Settlers Honey Limited v First Honey NZ Limited

[2021] NZHC 1086

IN THE HIGH COURT OF NEW ZEALAND MASTERTON REGISTRY

I TE KŌTI MATUA O AOTEAROA WHAKAORIORI ROHE

CIV 2021-435-7

[2021] NZHC 1086

BETWEEN

SETTLERS HONEY LIMITED

Plaintiff/Applicant

AND

FIRST HONEY NZ LIMITED

Defendant/Respondent

Hearing:	On the papers
Counsel:	N Jessen for the Plaintiff/Applicant
Judgment:	14 May 2021

JUDGMENT OF CAMPBELL J

This judgment was delivered by me on 14 May 2021 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

SETTLERS HONEY LIMITED v FIRST HONEY NZ LIMITED [2021] NZHC 1086 [14 May 2021]

[1]    The plaintiff (Settlers Honey) has applied, without notice, for freezing and ancillary orders under part 32 of the High Court Rules 2016.

[2]    The application is supported by an affidavit from Henry Matthews dated 7 May 2021. Mr Matthews is the sole director of Settlers Honey. He has been directly involved in the matters that have given rise to this application. The background that follows is based on the account that Mr Matthews gives in his affidavit.

Background

[3]    Settlers Honey is in the beekeeping industry. It produces, manufactures, and sells honey for a variety of uses.

[4]    The defendant (First Honey NZ) is also in the beekeeping industry. It is a New Zealand company. Daniel Watson is its sole director and shareholder.

[5]    Settlers Honey and First Honey NZ have had various commercial arrangements relating to the production, manufacture or sale of honey or honey products. This proceeding concerns one such arrangement: the sale by Settlers Honey of a large quantity of medical grade manuka honey.

[6]    The sale of that honey was to a United States company, First Honey LLC (First Honey US). Mr Matthews says the Chief Operating Officer of First Honey US is Jonathan Scarlet, and that Mr Scarlet is the brother-in-law of Mr Watson.

[7]    Mr Matthews says that, prior to the sale that is the subject of this proceeding, there was a sale by Settlers Honey to First Honey US of a smaller quantity of medical manuka honey. Settlers Honey sent an invoice to First Honey US for that sale, dated 8 April 2020. The invoice is zero-rated, it being an export sale.

[8]    Mr Matthews says that in September or October 2020 Mr Watson told him that First Honey US would require a shipping container load of medical grade manuka honey. Mr Matthews says he relied on Mr Watson and First Honey NZ to broker the terms of the deal. He says that he agreed with Mr Watson that Settlers Honey would pay First Honey NZ a commission at the rate of $1 per kilogram. But he says that at

no point did he authorise First Honey NZ to receive payment from First Honey US for the honey.

[9]    Settlers Honey arranged for a container load of medical grade manuka honey to be exported to First Honey US through the Port of Tauranga. The bill of lading recorded Settlers Honey as the shipper and First Honey US as the consignee. Settlers Honey sent an invoice to First Honey US for the sale, dated 16 November 2020. It is in the sum of $648,254.01. It provides details of the bank account of Settlers Honey to which payment should be made.

[10]   Mr Matthews says that the honey was delivered to First Honey US on 6 January 2021. He says he had agreed directly with Mr Scarlet that First Honey US would pay for the honey within a month of delivery. Settlers Honey did not receive payment by 6 February 2021. Indeed, Mr Matthews says it still has not received any payment.

[11]   Over the next two months Mr Matthews had numerous communications, mainly text messages and emails, with Mr Scarlet and Mr Watson about payment for the honey. Mr Matthews has annexed copies of those texts and emails to his affidavit. On 1 March 2021 Mr Scarlet texted Mr Matthews that his understanding was that First Honey US would pay First Honey NZ, which would then pay Settlers Honey. On 16 March 2021 Mr Scarlet sent a text that indicated First Honey US had made payment to First Honey NZ. Mr Matthews says that Mr Scarlet has since confirmed in a telephone conversation that First Honey US had paid the full amount to First Honey NZ.

[12]   During the course of the communications Mr Scarlet encouraged Mr Matthews to send an invoice to First Honey NZ so that Settlers Honey could get paid. Mr Matthews remained of the view that First Honey US was responsible for paying Settlers Honey directly. But, because his priority was to get paid, on 2 March 2021 he sent an invoice from Settlers Honey to First Honey NZ. This was in the same amount as the invoice to First Honey US, except that GST was added.

[13]   First Honey NZ has not made any payment to Settlers Honey in respect of the sale of the honey to First Honey US. On behalf of First Honey NZ, Mr Watson has

raised two matters of relevance. First, Mr Watson says that Mr Matthews always knew that First Honey NZ, rather than Settlers Honey, was going to be paid for the honey. Secondly, Mr Watson makes several complaints about other business dealings between First Honey NZ and Settlers Honey. He says, based on those complaints, that Settlers Honey currently owes First Honey NZ $619,776.37.

[14]   The amount asserted by Mr Watson is about $30,000 less than the amount that Mr Matthews believes First Honey NZ has received from First Honey US for the sale of the honey. Mr Matthews points out that First Honey NZ has not even paid that balance to Settlers Honey.

Settlers Honey’s substantive claim

[15]   Settlers Honey’s statement of claim asserts two causes of action. The first is for a constructive trust in its favour over the $648,254.01 that it believes is held by First Honey NZ. Settlers Honey claims that First Honey NZ went beyond the scope of its authority as agent, by receiving and retaining that amount from First Honey US. The second cause of action is in money had and received. Settlers Honey claims that First Honey NZ received the $648,254.01 from First Honey US without any entitlement to do so, and that it must therefore pay that amount to Settlers Honey.

[16]   It is not clear whether Settlers Honey has made, or intends to make, a claim also against First Honey US.

The basis for Settlers Honey’s application for a freezing order

[17]   Settlers Honey says that it has a good arguable case against First Honey NZ, and that First Honey NZ has assets to which a freezing order can apply. Those assets are two bank accounts that First Honey NZ holds with the ANZ Bank and the ASB Bank. Mr Matthews believes those two accounts are used by First Honey NZ for its general trading.

[18]   Settlers Honey says that there is a real risk that any judgment against First Honey NZ would be unsatisfied as a result of First Honey NZ dissipating its assets. Mr Matthews says that in 2020 Mr Watson and First Honey NZ were facing

“foreclosure” by their banks, and that Mr Scarlet has recently criticised him for not being generous enough to Mr Watson during his difficult times. Mr Matthews says he is worried that Mr Watson is under extreme financial pressure and that this will lead him to use the money to meet other demands. He is concerned that Mr Watson has no intention of keeping the money received from First Honey US separate.

Relevant legal principles

[19]   An applicant for a freezing order must establish that (as relevant to this application):

(a)There is a good arguable case on the substantive claim.

(b)There are assets of the respondent to which the freezing order can apply.

(c)There is a real risk that a prospective judgment will be unsatisfied because the assets of the respondent might be disposed of, dealt with, or diminished in value. In short, there must be a real risk of dissipation.

[20]   Payment by a respondent of its validly owed debts does not constitute dissipation for the purposes of an application for a freezing order.1 This is reflected in r 32.6(3)(c): a freezing order must not prohibit the respondent from dealing with the assets covered by the order for the purpose of making payments in the ordinary course of the respondent’s business. It is also reflected in cl 6(c) of the required form of order, form G 38.

[21]   An applicant can apply for a freezing order without notice. That can be done where, among other things, the interests of justice require the application to be determined without serving notice of the application on the respondent.

1      Palmer v Leespower Sed Ltd (1995) 8 PRNZ 694.

Decision

[22]   I recognise that Settlers Honey’s causes of action against First Honey NZ are not without some challenges. But all that Settlers Honey has to do at this point is show a good arguable case. I am satisfied that it has done so on both of its causes of action.

[23]   In reaching that view I have taken account of the assertions made by Mr Watson as to claims that First Honey NZ has against Settlers Honey. Those claims appear to be raised by way of set-off. Even if those claims were valid (and I think there is at the least a good arguable case they are not), they would not necessarily give rise to a set-off against Settlers Honey’s claims. That is because if an agent holds its principal’s property (which is what Settlers Honey claims), the agent cannot in all circumstances set off personal claims against the principal’s claim to that property.

[24]   I am also satisfied that First Honey NZ has assets to which a freezing order can apply.

[25]   As to whether there is a real risk of dissipation, in part Settlers Honey relies on financial difficulties being experienced by First Honey NZ, and a consequent fear that First Honey NZ will use the money that it received from First Honey US to pay its other debts. As noted, payment by a respondent of valid debts does not constitute dissipation for the purposes of an application for a freezing order. It follows that the risk that First Honey NZ may pay other debts does not establish a risk of dissipation.

[26]   I accept, however, that Settlers Honey has established that there is a real risk that First Honey NZ will dissipate its assets other than through the payment of its valid debts. This risk is apparent from the following matters. The sale of the honey was documented as one from Settlers Honey to First Honey US. The invoice required First Honey US to pay Settlers Honey. Mr Scarlet and Mr Watson appear to have then arranged, without recourse to Mr Matthews, for First Honey US to pay First Honey NZ. On the basis of Mr Matthews’ affidavit, there appears to be no valid business reason for that arrangement. Having made that arrangement, First Honey NZ has then failed to account to Settlers Honey for the payment that it received. Mr Watson has asserted various claims against Settlers Honey as an apparent justification for not accounting to Settlers Honey. It is notable that he raised those claims only after having

arranged to have a very substantial amount paid to First Honey NZ that was apparently payable to Settlers Honey. It is also notable that there is a distinct lack of particularity to the claims that he has raised.

[27]   Those events are concerning. I am therefore also satisfied that it is appropriate to determine this application without notice to First Honey NZ.

[28]I am therefore satisfied that I should make a freezing order without notice.

Ancillary orders

[29]   Settlers Honey also seeks ancillary orders. These would require First Honey NZ’s two banks to disclose bank statements and to disclose all bank accounts in the name of First Honey NZ.

[30]   It is appropriate to make ancillary orders requiring disclosure of the information sought by Settlers Honey, as that information relates to assets relevant to the freezing order. However, at this stage it is sufficient to make orders that require disclosure by First Honey NZ (rather than by its banks). I will make orders accordingly.

Duration and terms of orders

[31]The freezing order will, in terms of r 32.7, be limited to 21 May 2021.

[32]   Counsel for Settlers Honey has filed a draft form of freezing order. I approve that draft, subject to the inclusion at cl 7 of the date 21 May 2021.

[33]   Counsel has also filed a draft form of ancillary order. The order is addressed to First Honey NZ’s two banks. As I have said, at this stage it is sufficient to require the information to be disclosed by First Honey NZ. The draft order should be amended to reflect that. I otherwise approve the draft.

Result

[34]   I make a freezing order and an ancillary order in accordance with [31]-[33] above. The proceeding is to be called again on 21 May 2021 in terms of r 32.7.

Campbell J