Worldtel NZ Limited v Cho HC Auckland CIV-2009-404-001818

[2011] NZHC 1979

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-001818

BETWEEN  WORLDTEL NZ LIMITED Plaintiff

ANDKI CHUL CHO First Defendant

ANDYOUNG SO LEE Second Defendant

Hearing:         13-17 June 2011

Counsel:         A E Liew for the Plaintiff

Defendants in Person

Judgment:      9 December 2011

RESERVED JUDGMENT OF ELLIS J

This judgment was delivered by me on 9 December 2011 at 10 am, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:      A E Liew, PO Box 60306, Waitakere 0642

Copy To:       K C Cho and Y S Lee, 12 Phillipa Place, Browns Bay 0630

WORLDTEL NZ LIMITED V CHO HC AK CIV-2009-404-001818 9 December 2011

[1]      The plaintiff, WorldTel New Zealand Limited (WorldTel), was incorporated on 16 July 2003 and has an issued share capital of 10,000 shares.   Initially 60 per cent of the shares were held by Mr Eul Boon Lee (Mr Lee) and 40 per cent by the first defendant, Ki Chul Cho (Mr Cho).  That shareholding was altered in 2005 so that 75 per cent of the shares were held by Mr Lee‟s wife (Sung Kwang Choi), 15 per cent by Mr Lee and 10 per cent by Mr Cho.

[2]      From  the time of its  inception  until August  2004,  Mr  Lee  was  the sole director of WorldTel.   Between August 2004 and February 2009 the two directors were Mr Jong Kook Ma (Mr Ma) and Mr Jae Kap Kim (Mr Kim).  Mr Lee again took over the reins in February 2009.

[3]      Between July 2003 and February 2009, Mr Lee and Mr Cho were the two authorised signatories for WorldTel‟s bank account.

[4]      WorldTel‟s   business   is  as   a  provider  of  telecommunications   services including, in particular, the wholesale supply of telephone calling cards under the brand “I-Phone”.   At the time material to these proceedings, WorldTel‟s I-Phone cards were retailed to the public by three entities:

(a)      ITEL (which was the trading name used by Mr Cho and his wife, the second defendant, for a business they conducted through their company, Cosmobridge NZ Limited (until 2005, and subsequently on their own account;1

(b)      EzyTel  Limited  (the  directors  and  shareholders  of  which  were

Mr Kim and his wife); and

(c)       WorldNet NZ Limited (a company owned by Mr Lee‟s wife and son

but  whose  re-selling  business  at  the  time  seems  to  have  been conducted by Mr Ma).2

1 Cosmobridge was struck off the companies‟ register in August 2005.  Mr Cho and his wife were the sole directors and majority shareholders.

2 This is a different company from WorldNet Limited, of which Mr Lee was the sole owner and co- director.

[5]      I-Phone cards are sold with embedded call values between $5 and $75 and are used to make phone calls at nominated rates up to the face value of the card. Each I-Phone card bears a serial number and each is assigned a PIN number matched to  the  serial  number  on  the  card. To  activate  the  card  the  purchaser  dials  into WorldTel‟s automated I-Phone centre and enters the PIN number of the card. WorldTel‟s computer verifies the PIN number and matches it with the serial number of  the  card,  after  which  the  card  owner  can  begin  his  or  her  call.  WorldTel‟s computer monitors the length of the call and destination, applies the relevant rate and debits the value of the call from the credit available on the card.

[6]      When the available credit on a card has been used up, it can be re-activated by purchasing a “top-up”. Top-ups can be purchased in two ways. The first is by calling WorldTel‟s telephone number which is printed on the cards and buying more credit.  Alternatively, the user can buy a new I-Phone card and transfer the credit from that card to the old card, continuing to use the original PIN number.

[7]      The  present  proceedings  concern  six  claims  made  by  WorldTel  against

Mr Cho and his wife. The six claims can be divided into two broad categories:

(a)      Claims relating to an alleged failure by the defendants to pay for “top ups” they obtained for their customers in relation to I-phone cards that were sold by them.  It is alleged that the defendants obtained these top ups by remotely accessing WorldTel‟s server, to which Mr Cho had been given an access code. The total amount claimed is $293,057.67.

(b)Claims  relating  to  cheques  signed  ($760,940.13)  and  transfers  of money made (US$235,248.20) by Mr Cho on behalf of WorldTel at the behest of Mr Kim.

[8]      As regards the first category of claim it is not in dispute that Mr Cho was authorised to, and did, access WorldTel‟s computer.   There is, however, a dispute about what exactly that access was for, the terms on which access was granted and whether payment has been made for that access.

[9]      As regards the second category of claim it is not disputed:

(a)      that the transfers of money and the payments to EzyTel were made by

Mr Cho; or

(b)that the transfers and payments were not made for any legitimate business purpose of WorldTel but rather for the benefit of Mr Kim;

(c)       that  neither  Mr  Cho  nor  his  wife  benefitted  personally  from  the payments or transfers.

Litigation involving Mr Kim

[10]     In order fully to understand and assess the plaintiff‟s claims, it is necessary at the outset to say a little more about Mr Kim‟s involvement in the events that have culminated in these proceedings.  The starting point is Mr Lee‟s evidence about his association with Mr Kim, which was as follows:

..., I met Kim Jae Kap (Mr Kim) at my church.  At the time he had no job. Mr Kim‟s wife approached my wife to see whether I might have work for Mr Kim at my company WorldNet Limited.  At the request of my wife I tried to set him up in business i.e. give him a work [sic].

I was aware that Mr Kim was seeking to apply for New Zealand residency under the New Zealand Immigration Business Investment Migration scheme. In order to satisfy the requirement of the New Zealand immigration requirements for business migration, Mr Kim had to provide evidence of his involvement and investment in a viable business activity in New Zealand.

Mr Kim incorporated EzyTel Limited on 11 July 20033  for the purpose of selling international call cards and line services.

In order to assist Mr Kim to meet the requirements of Immigration New Zealand, Mr Cho and I agreed that distribution of the I-Phone cards would be channelled through EzyTel Limited to Mr Cho and Mrs Lee and other resellers.

[11]     Minutes  of  a  meeting  that  took  place  in August  2003  between  Mr  Lee, Mr Cho and Mr Kim confirm that it was agreed that Mr Kim‟s company, EzyTel,

was to be a conduit for the distribution of the I-Phone cards to the resellers.  Mr Lee

3 It can be observed that EzyTel was therefore incorporated five days before the plaintiff company.

confirmed in his evidence that there was no commercial rationale for this and that its sole purpose was to facilitate Mr Kim‟s application for residency.

[12]     As will be set out in more detail later, Mr Kim managed WorldTel‟s day to day operations as well as running (with his wife) the EzyTel business.  He also had an access code for WorldTel‟s computer and could therefore arrange top ups.

[13]     Separate litigation between WorldTel and Mr Kim and his wife Ms Han has recently culminated in another judgment of this Court.4   At [9] and [10] of Courtney J‟s judgment she described the culmination of Mr Kim‟s involvement with Worldtel as follows:

[9]       On Mr Lee‟s evidence Mr Kim‟s salary was only $2,000 per month, so  it  seemed  that  Mr Kim‟s  income  was  to  come  mainly  from EzyTel. However, Mr Kim, who had worked as an engineer in Korea, found selling difficult. In late 2008 Mr Lee began to suspect irregularities in the supply to retailers  of  I-Phone  cards.  He  appears  not  to  have  confronted  Mr  Kim directly but, instead, advised him of his intention to re-arrange the management responsibilities within Worldtel so that another Worldtel employee would take over responsibility for stock control. Mr Kim was unenthusiastic about this idea.

[10]     On 10 February 2009 there was a meeting at which Mr Lee made it clear that Mr Kim was to effect transfer of these duties. On 12 February

2009 Mr Kim did not come to work. He could not be contacted on his mobile phone and a search of his office revealed that business and financial
records belonging to Worldtel were missing. It soon became evident that Mr Kim had simply returned to Korea. Ms Han claims that he has not been in direct contact with her since February 2009. She remains in New Zealand

with her daughter and seems to have no plans to return to Korea.

[14]     Following these events there was a meeting between Mr Lee and Mr Cho and it seems they tried to piece together what had occurred.  Mr Lee replaced Mr Kim and Mr Ma as director of Worldtel on 16 February 2009.  On legal advice, Mr Cho later ceased co-operating with Mr Lee.

[15]     The  nature  of  Worldtel‟s  litigation  against  Mr  Kim  and  his  wife  was

described by Courtney J as follows:

[1]       ...  The  defendants,  Mr  Kim  and  his  wife,  Ms  Han,  were  the shareholders  and  directors of  EzyTel.  Between 2003  and  2009, the first defendant, Mr Kim, was also the managing director of WorldTel. WorldTel

4 WorldTel NZ Ltd v Jae Kap Kim HC Auckland CIV-2009-404-001158, 30 September 2011.

alleges that the defendants converted a large number of I-Phone cards, and dishonestly failed to account for the proceeds of both phone cards and “top- up” payments on reactivated I-Phone cards.

[2]       Mr  Kim  returned  to  Korea  in  2009  and  WorldTel  has  obtained judgment against him by way of formal proof. This judgment deals only with the allegations against Ms Han, namely:

(a)     Conversion of I-Phone cards;

(b)     In the alternative, money had and received/knowing receipt in relation to the proceeds of sale from conversion of the I-Phone cards;

(c)     Dishonest assistance in relation to the proceeds of sale of the converted I-Phone cards and top-up fees.

[3]       WorldTel also asserted conversion by Ms Han of various financial records of which Ms Han acknowledged having possession and was willing to return. ...

[16]     Notwithstanding what Courtney J said at [2] of that decision, judgment does not in fact appear to have yet been entered against Mr Kim.  However as Courtney J noted at [12] of her judgment, he was debarred from defending the proceedings on

8 June 2011 by Rodney Hansen J and it can be assumed that entry of judgment against him is probably now merely a formality.

[17]     As regards Ms Han‟s liability, Courtney J rejected most of WorldTel‟s claims against her on the basis that she did not have sufficient knowledge of the relevant circumstances to found the claims.  Ms Han was, however, found liable for knowing receipt in relation to funds or assets that were under her control after freezing orders had been made and also for conversion of I-Phone cards.

[18]     As far as I am aware, no claim has ever been made by WorldTel against EzyTel or Mr Kim in relation to the payments and transfers that are the subject of the second category of claims against the defendants in this proceeding.   It is not in dispute, however, that it was Mr Kim who would have benefitted from those payments and transfers.

Pleadings and procedural history

[19]     The pleadings and procedural history of the present claim are in my view of some relevance and I therefore set it out in some detail below.

[20]     WorldTel‟s original statement of claim was filed on 30 March 2009, shortly after Mr Kim had fled to Korea.  In it, there were two causes of action, for monies had and received against Mr Cho and his wife in relation to the top ups and an “action for an account and inquiry” against Mr Cho in relation to the transfers.  In the pleading of the first cause of action, it was alleged that:

On or about July 2003, the plaintiff appointed the defendants as its agent for the  resale  of  the  plaintiff‟s  I-Phone  call  cards  and  telecommunication services. ...

... The first defendant was authorised by the plaintiff, and the first defendant was given access to use the plaintiff‟s facility for recharging expired I-Phone call cards.  It was the responsibility of the defendants to collect the top up charges on the plaintiff‟s behalf and to remit the same to the plaintiff on a monthly basis.

[21]     On 30 July 2009, Associate Judge Doogue gave judgment on the account and inquiries issue.5   At this point, the defendants were represented by counsel.  In his judgment, Associate Judge Doogue clearly sets out their position in relation to the claims.  I repeat his summaries here because in my view they largely encapsulate the defendants‟ position before me.  In relation to the top-ups Associate Judge Doogue said at [8] – [10] of his judgment:

[8]     Mr Campbell [the defendants‟ lawyer] also said that the defendants bought the call cards from EzyTel Limited, rather than from the plaintiff. As to the top-up charges, the first defendant submits that a preliminary issue arises as to whether the defendants have any liability on this claim:

(a)       Although the defendants accessed the plaintiff‟s facility to recharge expired call cards, the defendants‟ say it was not their responsibility to collect top-up charges on the plaintiff‟s behalf.

(b)       While the plaintiff says that it invoiced the defendants for the top-up charges that the defendants allegedly collected, it has not produced any such invoices. However, it has produced invoices for call cards and for line rentals.

5 Worldtel NZ Ltd v Cho (2009) 19 PRNZ 844.

(c)       The first defendant has produced examples of the only other type of invoice from the plaintiff to the defendants, for termination fees. The first defendant says that the plaintiff‟s  charge for the top-ups was included in those invoices.   The plaintiff‟s claim for top-up charges  is  far  in  excess  of  the  amounts  that  it  invoiced  the defendants.

[22]     In  relation  to  the  transfer  of  funds  cause  of  action,  Mr  Cho‟s lawyer submitted that the nature of the claim was unclear because, at that point, only an account and inquiry had been sought.  The learned Associate Judge said, however, that the statement of claim pleaded that the transfers of funds were unauthorised and unlawful and concluded that “the form of the pleading is sufficient to disclose a claim for money had and received”.  The application for an account and inquiry was declined, principally on the basis that the Court needed to be satisfied before making such an order that there was a liability on the part of a defendant to account.  The existence of such liability was disputed, because:

[Mr Cho] says that he acted at the behest of, and on the instruction of, the then manager of the plaintiff in making the transfers.

[23]     On 15 October 2009, an amended statement of claim was filed.  It contained a new pleading that an oral agreement had been entered into between Mr Lee and Mr Cho in July 2003 about the establishment and operation of the plaintiff.  There was also a new first cause of action related to I-Phone cards supplied by the plaintiff to the defendants for which it was alleged that payment had not been made.  The total sum claimed in relation to these cards was $126,954.   This claim was later abandoned.

[24]     The second cause of action related to the top-ups.  The previous allegation that the defendants were obliged to collect the top up charges on behalf of the plaintiffs was omitted and the new cause of action appears to have been in contract. There was a third, unjust enrichment, cause of action also relating to the top ups  and fourth cause of action relating to alleged non-payment of telecommunication line and carrier services in the sum of $21,656.38.

[25]     The fifth cause of action was against Mr Cho only and related to the funds transfer and was based on an alleged breach of his duty as a de-facto director of WorldTel.

[26]     On 3 December 2010, a second amended statement of claim was filed which, for the first time, included the matter of the payments to Ezytel.  It pleaded:

(a)      a single cause of action in relation to the top up fees (which again appears to be in contract);

(b)a second cause of action against Mr Cho only for breach of his duty as a de facto director in relation to the transfers and payments made to EzyTel;

(c)      a third cause of action based on dishonest assistance in relation to the transfers; and

(d)a fourth cause of action relating to dishonest assistance in relation to the payments.

[27]     By this point the defendants were no longer represented by counsel.  Mr Cho advised that that was because they had run out of money.  But on 15 February 2011 they filed a statement of defence to the second amended statement of claim.  The statement of defence was a full and informative document although it arguably did not follow the standard mode of pleading.  It appears that an issue was taken by the plaintiff with that and on 8 March 2011, Associate Judge Matthews directed that the defendants were to file and serve a compliant statement of defence by 22 March

2011. The defendants accordingly did so.

[28]     On 16 May 2011, the plaintiff sought to file a “Fourth amended statement of claim”.6   Two additional causes of action, namely a reinstated claim for relief based on unjust enrichment in relation to the top ups and a new claim based on breach of warranty of authority.  Because the proceeding had by then been set down for trial, leave was required.

[29]     The application for leave was dealt with by Andrews J on 16 May 2011. Andrews J recorded that:

6 It is not entirely clear to me whether there was ever a third amended statement of claim. The fourth

amended statement of claim was, nonetheless, the plaintiff ‟s fourth attempt at pleading its claims.

The defendants are not present in court today and I am advised that they are unrepresented.  Further, in the light of the fact that the defendants generally require the assistance of an interpreter, I am concerned as to their position in respect of receiving a further amended statement of claim close to trial.

However, having discussed the matter with Mr Steele I am satisfied that the matter will be appropriately dealt with if Mr Steele is to serve with the fourth amended statement of claim, an explanatory statement which makes it clear what changes have been made to the amended statement of claim.

[30]     The defendants filed a further statement of defence to that fourth amended statement of claim on 10 June 2011. That, together with the statement of claim dated

16 May 2011 are the operative pleadings before me.

[31]     For  reasons  that  will  become  evident  later  in  this  judgment,  it  is  also important to refer specifically to aspects of those pleadings.

[32]     First, I record that the statement of claim begins by describing the operation of the I-Phone call cards.  No issue was taken with that description in the statement of defence.  However, at paras 4 and 5 of the statement of claim the plaintiff says:

4.Upon reaching its maximum monetary value the card expires, but the holder of the card is able to recharge that card upon payment of a top-up charge of an amount equivalent to the designated maximum monetary value of the card.

5.The top up charges would be paid by a customer immediately before the recharge was carried out, as the first and second defendants were to pay or remit to the plaintiff on a monthly basis less their commission of 30%.

[33]     To those allegations the defendants pleaded:

4.They admit that upon reaching its maximum monetary limit the card expires, but otherwise deny paragraph 4. They say that after the card expires the customer is able to purchase further credits from whichever person sold the card to the customer, for the use of that person‟s telephone service.

5.        They deny each and every allegation in paragraph 5.

[34]     Later at para 9 of the statement of claim the plaintiff pleads the alleged terms of the oral agreement between the plaintiff and Mr Cho reached in early July 2003. The first three pleaded terms of the agreement are admitted and are that:

(a)       Mr Lee and Mr Cho would be the shareholders;

(b)      a bank account would be opened at Kookmin Bank, Auckland; and

(c)       the signatories of the bank account would be Mr Lee and Mr Cho.

[35]     The further terms of the agreement pleaded are denied. The alleged terms are that:

(a)       Mr  Cho  would  have  control  of  the  bank  account  and  pay  all

WorldTel‟s accounts;

(b)Mr  Cho  and  his  wife,  trading  as  ITEL,  would  be  appointed  as WorldTel‟s agents for the resale of I-Phone cards and telecommunication services; and

(c)       Mr Cho and his wife would be given access to and the use of the

WorldTel‟s recharge facility for the recharge of expired I-Phone cards. [36]   The defendants then give further particulars of their denials. They said that:

(a)       Prior to the oral agreement their company Cosmobridge had, since

1998,  been  selling  an  internet  telephone  service  in  New  Zealand

(under the trading name ITEL); (b)      That service comprised:

(i)Selling ITEL branded phone call-cards (ITEL cards), which entitled the holders to use Cosmobridge‟s internet telephone service up to the value of the cards; and

(ii)Direct selling, in which Cosmobridge sold credits for the use of  its  internet  telephone  service  either  to  customers  who wished to recharge their expired ITEL card or directly to customers who had never before purchased ITEL cards.

(c)      As regards “direct selling” the credits were supplied by crediting a customer‟s account on Cosmobridge‟s telecommunications server, which was located at the offices of World-Net  Limited, 17 South Street, Newton, Auckland.   That server was accessed and used remotely by Mr Cho.

(d)      In  order  to  provide  an  internet  telephone service to  its  customers

Cosmobridge purchased:

(i)internet gateway, telehousing of server, and landlines services from World-Net Limited, a company owned by Mr Lee, for which it paid World-Net Limited line rental fees; and

(ii)a “carrier voice” service from a Korean telecommunications company by the name of Telecentro Co, Limited (Telecentro), for which it paid Telecentro termination fees.

(e)      It was agreed at the meeting that once Worldtel was up and running Cosmobridge  would  stop  selling  its  own  iTEL  cards  and  would instead buy and sell I-Phone cards, but would continue to operate the direct selling part of its business.  For that purpose it would continue:

(i)to have a telecommunications server at the offices of World- Net Limited, which Mr Cho would continue to access and use remotely; and

(ii)      to  purchase,  on  its  own  account,  services  from  World-Net

Limited and a carrier voice service from Telecentro.

[37]     Later in the statement of defence it is pleaded that in about May 2006 (after Cosmobridge‟s operations had been taken over by the defendants) the telecommunications server that had been owned by Cosmobridge was replaced by a telecommunications served owned by WorldTel.   From that time onwards, the defendants say that they accessed WorldTel‟s server to carry on the direct selling part

of their business  and  paid WorldTel  for the  carrier  voice  service that  they had previously obtained from Telecentro.   It is on this basis that they deny WorldTel‟s pleading that:

The defendants were given access to and the use of the plaintiff‟s recharge facility for recharging expired I-Phone call-cards sold by the defendants and the defendants remit 70% of the recharge fees to the plaintiff monthly.

[38]     In short, the defendants say that while they were given access to, and used, the plaintiff‟s server/recharge facility they were charged, and paid, for that by way of carrier voice fees.

[39]     As far as the transfers and payments causes of action are concerned, Mr Cho accepts that they were made and that he made no inquiries but says that:

(a)       the scope of his authority was to sign cheques and make payments when instructed to do so by WorldTel; and

(b)      the payments and transfers were made at the request of Mr Kim (or by

Mr Lee acting through Mr Kim).

Preliminary comments

(i) Approach to self-represented defendants

[40]     As will be evident from the procedural narrative above, the defendants have, since 2010, been self-represented (or, rather, they have both been represented by Mr Cho).  Mr Cho has a very limited command of English and, although he read his brief in English, the remainder of his evidence and his submissions were given in Korean.   Understandably, he had little if any understanding of common law trial processes and he was incapable of making submissions about the law.  That is not an inconsequential matter given that aspects of WorldTel‟s claim (in its evolved form) raise potentially arcane issues of law and equity that have been known to give even seasoned legal practitioners pause for thought.

[41]     The proper approach of the Courts to self-represented litigants has recently been canvassed in some detail by Rodney Hansen J in Lee v Composite Cladding & Signage Manufacture and Installations Ltd7 where he said:

[37]     The question of when a Judge should intervene in order to assist an unrepresented litigant is a difficult one which depends very much on the facts of the case. The balancing of interests involved is discussed in the following passage of a submission by the Australian Human Rights Law Resource Centre:

(e) Duties to Self-Represented Litigants

67. The right to procedural fairness takes on particular importance when  an  unrepresented  litigant  is  involved.  The  right  to  a  fair hearing dictates that there will be circumstances where the court or tribunal will have to assist an unrepresented litigant, depending on the facts of the situation. The Victorian Civil and Administrative Tribunal noted in Seachange Management Pty Ltd v Bevnol Constructions & Developments Pty Ltd & Ors (Domestic Building) that this obligation imposes a positive duty on a court or tribunal to give such assistance as is necessary to ensure the proceedings are fair.  The  application  of  the  duty  will  depend  on  the  litigant (including the litigant‟s intelligence and understanding of the case), the nature of the case and the institutional framework governing the relevant court or tribunal. Further, the duty to assist may extend to issues of law as well as procedure. However, the judge or tribunal member  must  be  careful  not  to  become  advocate  of  a  self- represented litigant and must keep in mind the need to afford procedural fairness to other parties. [Seachange Management Pty Ltd v Bevnol Constructions & Developments Pty Ltd & Ors (Domestic Building [2008] VCAT 1479]. In the Tomasevic case, Bell J said of a court‟s obligation to provide assistance to unrepresented litigants:

127 Every judge in every trial, both criminal and civil, has an overriding duty to ensure the trial is fair. A fair trial is the only trial a judge can judicially conduct. The duty is inherent in the rule of law and the judicial process. Equality before the law and equal access to justice are fundamental human rights specified in the ICCPR. The proper performance of the duty to ensure a fair trial would also ensure those rights are promoted and respected.

128   Most   self-represented   persons   lack   two   qualities   that competent lawyers possess – legal skill and ability, and objectivity. Self-represented litigants therefore usually stand in a position of grave  disadvantage  in  legal  proceedings  of  all  kinds. Consequently, a judge has a duty to ensure a fair trial by giving self-represented litigants due assistance. Doing so helps to ensure the litigant is treated equally before the law and has equal access to justice.

129 The matters regarding which the judge must assist a  self- represented litigant are not limited, for the judge must give such

7 Lee v Composite Cladding & Signage Manufacture and Installations Ltd HC Whangarei CIV-2009-

488-828, 16 December 2010.

assistance as is necessary to ensure a fair trial. The proper scope of the assistance depends on the particular litigant and the nature of the case. The touchstones are fairness and balance. The assistance may extend to issues concerning substantive legal rights as well as to issues concerning the procedure that will be followed. (Tomasevic v Travaglini & Anor [2007] VSC 337.)

[38]      The need to ensure that an unrepresented litigant is not denied basic fair  trial  rights  is  well  recognised  in  New  Zealand.  In  the  criminal jurisdiction there is a statutory obligation to advise an unrepresented accused of his or her basic rights.  Written materials explaining trial procedures and the rights of an accused are routinely provided to an unrepresented accused and are supplemented by oral advice in the course of the trial. In the civil jurisdiction judges afford assistance to lay litigants in a range of ways – by ensuring that an available legal point is considered; adopting a more lenient approach to pleadings (as indeed the Judge did in this case); relaxing procedural requirements; and in sparing the litigant the consequences of hasty, ill-considered, intemperate actions. Interventions of this nature ensure that a lay litigant‟s basic rights are not compromised without unfairly disadvantaging other parties.

(footnotes omitted)

[42]     As well as the usual impediments faced by litigants in person Mr Cho faced, as I have said, the additional hurdle in the present case of a significant language barrier.

[43]     Because of these issues there are a number of ways in which I relaxed, or propose to relax, certain of the procedural strictures that Mr Cho might otherwise have faced.

[44]     First, and in the context of the hearing itself, I simply record that there was considerably more questioning of witnesses from the bench than there would ordinarily be.

[45]     Secondly, to the extent Mr Liew sought to rely in closing on the rule in Browne v Dunn8  in relation to matters said not to have been put to Mr Lee by Mr Cho I intend to take a liberal approach.  I do so because, as the traversal of the procedural history above makes clear, Mr Liew and Mr Lee can have been in no doubt as to Mr Cho‟s position and, more particularly, that he denied certain key factual matters.  For that reason I do not consider that any unfairness flows to the

plaintiff from such an approach.

8 Browne v Dunn (1893) 6R 67 (HL).

[46]     Thirdly, I reject Mr Liew‟s reliance in his submissions on the admission said to have been made in para 15 of the operative statement of defence that “During the period from May 2006 to February 2009, the defendants accessed and used the plaintiff‟s recharge facility to recharge expired I-Phone cards sold by them.”  I do so because it is, in my view, clear enough from the remainder of the statement of defence, and from what Mr Cho stated in Court what the defendants‟ position in fact was.

[47]     Lastly,  I view with considerable caution Mr Liew‟s cross-examination of Mr Cho about apparent discrepancies in his evidence.  By way of example I refer to the following exchange in his cross-examination of Mr Cho:

Q...  And even though the cards were supplied to you by EzyTel, you paid the 70% to the plaintiff did you not?

A:   No, it is not right because cards were supplied by EzyTel to the party I

have to pay for that is still EzyTel.

Q:   I put it to you that that‟s not correct, is it?

A:   Say it again.

Q:   I put it to you that what you've just said is not correct and the reason why I say it‟s not correct is that it‟s inconsistent with what you said in your brief?

A:   I deny it.

Q:   You deny it? A:     Yes.

Q:   Can you remember what you said in your brief? A:  Yes.

Q:   Now in paragraph 4.2 on page 5 you said, “As a wholesaler of the iPhone cards, the first defendant distributes the cards to retailers and pays 70% of sales proceeds to the plaintiff.  All such payments were made to the plaintiff.”

A:   I admit that in my brief it says is paid to plaintiff but it was omission.

It was paid to the plaintiff through EzyTel, “through EzyTel” is omit, omitted.

Q:   It did not say that, did it, paragraph 4.2 did not say that?

A:   When I was, ah, preparing my brief, I didn‟t mean to but I forgot

through EzyTel.-

Q:   I put it to you that you are now lying aren‟t you?

[48]     More particularly I reject any submission that, based on such questioning, it can fairly be concluded that Mr Cho was an untruthful or evasive witness.   I am fortified in that conclusion by the fact that in relation to the particular topic that was the subject  of the questioning above Mr Cho‟s answers were borne out  by the documentary evidence.  Invoices later produced by Mr Cho made it quite clear that ITEL was in fact invoiced by EzyTel for I-Phone cards from 26 August 2003 until March 2008 and only subsequently by WorldTel.

(ii) Evidentiary difficulties

[49]     Most of the evidence in the trial was given in Korean.   There were two translators, both of whom were accredited but who, on occasion, could not agree. Aspects of the evidence were moderately technical, and Mr Lee and Mr Cho did not agree about certain key technical matters.  No experts were called by either side to explain such matters and I am, for example, left in some doubt about the meaning of “carrier voice”, and “termination” fees, notwithstanding that they are clearly commonplace in the telecommunications industry.

[50]     These difficulties were compounded by a significant paucity of documentary evidence.   While I accept that some of these absences can be explained by the defalcation of Mr Kim, his actions do not (for example) account for the:

(a)       absence of any written agreement between WorldTel and any of its I- phone card re-sellers (including the defendants); and

(b)complete (5½ year) absence of invoices or others forms of demand in relation to the top up payments now claimed.

[51]     Given the amount of money said to be involved (a quarter of a million dollars as between WorldTel and the defendants) these lacunae cannot simply be explained by lax business practices.  They almost inevitably give rise to an inference that it is adverse to critical aspects of the plaintiff‟s claims.

[52]    My own assessment of the evidence as a whole, suggests that most of WorldTel‟s difficulties in mounting and supporting its claims are principally the product of a lack of clarity around its own business arrangements with Mr Kim and EzyTel.  This lack of clarity no doubt existed because the principal focus of those arrangements was only secondarily a business one.   Rather, the object of the arrangements (as Mr Lee freely admitted) was furthering Mr Kim‟s immigration status.

[53]     Having recorded these difficulties and the reservations to which they give rise, I now turn to set out my assessment of the facts of the matter, based on the evidence that I heard.

Facts and evidence

[54]     The basic facts pertaining to WorldTel‟s establishment and ownership have been set out at the beginning of this judgment.  As noted there, in 2003 both Mr Lee and Mr Cho were the authorised signatories on WorldTel‟s bank account.   But the Director‟s  Certificate  that  confirms  Kookmin  Bank‟s  mandate  for  WorldTel‟s account shows that the scope of their respective authorities were different.  While Mr Cho  was  authorised  to  sign  cheques,  promissory  notes,  orders  and  bills  of exchange, it was Mr Lee who could arrange and sign advances, loans, overdrafts, mortgages, guarantees and so on.

[55]     At all times that are material to these proceedings, Mr Kim was a director of WorldTel.  Although Mr Ma was also a director, there is no evidence that he had anything to do with the running of the company.  In my view WorldTel‟s business was, from its inception, managed on a day to day basis by Mr Lee or Mr Kim.

[56]     Mr Kim worked from the company‟s premises in South Street in Newton and was also paid a small salary by the company.  Upon his appointment as a director, it is my view that he assumed the role of managing director.

[57]     Mr Lee also had an office on the premises (which was the registered address for a number of his companies) and was undoubtedly often present.   By contrast,

Mr Cho was rarely present at WorldTel‟s premises as he operated the ITEL business from his home.

[58]     Mr Kim was Mr Lee‟s friend, not Mr Cho‟s.   It was known to Mr Cho that

Mr Lee had previously given substantial business and personal assistance to Mr Kim.

[59]     I do not consider it established that Mr Cho had any role in the management of WorldTel and I certainly do not consider that he had power, control or authority over WorldTel‟s finances.  WorldTel had its own accountants.  Bank statements were sent to WorldTel‟s address.  There was no evidence whatsoever that he was involved in decision-making of any kind, financial or otherwise.

[60]     In addition, from 2005 onwards Mr Cho‟s interest in the company as an owner was substantially reduced.  Mr Cho said that he was not even told about the rearranged  shareholding  and  in  my  view  it  is  likely  to  have  occurred  at  the instigation of Mr Lee.  Mr Cho‟s uncontested evidence was that he was never invited to any shareholders‟ meetings.  Nor is there evidence that any such meetings were held between August 2003 and February 2009.

[61]     In accordance with the agreement reached in August 2003, between that date and April 2008, invoices for ITEL‟s purchase of I-Phone cards were sent to the defendants exclusively by EzyTel (rather than WorldTel).  From May 2008 onwards, they were invoiced by WorldTel.   ITEL was invoiced for 70 per cent of the face value of the cards purchased.   The defendants (or ITEL) made payment of these invoices to EzyTel and later to WorldTel.

[62]     The top-up telephone number on all the I-Phone cards (including those sold by the defendants) was WorldTel‟s telephone number.   Any holder of a card who dialled that  number to obtain  a top-up  would have gone through  to WorldTel‟s offices where the telephone would have been answered by Mr Kim.  Mr Kim had an access code enabling him to access WorldTel‟s computer for the purposes of topping- up I-Phone cards.

[63]     Neither EzyTel (Mr Kim) nor WorldNet (Mr Ma) had any other business except as resellers of I-Phone cards.  This can be contrasted with Mr Cho‟s ITEL business which predated the incorporation of WorldTel and which, I accept, included what Mr Cho called a “direct selling” aspect that was separate from I-Phone card sales.  The precise nature of this “direct selling” business remains somewhat unclear to me but I accept Mr Cho‟s evidence that:

(a)      it  involved  the  sale  of  recharges,  credits  or  PIN  numbers  (which appear to be the same thing) to ITEL customers; and

(b)from 2006, it involved Mr Cho accessing WorldTel‟s server by means of an access code for which the defendants paid a variable monthly fee (depending on usage).  There is at least some independent support for this  because the invoices  produced  by Mr  Cho  show  that  the “voice carrier” fees paid by the defendants to WorldTel increased markedly from 2006 onwards.

[64]     The  defendants  (ITEL)  were  separately  invoiced  on  a  monthly  basis  by WorldTel for “line charges” and “carrier voice” charges and the defendants (ITEL) made payment to WorldTel of all those invoices.

[65]     In the years 2003 to 2009, ITEL was never expressly or separately invoiced for top-ups and no demand for payment in that regard was ever made by WorldTel, until the commencement of these proceedings.

[66]     In  terms  of  proof  that  the  defendants  had  in  fact  accessed  WorldTel‟s computer  and  obtained  top-ups  for  which  they  did  not  pay,  the  only  relevant evidence was given by Mr Lee‟s son, Jae Choen Lee.  Mr Jae Lee is a director of WorldNet Services Limited, the company responsible for providing “technical support” to WorldTel.  But all that was said about top ups in Mr Jae Lee‟s brief of evidence, dated 5 May 2011 (and which Mr Lee read to Court), was this:

9.Once the customer had used the value assigned to their I-Phone card it became a useless piece of plastic unless and until it was topped up with further calling time.  This require Mr Cho and Mr J Kim to enter WorldTel NZ's computer system to manually increase the calling time

to the specific card number. This could not be done in bulk, but had to be entered card by card.

10.At a physical level, topping up I-Phone cards would be carried out as follows.  The first Step would be to enter the “IP ADDRESS”, in this case:  Only Mr Cho and or Mr J Kim could do this either at the WorldTel NZ office or remotely from their home computers.

11.     The second step was to enter the “user name” and password.  Both Mr Cho and or Mr J Kim had the password.  A copy of the page from the computer screen is attached at page 310 of the Trial Bundle showing what it would have looked like to them at this point.

12.Once into the system all that had to be done was to enter the card number and financial amount of the top up of the card.  A copy of the page from the computer screen is attached at page 311 of the Trial Bundle showing what it would have looked like to them at this point.

[67]     As is tolerably plain from this extract, Mr Jae Lee‟s evidential statement (which is all Mr Cho would have received in advance of the trial) did not actually make  clear  a  link  between  any  particular  top-up  activity  and  the  defendants. However, during the hearing Mr Liew asked Mr Lee some further questions, as follows.

Q:       Now, Mr Lee I just have one or two additional questions for you.

Can you turn to page 30 of the bundle please.  Now that continues up to page 99, does it not?

A:       Yes.

Q:       Can you tell the Court what that document is?

A:       Um, this is a list of, ah, top-ups to the cards, um, prepaid top-ups that

Mr Cho has made.

Q:       Can you please explain the columns in the document on page 30 please, what are those columns?

A:       Okay,  um,  they  look  like  six  columns,  actually  there  are  three columns only, um, first column is serial number of each card, second column is, ah, date and time of the top-up, third column is the actual amount that was topped up to the card.

Q:       And the other three columns beside it would also have the same information?

A:       Yes, it‟s just continuous.

Q:       Continuation from the first three columns? A:      Correct.

[68]     As Mr Lee said, the document contained in the trial bundle between pages 30 and 999  simply comprised some 5000 – 6000 rows, divided into three columns, which looked like this:

CardSerialNo  TopupDateTime  TopupAmount

10000123136  25-05-06 7:18  55

10000003463  25-05-06 9:26  110

[69]     The provenance of the 69 pages and the data contained on them was not explained by Mr Lee.  They had plainly been created for the purpose of the litigation and were not simply computer print outs.  Nor on their face did they constitute any clear or obvious evidential link or foundation for Mr Lee‟s statement that it was “a list of ... prepaid top-ups that Mr Cho has made”.

[70]     Possibly because Mr Cho may not have been aware (prior to Mr Liew‟s questioning of Mr Lee) that the document was going to be referred to as proof of the occasions  upon  which  he had  accessed the plaintiff‟s  computer,  he did  not  ask Mr Lee any questions about it. At the completion of his cross-examination there was therefore the following exchange between Mr Lee and the bench:

Q:       I think you said in your evidence that those pages, pages 30 to 99 show that the top-ups were made by Mr Cho?

A:       Yes.

Q:       And how can you tell that from that document? A: This is a list of top-up made by Cho, um, -

Q:       But how do we know that?

A:       In the system there‟s identification.  It‟s, a top-up is prefixed by ITL, TEL, PTL, there‟s a few codes and Jae Kim were only using ITL code and other codes, PTL, TEL are the prefixes who were used by Mr Cho only.

Q:       And why was that?   I don‟t actually know what PTL, what‟s  PTL

and ...

A:       That identifies who topped up.

9 Mr Lee (senior) also referred in his evidence to pages 30 – 99 in the Bundle as “70 pages of print-

out listing the individual “top ups” made by Mr Cho‟s pass code” but did not explain it further.

Q:       I see

A:       Yes, it‟s an identification.   J Kim was only topping up, ah, only topped up IT cards prefixed with ITL only.  This is the top of list of all other cards prefixed with, ah, PTL, TEL and so on.

Q:       So the cards themselves had those prefixed on them? A:    Yes.

Q:       And they were the cards that Mr Cho –

A:       Yes.

Q:       - was in charge of?

A:       Yeah, so this is only – it doesn‟t include any ITEL top-ups, only Mr

Cho‟s top-ups.

[71]     Notwithstanding this evidence, the data on the document to which Mr Lee was referring did not in fact include any reference to the codes “TEL” or “PTL”. The document did not in fact contain any reference to codes at all.10   To the extent the serial numbers on the cards identified them as I-Phone cards that had been sold by the defendants, I am not persuaded that the recharges did not occur by the holders of the relevant card telephoning WorldTel (by using the phone number on the card)

and obtaining top ups directly (such top ups would likely be processed by Mr Kim). Lastly, I note that at no time was Mr Cho asked whether he had made the 5000 to

6000 top ups listed on those pages.

[72]     As I have said, Mr Cho was rarely present at WorldTel‟s premises as he operated the ITEL business from his home.  Mr Kim would, however, periodically ask him to sign cheques and to make transfers and payments on WorldTel‟s behalf. Mr Cho was not always shown the relevant invoices and did not inquire as to the precise purpose of the payments.   He signed cash cheques (although in smaller

amounts than those expressly made out to EzyTel) and also signed blank cheques.

10 A perusal of the court file suggests that the data on these pages may have been extrapolated from the original voluminous (600 page) computer printouts that were annexed to an affidavit sworn by Mr Lee (senior) in May 2009.  Those original print outs include on them a column which records (under the heading “Group”) the codes “ATL”, “TEL” and “PTL”.  However none of the card serial numbers listed on those printouts match the serial numbers on the version in the trial bundle. And in any event the original printouts were not referred to by Jae Lee and were not part of the evidence before me.  In another 2009 affidavit Mr Lee also referred to the codes “ATL” and “TEL” being assigned to Mr Cho in relation to the provision of the post-paid telecommunication services, for which Mr Cho has paid, but again, that was not part of the evidence before me.

[73]     I find that Mr Cho considered himself obliged to do Mr Kim‟s bidding and genuinely believed that Mr Kim‟s actions were authorised or overseen by Mr Lee. He believed that the larger payments ostensibly made to Korean companies were for “termination  fees”  associated  with  WorldTel‟s  business  and  that,  for  reasons explained to him by Mr Kim, some of them were required to be made through an intermediary company called Myung Co.  No doubt his view of the cheques written to EzyTel would have been coloured by his knowledge of the relationship between Mr Lee and Mr Kim and of the assistance that Mr Lee had been providing to Mr Kim.

[74]     I accept that it has subsequently been established that none of the payments and the transfers that are the subject of these proceedings were made for legitimate business purposes and were almost certainly the result of a sustained fraud perpetuated on WorldTel by its managing director, Mr Kim.

Assessing the claims against the evidence

Top-up claims – the first, second and third causes of action

[75]     The first cause of action simply claims money said to be payable by the defendants for the top up of expired I-Phone cards between May 2006 and February

2009 using the plaintiff ‟s top up facility. The claim rests on the allegations of an oral agreement entered into between WorldTel and the defendants either in 2003 or in

2006.  The fact that the date should be uncertain is, in itself, telling.

[76]     The second cause of action is pleaded in the alternative and is said to be based on quantum meruit or quantum valebat.   The plaintiff ‟s position is that by receiving, but failing to pay for, the top-ups, the defendants have unjustly enriched themselves at the expense of the plaintiff.

[77]     The third cause of action was pleaded as a result of the plaintiff‟s concern about any technical point being taken about whether the alleged agreement was with the defendants or with Cosmobridge.   However no such point was taken and the pleading does not need to be considered further.

[78]     As far as the first and second cause of action are concerned there appear to me to be certain critical matters that WorldTel must establish in order to succeed.  In broad terms, these are:

(a)      that Mr Cho accessed WorldTel‟s computer to obtain top ups on the occasions alleged and to the values particularised in the schedules to the claims;

(b)that there was an agreement or understanding by Mr and Mrs Cho (or Cosmobridge)  that  they  would  pay  WorldTel  70  per  cent  of  the amount of any top-ups they obtained on these occasions; and

(c)       that no payment was made by the defendants.

[79]     On the evidence I have heard I do not consider that WorldTel has satisfied me

(on the balance of probabilities) of any of these things.

[80] I have set out at [71] above my reservations about the plaintiff‟s evidence regarding the occasions on which the Worldtel computer was in fact accessed by Mr Cho. Those reservations necessarily mean that I do not find that the plaintiff has established (on the balance of probabilities) the necessary factual underpinning for its top-up claims.

[81]     The fact of course remains that Mr Cho accepts (and I accept) that he did remotely access WorldTel‟s server.  In light of the view I have formed it is not, of course,  necessary  for  me  to  be  satisfied  of  the  truth  or  completeness  of  his explanation of the circumstances in which this access arose.  Nonetheless it seems to me that the plausibility of his explanation serves to reinforce my conclusion.  That explanation was that Mr Cho initially conducted ITEL‟s “direct selling” business (which involved recharges and the sale of PIN numbers) by remotely accessing his own server which was housed at WorldTel‟s premises.  This changed in 2006 when his server was replaced by one owned by WorldTel to which he was granted access for the same purpose.  He was charged, and paid, for that access by way of monthly “carrier voice” invoices.

[82]     My conclusions are further and separately reinforced by my view that the plaintiff has failed to establish the existence of any different or separate top up agreement or understanding with Mr Cho.   I accept that there was an agreement relating to the re-sale by the defendants of the plaintiff‟s I-Phone cards whereby the defendants would be invoiced (and would pay) 70 per cent of the face value of the cards they received.   But those invoices were issued and paid (either by and to) EzyTel or WorldTel.  I do not accept, however, Mr Lee‟s evidence that there was a further agreement or understanding in similar terms about top-ups because:

(a)      Mr Cho denied the existence of such an agreement and, as I have said, gave a plausible alternative explanation of the purpose for which he was given the access code to WorldTel‟s computer and the use he made of it;

(b)there is no documentary evidence to support such an agreement either between WorldTel and the defendants or, indeed, between WorldTel and  its  other  phone  card  resellers,  namely  Mr  Kim  (EzyTel)  and Mr Ma (WorldNet);

(c)      the defendants never (over a six year period) sent a single invoice for top-up charges and nor was any other form of demand made;11 and

(d)any  suggestion   that   the  defendants   were  themselves   somehow required to account for the top ups in the absence of such invoices defies commercial reality.

[83]     It follows from the above that I also do not consider that the plaintiff has established on the balance of probabilities that the defendants received any benefit at the plaintiff‟s expense as alleged in the second cause of action.  Rather, in my view the evidence tends to suggest that the defendants used the plaintiff‟s recharge facility

but paid the plaintiff for it.

11 I comment without deciding that the clear and complete failure by WorldTel to invoice the defendants or to demand payment for the top ups between 2006 and 2009 (or previously) might (if I am wrong in my primary conclusions) also give rise to an estoppel defence.

Fourth cause of action – transfers of funds

[84]     The fourth cause of action relates to the transfer of funds by Mr Cho from the plaintiff‟s bank account between 7 August 2007 and 9 February 2009.  The plaintiff says that in making the transfers, Mr Cho acted in breach of his duty as a de facto director and/or as agent of the plaintiff “to act with due care, skill and diligence in relation  to  the  operation  of  the  plaintiff ‟s  bank  account,  and  to  make  full  and complete disclosure to the plaintiff of all cheques drawn on or transfers made from the plaintiff‟s bank account.”

[85]     It is not disputed that (on the basis of the facts that have subsequently become known) the transfers were not for any legitimate business purposes.

[86]     As far as the de facto director claim is concerned the leading authority is the judgment in Re Hydrodan (Corby) Ltd.12    There Millett J (as he then was) said at

163:

A de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned in the management of the company‟s  affairs or undertook tasks  in  relation  to  its  business  which  can  properly  be  performed  by  a manager below board level.

[87]     Later,  in  Re  Kaytech  International  Plc13   Robert  Walker  LJ  cited  the following examples of cases in which unsuccessful attempts have been made to have a person categorised as a de facto director:14

... In Richborough [Richborough Furniture Ltd [1996] BCC 155], Mr Lloyd QC decided that Mr Muncaster, a business consultant providing computer and other management services to a furniture-making company, was not a de facto director, despite his having undertaken extensive negotiations with creditors and performed some of the functions of a finance director. In Tjolle [Secretary of State for Trade and Industry v Tjolle [1998] BCLC 333] Jacob J reached the same conclusion in relation to Mrs Kenning, a manager employed by a holiday company who was given the courtesy title of deputy

12 Re Hydrodan (Corby) Ltd [1994] BCC 161 (ChD).

13Re Kaytech International Plc [1999] BCC 390 (CA).

managing director and sometimes attended board meetings, but was never in a position of real power.

[88]     In Secretary of State for Trade and Industry v Tjolle15 Jacob J referred to the tests that had been applied in Richborough and Re Hydrodan (Corby) Ltd and said:16

For myself I think it may be difficult to postulate any one decisive test. I think what is involved is very much a question of degree. The court takes into account all the relevant factors. Those factors include at least whether or not there was a holding out by the company of the individual as a director, whether  the  individual  used  the  title,  whether the individual  had  proper information (eg management accounts) on which to base decisions, and whether the individual had to make major decisions and so on. Taking all these factors into account, one asks „was this individual part of the corporate governing structure‟, answering it as a kind of jury question. In deciding this, one bears very much in mind why one is asking the question. That is why I think the passage quoted from Millett J is important. There would be no justification for the law making a person liable to misfeasance or disqualification proceedings unless they were truly in a position to exercise the powers and discharge the functions of a director. Otherwise they would be made liable for events over which they had no real control, either in fact or law.

In this regard I think it very important to remember that an alleged de facto director can only be such by reason of the factual position. De jure directors have both common law and statutory powers and duties. In particular they are entitled to be at the heart of the company, and to have proper details of its financial position. They cannot be heard to say: „I had no way of knowing what the position was‟. But an alleged de facto director is in a different position. De facto they may have had no knowledge and no right or means to have that knowledge. This is important in this case, because the Secretary of State‟s case in part relies on what he alleges Mrs Kenning ought to have known. Mr Davies contends that one is either a director or not. He says there are no different rules for de facto directors as opposed to de jure directors. I think that must be right, but I think it follows that someone who has no, or only peripheral knowledge of matters of vital company concern (eg financial state) and has no right, legal or de facto, to access to such matters is not to be regarded by the law as in substance a director.

[89]     In the present case I do not consider that it has been established that Mr Cho was a de facto director of the plaintiff.  More particularly I consider that the evidence shows:

(a)     Worldtel was run by Mr Kim who was the managing director.

15 Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333 (ChD).

(b)Mr Cho had no power within the company or involvement in its day to day operation.  There is no evidence that Mr Cho was ever held out by the company as a director.

(c)     The  full  extent  of  Mr  Cho‟s involvement  was  his  cheque  signing authority, and by extension, arranging payment of overseas‟ creditors by making international money transfers.  This authority appears to me to have been largely the product of a historical accident (although he was a 40 per cent shareholder at the time he was given that authority, his shareholding was reduced to 10 per cent in 2005).

(d)This authority could not be exercised with any independence, but rather only at the instigation and request of the company, which was embodied in the form of Mr Kim or Mr Lee (Mr Lee could, himself I think, fairly be called a de facto director).

(e)      There  is  no  evidence  that  Mr  Cho  was  kept  informed  of  the company‟s financial position and he had neither the ability nor the right to obtain such knowledge.

(f)      Although  there  was  evidence  that  Mr  Cho  was  involved  in  a  50 minute meeting on 1 August 2003 with Mr Lee and Mr Kim during which “I-Phone service strategy” was discussed, there is no evidence of any further meetings or that Mr Cho ever made decisions on behalf of the company.

[90]     In  terms  of  the  agency  contention,  it  must  be  accepted  that  authorising Mr Cho to sign cheques/make payments on behalf of the company did place him in an agency relationship with the company, albeit a gratuitous one.  Again, however, it is important to be clear about what the scope of his authority was.  The preceding analysis above suggests that this scope was extremely narrow.  But to reiterate, I do not consider that Mr Cho had any control over or power in relation to the plaintiff‟s financial affairs whatsoever.  Any duty he may have had as WorldTel‟s agent could not extend to require him to do something that he was unable to do.   It cannot

therefore be that the scope of his authority could require him to make inquiries before signing the cheques or making the transfers.

[91]     Put simply, then, the scope of Mr Cho‟s agency was to sign cheques or make payments on behalf of WorldTel when requested by one of the directors to do so. That  is,  of  course,  precisely  what  he  did  –  he  signed  cheques  when  asked  by Mr Kim.  Unless he knew that Mr Kim‟s instructions were unlawful or was wilfully blind to that possibility he was required to comply with them.17   The fact that it has subsequently transpired that the requests were themselves made in breach of trust is immaterial.

[92]     The question of Mr Cho‟s knowledge (and wilful blindness) is discussed more fully in relation to the fifth and sixth causes of action below.   Ultimately, however, for the reasons given there, I do not consider that Mr Cho either knew or was wilfully blind about Mr Kim‟s breach of trust.  I do not therefore consider that Mr Cho‟s actions can be said to have been in breach of his duty as the plaintiff‟s agent.

Fifth and sixth causes of action – dishonest assistance

[93]     As an alternative to the fourth cause of action, the fifth cause of action alleges that Mr Cho dishonestly assisted Mr Kim in making the transfers.  The sixth cause of action alleges Mr Cho dishonestly assisted Mr Kim by making 54 cheque payments to Ezytel or to “cash” during the period from 25 January 2005 to 21 January 2009. Again, it is necessarily now accepted that the payments were not made in respect of any legitimate business purpose of the plaintiff

[94]     Dishonest assistance claims were made by WorldTel against Ms Han in the litigation I have referred to earlier above.   In her decision in that case Courtney J comprehensively summarised the law as it then was and noted that the difficulties that had arisen in reconciling recent English decisions had apparently been resolved

for New Zealand purpose by the Court of Appeal‟s decision in Westpac New Zealand

17 Although in a breach of mandate context the recent Supreme Court decision in Westpac v MAP

would appear to confirm this.

Ltd v Map  & Associates Ltd.18     Courtney J‟s  conclusion has subsequently been confirmed by the Supreme Court in its judgment in the appeal from the Court of Appeal‟s decision.19    In upholding the Court of Appeal, Tipping J (speaking for the Court) said:

[26]      In Barlow Clowes, which represented a significant volte-face from the  decision  of  the  House  of  Lords  in  Twinsectra  Ltd  v  Yardley, Lord Hoffmann summarised the state of the law on dishonest assistance. The major difference between Twinsectra and Barlow Clowes is that in the latter case their Lordships recognised, as had Lord Millett in his dissenting speech in Twinsectra, that although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant‟s mental state would be described as dishonest, it is irrelevant that the defendant has different standards and does not appreciate that his conduct, by ordinary standards, would be regarded as dishonest. We would adopt his Lordship‟s summary in Barlow  Clowes  but  with  some  elaboration  as  regards  when  suspicion amounts to dishonesty. In that respect the Privy Council said that the necessary  state  of  mind  could  consist  in  suspicion  combined  with  a conscious decision not to make inquiries which might result in knowledge.

[27]     The key ingredient in the cause of action for dishonest assistance is the need for a dishonest state of mind on the part of the person who assists in the breach of trust. We agree with the statement in Barlow Clowes that such a state of mind may consist in actual knowledge that the transaction is one in which the assistor cannot honestly participate. But it may also consist in what we would describe as a sufficiently strong suspicion of a breach of trust, coupled with a deliberate decision not to make inquiry lest the inquiry result in actual knowledge. For the purpose of this alternative, it is necessary that the strength of the suspicion that a breach of trust is intended makes it dishonest to decide not to make inquiry. That state of mind, which equity equates with actual knowledge, is usually referred to as wilful blindness. It involves shutting one‟s eyes to the obvious and can thus fairly be equated with the dishonesty involved when there is actual knowledge.

[95]     By contrast with the circumstances in Westpac, it can fairly be assumed that there has, in the present case, been in fact (and in law) an underlying breach of trust by Mr Kim.  Although, as I have noted above, it seems that judgment has not been entered against him, the evidence seems overwhelming.  Nor is it in dispute that the payments and transfers made by Mr Cho did in fact assist Mr Kim‟s breach.  The only question therefore is whether Mr Cho had the requisite dishonest state of mind

to render him liable for assisting Mr Kim.

18 Westpac New Zealand Ltd v MAP & Associates Ltd [2010] NZCA 404, [2011] 2 NZLR 90.

19 Westpac New Zealand Ltd v MAP & Associates Ltd [2010] NZSC 89, [2011] 3 NZLR 751.

[96]     I have no hesitation in saying that Mr Cho did not have actual knowledge of what Mr Kim was doing.   His actions at the time, as well as his evidence, were entirely inconsistent with that and I did not really understand Mr Liew to be suggesting otherwise.  As I have said, Mr Cho had no particular relationship with Mr Kim and stood only (as a shareholder in WorldTel) to lose, not to gain, by what transpired.

[97]     Thus the issue is one of whether it can be said that Mr Cho nonetheless shut his eyes to the obvious.   As the Court of Appeal said in Westpac (at [46]) this involves a two stage inquiry:

... we consider that a bank will be liable for dishonest assistance where it has actual knowledge of the circumstances of the transaction (the subjective element) such as to render its participation contrary to normally acceptable standards of honest conduct (the objective element).

[98]     As regards the first stage of the inquiry, I am satisfied that Mr Cho knew that:

(a)      WorldTel‟s managing director, Mr Kim asked him on a reasonably regular basis to transfer moderately large (but under $50,000) sums of money in US dollars to three different Korean bank accounts.

(b)Sums in similar amounts were routinely required to be paid by a business such as WorldTel as (inter alia) “Termination fees” to Korean telecommunication providers.

(c)      Mr  Kim  had  been  entrusted  with  running WorldTel‟s business  by

Mr Lee (who was effectively WorldTel‟s majority shareholder).

(d)Mr   Lee   had   provided   considerable   assistance   to   Mr   Kim   in establishing his EasyTel business.   In doing so, Mr Lee (WorldTel) had been prepared to authorise steps that served no commercial purpose but were rather aimed at making EzyTel‟s business look good “on paper” to achieve collateral (immigration) ends.

(e)      Mr Lee was in a position where he could oversee Mr Kim‟s and WorldTel‟s activities and (given that he and his wife owned 90 per cent of WorldTel‟s shares) he had a clear interest in doing so.

(f)       Mr Lee was an experienced businessman.

[99]     Conversely,  I am of the view that Mr Cho did  not know any details of Ezytel‟s business or financial affairs and (other than his limited rights as a minority shareholder) had no legal power or right to obtain such knowledge.

[100]   Against that background I consider that making the transfers and payments cannot be said to be contrary to “normally acceptable standards of honest conduct”. In my view it would not have occurred to Mr Cho that there was a possibility that the payments and transfers were sought by Mr Kim in breach of trust.

[101]   To the extent Mr Cho did have any creeping doubts about the payments made to Ezytel, they would likely have been answered by his knowledge of what had gone before (Mr Lee‟s participation in channelling money through Ezytel to make it look good “on paper”).  As well, I take into account in a limited way matters of cultural difference.   In that respect it seemed to me that, for cultural reasons, Mr Cho was more inclined to act in accordance with his perceptions of corporate hierarchies and thus less inclined to question the motives or authority of either Mr Kim or Mr Lee.

[102]   While it is probably fair to say that Mr Cho was naive (and indeed he readily accepted as much) I do not consider that he was wilfully blind or (accordingly) that he dishonestly assisted Mr Kim.

Result

[103]   For the reasons I have given, I am of the view that none of the plaintiff‟s

causes of action can succeed. The claim is dismissed accordingly.

[104]   Given that the defendants were self-represented, no question of costs arises.

Rebecca Ellis J