responsibility could be accepted are either that the funds are returned from the investment itself, or that payment would be made by Polybreeze HQ Limited from the funds from its India venture. To-date neither has returned. This was a goodwill gesture from Polybreeze HQ, as the original agreement did not guarantee the USD 150,000 stake by anybody.
…
[25] Polybreeze International Limited has never made any commitment to Mr Manderson at all and there is no basis for any statutory demand or claim against Polybreeze International Limited.
The respondent’s evidence
[25] The respondent’s evidence is that he made no representations to Mr Bree about the proposed investment in the CAP scheme; that it was Mr Bree who induced him to invest, portraying the CAP scheme as a great opportunity. Mr Bree never described it to him as a gamble whereby the respondent could have stood to lose his “stake”. It is the respondent’s position that the documents attached to Mr Bree’s affidavit do not back his story up.
[26] Mr Manderson agrees that the investment arrangements were as set out by Mr Bree’s letter dated 1 September 2015 under the letterhead of Polybreeze International Limited. That letter provided:
POLYBREEZE INTERNATIONAL LIMITED
1 Kaheroa Road, R D 2 Mercer 2474 NEW ZEALAND
Ph: 09-232-6500
Email: [email protected]
1st September 2015 Damas Manderson Dear Damas
OFFER FOR SHORT TERM INVESTMENT
Polybreeze are seeking capital for a short term of five weeks.
We are seeking investment capital of USD 150,000 in to a small CAPS programme offered to Polybreeze by Craige Mayo to provide essential operating capital.
Return on investment to Damas Manderson
For the USD 150,000 investment… we will return USD one million. Upon first drawdown at five weeks from investment date.
Security on investment
Polybreeze HQ will put up a One % share Polybreeze HQ, to the value of USD one million as security for the USD 150,000 invested.
This share provided as security shall be withdrawn upon full payment of the USD one million at Five weeks plus the return of the original USD 150,000 within seven weeks…
It is appropriate to work directly with Craige Mayo on this matter for completion.
Note. As a show of good will on the part of Polybreeze HQ. I Charles Bree will offer a first option for a US licence. To Damas Manderson and company.
CHARLES BREE
Managing Director
Polybreeze International and Polybreeze HQ Ph 64 9 2326500
Email [email protected]
[27] The respondent deposes that it was never agreed or understood his initial investment was completely at risk or that he was without recourse for its recovery. He always understood that Polybreeze International was obliged to repay his USD 150,000 within seven weeks of the original investment. He agreed Polybreeze HQ Limited underwrote the investment and agreed to put up security, as the agreement document explains.
[28] The respondent deposes that when “time started to drag on” he became anxious and simply wanted his money back and was prepared to forego any share in the anticipated greater return of USD 1,000,000.
Applicant’s reply evidence
[29] In a reply affidavit Mr Bree deposes there is a dispute that the respondent’s money was paid to Polybreeze International for no money was received to Polybreeze International’s account. Also he refers to the respondent’s email to him on 3 September 2015 requesting confirmation that he was paying the funds to Global Outlook Limited to which Mr Bree responded and by which he confirmed the funds were to be paid to Global Outlook Limited. The details of which Mr Bree provided.
[30]Mr Bree deposes:
[2] …
d)It was always understood in discussions on this matter between myself and Mr Manderson that his outcome relied on the success of the CAPS scheme. He undertook his own research on that. When I met with Mr Manderson and Craige Mayo jointly before this all took place, Mr Manderson asked Mr Mayo what the worst outcome could be. Mr Mayo told him that he would get his money back from the programme provider if the programme did not perform.
e)Polybreeze HQ gave security by putting up a one per cent share. No guarantee of security was given by Polybreeze International Limited. This was intentional and as agreed.
Considerations
[31] When a claim of a debt is disputed it is usually because the parties cannot agree about whether a debt is owing or how much is at stake. Routinely affidavits indicate a dispute regarding important facts.
[32] As earlier noted a Court hesitates to make critical decisions in these circumstances. However the Court is not required to accept uncritically every claim of a disputed fact. Rather the Court’s enquiry is about claims that pass the threshold of credibility. Evidence that is inconsistent with undisputed contemporary documents or is inherently improbable carries no weight.2 An applicant must show that the dispute it raises has substance; it must be a real and not a fanciful or insubstantial dispute.3
[33] In this case the parties’ agreement is contained in Mr Bree’s letter to the respondent dated 1 September 2015 (the letter).
[34] Mr Bree’s evidence suggests that the respondent’s investment of USD 150,000 was a wager, that the respondent understood and accepted there was a risk it would not be repaid.
2 Krukziener v Hanover Finance Limited [2008] NZCA 187.
3 AAI Limited v Ninety Two Lichfield Street Limited [2015] NZCA 559 at [22].
[35] The respondent’s position is that he invested the money and that the letter on the letterhead of Polybreeze International, provided an agreement to repay it and that Polybreeze HQ agreed to provide security for that obligation.
[36] The letter under Mr Bree’s signature on Polybreeze International’s letterhead and signed off on behalf of both Polybreeze International and Polybreeze HQ, refers to “we are seeking investment capital of USD 150,000” and that “we will return USD one million”.
[37] As earlier noted the respondent served statutory demands on both Polybreeze International and Polybreeze HQ. On behalf of Polybreeze International Mr Barter suggested both companies were served because the respondent was unclear about which company might have been responsible to him. The Court does not agree with that assessment. The letter indicates investment was being sought by both but that security was being provided by Polybreeze HQ alone. It does not mean of course that only Polybreeze HQ could be liable because only it provided security. Rather, the issue of security does not preclude a right of action against Polybreeze International.
[38] The Court prefers the respondent’s account of the purpose of the letter. The letter explained that investment capital of USD 150,000 was being sought. It indicated an anticipated return within five weeks. And, it offered security for the USD 150,000 invested.
[39] As Mr Thompson submits and the Court agrees, there is no indication by that document that the investment was a wager, or that the money would be at risk or that the Polybreeze companies had no obligation to repay if the arrangement went wrong.
[40] The letter does not, as Mr Bree suggests, state that security would only be available if the payment of the anticipated USD 1M was returned on the investment. Clearly the letter refers to security in relation to the USD 150,000 invested.
[41] Mr Thompson submits that much of what Mr Bree says in his affidavit reflects what he says were his subjective intentions or understandings about what he understood the words to mean and how that affected his understanding of the parties
obligations. The Court agrees those understandings do not assist a reasonable and objective view of the contents of the letter.
[42] In his reply affidavit Mr Bree said the respondent’s investment was not paid to the applicant but was paid directly to Global Outlook Limited or Mr Mayo. However, as the letter notes, this arrangement was contemplated by the letter where it is stated that:
It is appropriate to work directly with Craige Mayo on this matter for completion.
[43] In the Court’s view the email correspondence between Mr Bree and Mr Manderson clearly appears to acknowledge an obligation for repayment of the respondent’s investment.
Outcome
[44] Commonly when an application to set aside a statutory demand is refused the Court will extend for a short period the time within which payment of the statutory demand can be satisfied.4
[45] Mr Thompson submits the Court should in this case adopt the alternative process by making an immediate order placing the applicant company in liquidation.
[46] Mr Thompson submits the investment arrangement is strongly suggestive of a Ponzi scheme. He suggests the applicant may also have been duped. The funding expected from India has not arrived.
[47] Mr Bree says in his affidavit that the applicant is solvent, but he provides no evidence of this.
4 s 291.
Judgment
[48] It is the Court’s order that the application to set aside the statutory demand is refused. Instead the time for compliance with that demand is extended until 4:00pm, 3 June 2016.
[49] The applicant shall pay the respondent’s costs on a 2B basis together with disbursements as fixed by the Registrar.
Associate Judge Christiansen
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