Russma Limited v Li
[2016] NZHC 1442
•29 June 2016
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2016-404-000900
[2016] NZHC 1442
BETWEEN RUSSMA LIMITED
Plaintiff
AND
JUNNAN LI
First Respondent
AND
FAST RENTAL LIMITED
Second Respondent
Hearing: 27 June 2016 Appearances:
M Colthart for the Applicant D Zhang for the Respondents
Judgment:
29 June 2016
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
29.06.16 at 4:30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
RUSSMA LIMITED v J LI AND FAST RENTAL LIMITED [2016] NZHC 1442 [29 June 2016]
The application
[1] This judgment deals with an application filed on 2 May 2016 to set aside a statutory demand issued by the respondents to recover court costs ordered by this Court on 21 December 2015.
Background
[2] Mr Nordstrand on behalf of the applicant (Russma) deposes that the first respondent (Mr Li) was formerly a contractor to Russma which was then known as Dependable Property Management Limited (DPM). DPM was a residential property letting agency and property management company.
[3] Mr Li was a property manager for DMP from June 2013 to January 2014 and general manager of DPM from January 2014 to April 2015. On 14 April 2015 Mr Li terminated his contract with DPM.
[4] Mr Nordstrand deposes that after Mr Li terminated his contract he discovered Mr Li had set up the second respondent company and was advertising residential properties in competition with DPM. Mr Nordstrand says he discovered Mr Li was using information from DPM’s customer database – conduct which Mr Nordstrand claimed was in breach of restraint of trade and confidentiality provisions in his contract with DPM.
[5] On 28 April 2015 Russma commenced proceedings against the respondents. DPM sought interim injunctions to restrain the respondents from carrying out business in breach of the restraint of trade provision in Mr Li’s contract and restraining use of DPM’s rental database.
[6] An interim injunction hearing was held before Asher J on 30 April 2015 when interim injunctions were granted against the respondents. At that time costs were reserved.
[7] The injunction hearing proceeded on a Pickwick basis by which the respondents were given notice of the hearing that was technically to proceed as a without notice application.
[8] Mr Deliu appeared before Asher J on behalf of the respondents. Mr Deliu had filed an appearance under protest to jurisdiction. That protest was about whether the parties’ differences were an employment issue to be enforced within the jurisdiction of the Employment Court, and therefore should not be heard in the High Court.
[9] Asher J concluded he was not able to finally determine the issue of whether the parties’ dispute was an Employment Court matter. His Honour said he must engage with the issue to determine whether an interim injunction should be granted. Referring to the evidence of Mr Nordstrand he noted it was claimed Mr Li was an independent contractor and not an employee; it was commonplace in the property management and real estate industry for property managers and lending agents to be engaged as independent contractors. Asher J said that for the purposes of the injunction application he was willing to treat Mr Li as an independent contractor of DPM.
[10]His Honour then concluded:
[28] In my view there is at the very least a serious question to be tried that Mr Li is not an employee but is a contractor, and that [DPM] is entitled to invoke the jurisdiction of this Court.
[11] His Honour then referred to there being evidence that Mr Li had been accessing DPM’s database; and that there was a confidentiality clause in Mr Li’s contract of engagement.
[12]His Honour then said:
[30] …The balance of convenience is in favour of granting an interim injunction, in that there is evidence of irrefutable harm if the breach continues.
[13] Asher J then made orders granting interim injunctions, while reserving leave to Mr Li and Fast Rental Limited to apply on short notice to set aside those orders.
[14] Shortly afterwards Mr Li and Fast Rental filed applications to have DMP’s proceeding struck out or stayed or transferred to the Disputes Tribunal or to the District Court; but, if the interim orders survived, to have them set aside or varied.
[15] Keane J heard this matter in October and issued a judgment on 21 December 2015. His Honour noted the primary issue was whether DPM’s proceeding should be stayed in order to give effect to the arbitration clause in the agreement with Mr Li.
[16]Regarding the background of the parties’ dispute Keane J noted:
[8] On 14 April 2015, it is also uncontested that Mr Li terminated his agreement with DPM. DPM’s case is that even before but certainly after that date, he was in breach of his duty of confidentiality and of the restraint. By 16 February 2015 he had set up in competition in Long Bay, within 15 kilometres of DPM’s Hillcrest office. By the day he resigned he had copied DPM’s database and documents and he soon began to target properties on that database.
[17]Keane J concluded:
[50] …I am satisfied, as Asher J was, that DPM’s database is arguably a valuable commercial resource, even though it may contain data which is commonplace and in the public domain; and that Mr Li is in arguable breach of his duty of confidentiality under his agreement with DPM.
[51] Thus, I am satisfied equally, that the interim orders made were proper for the reasons Asher J gave and that it would be wrong for me to revisit them. The issues Mr Li raises can only properly be determined on evidence now before an arbitrator.
[18] Keane J then made an order staying the proceedings and referring the parties to arbitration for which purpose he required the appointment of an arbitrator by 18 February 2016.
[19] His Honour then awarded costs on a 2B basis to Mr Li. A sealed order for those costs and disbursements was obtained in the sum of $11,786.55. Later a statutory demand was served on Russma to recover those costs. Although there is some issue regarding the effectiveness of the appointment of The Hon. Robert Fisher QC as arbitrator it is clear both parties wish the arbitration to proceed before Mr Fisher and that a first arbitration conference has been scheduled in about two weeks.
Russma’s case
[20] Russma says that until the proceedings or the arbitration between it and Mr Li have been resolved it has counterclaims against both respondents which exceed the amounts claimed in the statutory demand. Those comprise:
(a)Costs and disbursements claimed by DPM in connection with the injunction proceedings;
(b)Claims for damages for breach of restraint of trade and contract confidentiality provisions;
(c)Claims against the respondents relating to allegations of breach of the interim injunction orders made by Asher J.
[21] Although not able to quantify damage claimed to have been suffered as a result of alleged breaches of restraint of trade and confidentiality provisions of Mr Li’s contract, Mr Nordstrand estimates the claim is in excess of $200,000.
The respondent’s case
[22] Mr Zhang submits that by any measure Russma cannot succeed in its proceeding or recover any amount upon its claims which will exceed the costs already awarded and the costs that he submits will certainly be payable in the proceeding outcome. He submits the respondents’ application for the appointment of Mr Fisher was not accepted within Keane J’s 18 February 2016 deadline. Therefore that appointment occurred because of the respondents’ application for Mr Fisher’s appointment. It follows therefore that costs will be payable to the respondents upon that application.
[23] Regarding the costs that might be ordered to be paid upon Russma’s successful interim injunction applications, Mr Zhang submits those would not exceed $2,500.
[24] Mr Zhang’s final area of focus in support of submissions is that Russma will never by its proceeding recover sufficient to pay any part of Keane J’s costs award, Mr Zhang submits Russma holds no provable causes of action against the respondents.
[25] In part this submission relies upon assertions that Russma has not provided any evidence suggesting its claim of damages is arguable.
[26] Mr Zhang submits Russma’s claim is for unliquidated damages i.e. those he says cannot be predetermined by a formula but rather has to be determined by a Judge for which in this case he submits there is no evidential basis to assist a Judge.
[27] Mr Zhang’s case appears to be that there is no basis upon which a Court could at this stage have any assurance a claim for $200,000 or indeed anything at all is provable. Mr Zhang submits that in order to defeat a statutory demand Russma must show now that evidence it has which will sustain a quantum claim sufficient to set off the statutory demand amount.
[28] In the case of the respondent Fast Rental, Mr Zhang submits no viable cause of action or damages pleaded can succeed. His submission is that Fast Rental is in law a different entity to Mr Li; that Fast Rental has never engaged Russma “in any way shape or form, therefore Fast Rental owes Russma no duty of obligation in contract law or equity”.
[29]Regarding the claims against him, Mr Li deposes:
(a)DPM did not sue him because he had done anything wrong but rather because he refused to sign “an unfair restraint of trade” after he had already left their employment;
(b)The applicant obtained an interim injunction for improper purpose i.e. on terms wider than it should have been under the parties’ contractual terms;
(c)Since obtaining the injunction DPM has taken no steps to advance its cause with the intention to drag out the length of the interim injunction and to hinder Mr Li’s ability to conduct business properly;
(d)That Mr Nordstrand has been publicising the injunction on social media “using defamatory language with the intention to tarnish my business reputation”;
(e)In order to deal with “DPM’s vexatious claim I have so far spent in excess of $50,000 on legal fees”.
Principles
[30] Russma relies on s 290(4)(b) of the Companies Act 1993 by which a court may set aside a statutory demand if it is satisfied:
The company appears to have a counterclaim, set off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount.
[31] In this case Russma’s claim is for an indeterminate amount albeit that Mr Nordstrand calculates the measure of damages as not less than $200,000. Although Russma’s claim would not be available as a set off or counterclaim against a claim on a bill of exchange, such claim might nevertheless be sufficient to warrant the setting aside of a statutory demand. As noted in Morisons1:
It is sufficient for the purposes of s 290(4) that the applicant for an order setting aside a statutory demand be able to establish an arguable case for the existence of a “cross-demand”. That expression is wider than the expression “counterclaim”.
It would be unusual for the High Court to engage in detailed analysis of the merit of any counterclaim, set off or cross demand. The section calls for prompt judgment as to whether there is a genuine and substantial dispute. The approach required by the “appearance” test in s 290 is a review with a low threshold. However, in order to impeach the statutory demand and overcome the presumption in s 287(a) that the company is unable to pay its debts when it has failed to comply with the demand, the applicant must be able to do more than merely assert that there is an available set-off. It must be able to point to evidence before the court showing that it has a real basis for the claimed set- off and that accordingly the applicant’s claim to be a creditor is, to the extent
1 Morisons Company Law, paragraph 53.8.
of the set-off, seriously in doubt. It must show that there are clear and persuasive grounds for the set-off claim. Where this can be done, the dispute should then be resolved in the ordinary way – except as to any undisputed balance – rather than upon the hearing of as liquidation application.
[32]This Court accepts that analysis as appropriate for present considerations.
Conclusions
[33]Russma’s claim is for an account of profits, for damages, and for costs.
[34] As a result of Keane J’s order for stay and referral to arbitration the parties’ claims will now be resolved in the arbitration.
[35] The respondents complain about the lack of evidence to support the claims. However Mr Nordstrand provided affidavit evidence in the hearing before Asher J and upon the present setting aside application. As earlier noted Asher J concluded “there is at the very least a serious question to be tried…”. Keane J said, as earlier noted, that he was satisfied the interim orders (for injunction) made were proper for the reasons Asher J identified, and that it would be wrong for Keane J to revisit those.
[36] Mr Zhang appears to be submitting that this Court should nevertheless upon a setting aside application be prepared to conclude Russma’s claims could not succeed, much less in an amount equal to the respondents costs award. This Court is not prepared to do that. This Court accepts there is an evidential basis for Russma’s claims provided by the evidence for this application and in respect of those other matters previously dealt with.
[37] It is accepted that the claims are still unliquidated at this point in time. It could be that the arbitration process will resolve the parties’ issues. If not then this proceeding may still serve some purpose.
Result
[38]The application to set aside the statutory demand is granted.
[39] Costs are awarded to Russma on a 2B basis together with disbursements, against the first respondent Mr Li alone. It was only Mr Li who was awarded the costs order which was the subject of the present application.
Associate Judge Christiansen
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