UBNZ Funds Management Ltd v Latitude Asia Ltd HC Auckland CIV 2010-404-2246
[2010] NZHC 1914
•29 October 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-002246
UNDER the Companies Act 1993
BETWEEN UBNZ FUNDS MANAGEMENT LTD Applicant
ANDLATITUDE ASIA LTD Respondent
Hearing: 29 October 2010
Appearances: P Sills for Applicant
R B Hucker for Respondent
Judgment: 29 October 2010
ORAL JUDGMENT OF ASSOCIATE JUDGE BELL
Solicitors/Counsel:
Sargent Law (P Sargent), PO Box 1482, Auckland
Hucker & Associates, PO Box 3843, Auckland
P Sills, PO Box 414, Kumeu
UBNZ FUNDS MANAGEMENT LTD V LATITUDE ASIA LTD HC AK CIV-2010-404-002246 [29 October
2010]
[1] UBNZ Funds Management Ltd has applied for an order under s 290 of the Companies Act setting aside a statutory demand dated 30 March 2010. The amount demanded in the statutory demand is $475,000. The demand says “It is for goods and services supplied and invoiced to you”. Attached to the demand are two invoices, each dated 18 March 2010. The invoices are made out to a number of people, UBNZ Funds Management Ltd is just one of the people invoiced. Others are May Yang Wang and Jack Ken Chen or nominee. The first invoice is for
$303,750,000, which is $270,000 plus GST at 12.5% and it is said to be for an agreed fee on the sale price of $27 million as a going concern for farms of Nugen Farms Ltd. The other invoice is similarly made out. The amount claimed there is
$168,750, which is $150,000 plus GST and that is in respect of the sale price of $15 million for farms of Windburn View Ltd.
[2] UBNZ Funds Management Ltd used to be called UBS Funds Management NZ Ltd. I will refer to it under its current name. The director of UBNZ Funds Management Ltd is May Yang Wang. She has been associated with the purchase of a number of farms formerly owned by the Crafar family. Nugen Farms Ltd and Windburn View Ltd are two Crafar-controlled companies which owned farms. May Wang presently has before the Court a proposal under Part 5 of the Insolvency Act
2006. By her own acknowledgement, she is insolvent. A matter I will refer to later on is that Latitude Asia Ltd has proved as a creditor in her proposal under Part 5 of the Insolvency Act.
[3] Latitude Asia Ltd is a British Virgin Islands company. Its directors are Trent and Cameron Fraser. Their father is Barry Fraser. At all times material to this case, Mr Barry Fraser was an undischarged bankrupt.
[4] The present application was filed within time under s 290(2) of the
Companies Act.
[5] The application is made on the basis that there is a substantial dispute whether or not the debts claimed are actually due. The principles on which such applications are decided are well established. The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. The task
for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due. The mere assertion that there is a genuine substantial dispute is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed. If such material is available, the dispute should normally be resolved other than by proceedings in this Court in its companies’ jurisdiction. The onus is on the applicant to show a fairly arguable basis upon which it is not liable for the amount claimed. It is often commonly said that a court is not required to accept uncritically any or every disputed fact. However, the Court may act on dubious affidavit evidence, even though there may be suspicion of good faith of the deponent, if there is an essential core complaint that supports a defence. In essence, the inquiry is whether or not the assertion made passes the threshold of credibility.
[6] The rationale for this approach is that the statutory demand procedure is used to establish that a company is unable to pay its debts. If a company served with a statutory demand does not comply with it, there is a presumption that the company is insolvent. That then makes the company vulnerable to an application to the Court for an order that it be put into liquidation. That process can only work properly if the person making the demand is in truth a creditor. If a company served with a demand properly disputes the debt, it will have good grounds for not paying. The failure to pay cannot give rise to the presumption of insolvency. Section 290 addresses this by allowing companies served with statutory demands to challenge the demands within
10 working days of service, so that there can be a prompt determination whether or not the person making the demand is in truth a creditor and so stop time running under s 289 giving rise to the presumption. It has been long established that issuing a statutory demand when the debt is subject to dispute is a misuse of procedure.
[7] In this case, the invoices attached to the statutory demand are dated 18 March
2010. Evidence also referred to earlier invoices of February 2010. But the statutory demand itself is dated 30 March 2010. Clearly, Latitude Asia Ltd has not allowed the company much time to respond to its invoices before it quickly issued its statutory demand. I note that UBNZ Funds Management Ltd has been at a disadvantage because, apparently at the time of service, May Wang was out of the country. Her first affidavit clearly had to be prepared in short time. She later filed a
longer affidavit setting out matters more fully. There was some criticism of her first affidavit but, given the difficult circumstances the company was under, I decline to draw any adverse inferences against UBNZ Funds Management Ltd for the response made in its first affidavit.
[8] Latitude Asia Ltd claims that it is entitled to commission of 1% of the purchase price on the purchase of farms of Nugen Farms Ltd and Windburn View Ltd by UBNZ Funds Management Ltd.
[9] It is clear that UBNZ Funds Management Ltd did buy farms belonging to Nugent Farms Ltd and Windburn View Ltd. Those farms have since been transferred to a separate company, UBNZ Assets Holdings Ltd. It seems that they may not be the last of the transactions involving these farms given the moves under foot for the Crafar Farms to be bought by Natural Dairy Ltd. In this hearing, the question of the Overseas Investment Act 2005 was not addressed and I am not required to consider the application of that legislation to the present application.
[10] May Wang says that from about mid-2008 until mid-2009, Mr Barry Fraser provided some assistance to UBNZ Funds Management Ltd by introducing potential investors and providing general assistance and support to UBNZ during negotiations. This is at a stage where May Wang, who had experienced other business failures, was interested in finding dairy farms and then introducing investors to purchase those farms with a view to generating commission for herself as a business activity. While UBNZ Funds Management Ltd acknowledges services provided by Mr Fraser, its position consistently has been that it did not agree to pay Mr Fraser or Latitude Asia Ltd commission of 1% of the purchase price on any agreements for sale and purchase that were executed by UBNZ.
[11] In my judgment, UBNZ Funds Management Ltd has proper grounds for contesting its liability under the statutory demand. I am not saying that it does not owe Latitude Asia Ltd some money. I am simply finding that there is a substantial dispute whether the debt is due and owing. I make this finding after a consideration of a number of aspects of the claim made by Latitude Asia Ltd.
[12] I begin with a document called “Dairy Farm Commission Agreement” dated
8 October 2008. The parties to that agreement are Latitude Asia Ltd, May Yang Wang and Mr Jack Chen Keen. Interestingly, Mr Fraser has signed that agreement as director of Latitude Asia Ltd. The provisions included:
All parties agree that all commission received through dairy farm purchases with CraFarm Group (Incorporating Plateau Farms Ltd, Hillside Ltd, Taharua Ltd, Nugen Farms Ltd, Ferr View Farms Ltd, Windburn View Ltd) will be shared equally between the said three parties.
All commissions negotiated and paid by vendors and investors (if any) will be shared equally between the said three parties.
Commissions will be payable by the vendor and investors (if any) upon settlement of dairy farm purchasers (sic).
Commissions will be held by a nominated company trust account.
The said parties will only be liable to claim commission upon submitting an invoice to the nominated company.
The Confidentiality Agreement between CraFarms Group and UBS Funds
Management NZ Limited forms part of this agreement.
[13] This agreement is simply a commission sharing agreement. That is, it is an agreement that if any one of the parties receives commission on the purchase of farms in the CraFarm Group, then that commission will be shared equally amongst all three of them. I note in particular the requirement that the commissions will have to be paid into a nominated company trust account and the provision for the parties then to submit invoices to the nominated company for payment. It is implicit in this agreement that any commission will be payable by a third party, that is, by either vendors or investors.
[14] On its own, this document does not support a claim for commission by Latitude Asia Ltd against UBNZ Funds Management Ltd which is not even a party to the agreement. However, the respondent says the matter goes further because there is an additional document that needs to be taken into account. That is, the confidentiality agreement of 3 October 2008 between the Crafar Farms Group and UBNZ Funds Management Ltd. That document was also put in evidence. It is an agreement under which UBNZ Funds Management Ltd undertook to keep information confidential about the Crafar Farms Group while it undertook due
diligence for one month when considering the purchase of farms in the Crafar Group. That agreement is conventional in terms of its commercial purpose at the time. The respondent says that it formed part of the dairy farm commission agreement under the last clause and therefore has to be read with the dairy farm commission agreement. All that that does is it that it points to UBNZ Funds Management Ltd being a possible purchaser of farms in the Crafar Group but it does not, by itself, impose any obligation on UBNZ Funds Management Ltd to pay any commission to the parties to the dairy farm commission agreement.
[15] To establish that there was some obligation on UBNZ Funds Management Ltd to pay commission, the respondent went further and referred to e-mails which May Wang sent to Barry Fraser on 7 April 2009. The critical e-mail says this:
That is great. I have also discussed the 1% for three of us from this side. They were not please (sic) about it, but I insist.
[16] I have found it hard to work out what the true purport of that e-mail is. Clearly, May Wang is reporting a conversation which she has had with some third party. The identity of that third party is not stated. She uses the word “they” in the e-mail but the respondent suggested that the “they” was in fact Mr Jack Chen. While I accept that Ms Wang’s first language is not English, my impression from the e- mails is that I doubt that she would use “they” to refer to a single person. It is not clear that this discussion did in fact lead to a concluded agreement. It simply records a conversation, but it is not clear whether that conversation did lead to something that would be contractually enforceable.
[17] The identity of the person to pay the 1% commission is not clearly stated. It is not clear exactly who the beneficiaries of this are to be, although “three of us” could refer to the three parties named in the dairy farm commission agreement. It is a possibility, but no more than that. I find this e-mail simply to be fragmentary and insufficient by itself to generate any obligation on the part of the applicant to pay any commission.
[18] Latitude Asia Ltd also put in evidence a draft unsigned deed of agreement which provided for payment of commission to Latitude Asia Ltd. That agreement
was never signed and appears to have been nothing more than a proposal. UBNZ Funds Management Ltd is not a party to that draft agreement and it does not assist in resolving matters other than to show what Mr Fraser’s aspirations were.
[19] The respondent relied on an e-mail sent by May Wang in March this year in response to an e-mail sent to her by Mr Fraser, pressing for payment. Ms Wang’s e- mail in reply said this:
I do record our phone conversation last time but the contents were not exactly the same. I will need to work out the amount first then pay through to Frank’s trust account of the sum you are entitle to. I would like to suggest that we deal with this matter upon my return which will be a week time or so.
[20] The respondent pressed this as being an admission of liability by May Wang and as a director binding her company, UBNZ Funds Management Ltd. While it appears to be an admission that Mr Fraser or perhaps Latitude Asia Ltd may be entitled to some payment for services performed, it certainly does not admit a liability for the amounts claimed in the statutory demand. The respondent wanted me to treat this e-mail as conclusively binding the applicant so that I should not have to look any further. It is again fragmentary. It is some evidence that might assist the respondent in establishing some liability, but it goes no further than that. It is not the kind of document which clears away all doubts and allows the respondent to claim that there is a debt beyond question.
[21] What would give the respondent’s case more cogency would be a written agreement between UBNZ Funds Management Ltd and Latitude Asia Ltd under which UBNZ Funds Management Ltd undertook to pay Latitude Asia Ltd a defined commission. There is nothing in the respondent’s case which shows such a clear-cut arrangement. To the extent that the respondent’s case lacks such clear-cut arrangements, its claim for payment becomes contestable. In fact, the respondent’s case falls such a long way short of such clear-cut contractual arrangements that I cannot with confidence see clearly what the contractual basis for the claim by Latitude Asia Ltd is. At this stage, that is sufficient to show that UBNZ Funds Management Ltd has established that the debt is subject to a substantial dispute.
[22] There was also the point that even if Latitude Asia Ltd were to be able to establish some entitlement, it is not clear that it would be entitled to a full 1% of the consideration. Under the dairy farm commission agreement, there was to be a sharing and its beneficial entitlement would be no more than one-third of the commission. In saying that, I am not to be taken as indicating that there is any entitlement at this stage on the evidence to at least that one-third.
[23] There are other aspects of the case that give concern. The first is that Latitude Asia Ltd has appeared in the Bankruptcy Court on Ms Wang’s proposal under Part 5 of the Insolvency Act. It is claiming to be a creditor for the same sum of
$475,000 plus a contingent liability for a greater sum. If Latitude Asia Ltd has a claim against UBNZ Funds Management Ltd, it is not clear how at the same time it could also have a claim against May Wang in person. There is nothing in the evidence before the Court to suggest that there was any joint liability. If Latitude Asia Ltd at the same time is making the same demands against different people, that would suggest that both claims cannot be right and at the most only one could be right. It is not clear that it is the claim before this Court that must be the right one. The very fact that two inconsistent demands are being made casts doubt on the claim made in this case.
[24] Another matter causing me concern is the fact that Mr Fraser carried out services, said to be the subject of this claim, while he was an undischarged bankrupt. Section 149 of the Insolvency Act 2006 is relevant:
149 Prohibition of bankrupt entering business
(1)An undischarged bankrupt must not, without the consent of the Assignee or the Court, either directly or indirectly,—
(a)enter into, carry on, or take part in the management or control of any business:
(b) be employed by a relative of the bankrupt:
(c)be employed by a company, trust, trustee, or incorporated society that is owned, managed, or controlled by a relative of the bankrupt.
[25] That section is clearly directed at preventing undischarged bankrupts from continuing in business, including being employed by companies owned, managed or directed by their relatives. Trent and Cameron Fraser are directors of Latitude Asia Ltd and they are Mr Barry Fraser’s sons. Mr Fraser’s affidavit of 19 July 2010 says: “I was engaged by Latitude Asia Ltd to undertake certain work on its behalf”. It is not clear whether he was engaged as employee or as contractor. But either way there are potential breaches of s 149. If he did his work as an employee, then that is arguably in breach of s 149(1)(c) because he was in employment by a company controlled by relatives. On the other hand, if he was not an employee but simply a contractor, then he was carrying on business in his own right and that would be in breach of s 149(1)(a). So the legality of Mr Fraser’s actions are open to question. That carries with it a further question of whether this debt is actually recoverable by Latitude Asia Ltd. The suspicion I have is that Latitude Asia Ltd is simply a front for Mr Barry Fraser’s operations, his business activities, while he was in fact an undischarged bankrupt and not entitled to carry on such activities. My concern is such that I am going to direct that the Registrar send a copy of this judgment to the Official Assignee.
[26] The final matter is the question of the Real Estate Agents Act 1976. It appears from the evidence, although this was contested by Mr Hucker, that some of the work that Mr Fraser did was directed at bringing about the agreement between Crafar Farms Group, as vendor, and May Wang’s companies as purchaser. Those activities potentially could fall within the actions of a real estate agent as defined by s 3 of the Real Estate Agents Act 1976. That was the relevant real estate agent legislation in force at the time.
[27] There is the question of non-compliance with that legislation. It is not clear that either Barry Fraser or Latitude Asia Ltd were licensed as real estate agents. There has not been any compliance with the requirements of s 62 that would allow either Mr Fraser or Latitude Asia Ltd to recover payment of commission. This is a matter that might require further examination if proceedings are to issue.
[28] Overall then, I conclude that UBNZ Funds Management Ltd has established that there is a substantial dispute whether the debt set out in the statutory demand is in fact owing and I therefore order that the statutory demand is set aside.
Costs
[29] Costs ordinarily follow the event. In this case, I am concerned about the use of the statutory demand procedure. I want to make it clear at this stage that Mr Hucker had no part in the issue of the statutory demand itself. It appears to have been issued by Latitude Asia Ltd, not by any lawyer. But I regard the issue of the statutory demand in this case as a clear misuse of the procedure. Any responsible person would recognise that the claim that UBNZ Funds Management Ltd owed Latitude Asia Ltd any money was clearly contestable. At the very least, proceedings ought to have been issued. Even if Latitude Asia Ltd felt supremely confident of its case, it could have tested the matter by taking summary judgment proceedings. The statutory demand procedure strikes me as being one calculated to cause embarrassment to UBNZ Funds Management Ltd and to exploit difficulties. That was unnecessary and an oppressive use of the procedure. Accordingly, this is a proper case for an uplift on costs. The applicant will have costs on a 2B basis with a
50% uplift. It will also be entitled to disbursements as fixed by the Registrar.
R M Bell
Associate Judge
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