Knauf v Marshall [2015] NZHC 1717 (24 July 2015)

High Court of New Zealand

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Knauf v Marshall [2015] NZHC 1717 (24 July 2015)

Last Updated: 31 August 2015

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2014-412-137 [2015] NZHC 1717

BETWEEN	RACHAEL LEE KNAUF (nee Harrington) Plaintiff
AND	JUSTIN GLENN MARSHALL Defendant

Hearing:	3 and 4 June 2015
Appearances:	B C Nevell for Plaintiff T Sage for Defendant
Judgment:	24 July 2015

_{JUDGMENT OF MANDER J}

[1] Ms Rachael Knauf was employed as a truck driver by Mr Justin Marshall’s freight company, Thunderbird One Limited (TOL). Ms Knauf experienced difficulties during the short period of her employment. After resigning her position, she took a personal grievance claim against her former employer. That action ultimately resulted in an award against TOL in the sum of some $63,000. Ms Knauf was not able to enforce the monetary order against the company because TOL was struck off the register of companies before recovery action could be executed.

[2] Ms Knauf has made application under s 25 of the Companies Act 1993 (the Act), for an order that Mr Marshall be held personally liable for the judgment debt owed by TOL. Ms Knauf alleges Mr Marshall is rendered liable because the written employment agreement that evidenced or created the breached employment obligation incorrectly stated the name of the company that employed her. She submits this error contributed to the events which delayed the hearing of her personal

_{grievance and prevented her from recovering the award made in her favour.}

KNAUF v MARSHALL [2015] NZHC 1717 [24 July 2015]

Background

[3] In 2002, TOL purchased a Mainfreight franchise and commenced business as a franchisee of Mainfreight. TOL had been incorporated in July 2000 and was operating as a standalone freight company at the time it took over the Mainfreight operation. Mr Marshall was the sole director of TOL.

[4] At around the time the Mainfreight franchise was purchased, another company, Central Freight Services Limited, was incorporated. “Central Freight Services” was the trading name used by TOL for the purpose of the Mainfreight franchise. The name “Thunderbird One Limited” was not thought appropriate for the Mainfreight business, as all billing and other correspondence would be on Mainfreight letterhead and would refer to the company holding the franchise.

[5] Central Freight Services had been the name previously used by Mainfreight for its operations in the area. It was thought the continuation of the trading name would provide continuity and avoid potential confusion for customers. TOL successfully traded as Central Freight Services, and conducted its Mainfreight franchise business for a number of years on the basis of that arrangement.

[6] In August 2008, Ms Knauf commenced employment with Mr Marshall’s freight business. It was not, however, until some months later that Ms Knauf formally signed an employment agreement. The agreement was sent to her on 31

October under a covering note with the letterhead “Central Freight Services”. The letter referred to the terms of the employment contract and advised that any queries regarding it be directed to Mr Marshall. The letter purported to be sent by, or written on behalf of, Central Freight Services. The letter also referred to an attached position description, which was headed with a Mainfreight logo.

[7] The employment agreement itself had the words “Central Freight Services” across the top of the front page and was entitled as the individual employment agreement of Rachael Lee Harrington (Ms Knauf’s maiden name). It stated it had been made pursuant to s 60 of the Employment Relations Act 2000, and stipulated the parties as Central Freight Services (as the company) and Ms Knauf (as the

employee). Ms Knauf signed the agreement on 7 November 2008, and Mr Marshall,

as “company representative”, on 10 November.

[8] It is not disputed by Mr Marshall that the name of Ms Knauf’s employer was incorrectly described in both the agreement and the covering letter. TOL was Ms Knauf’s employer, and the employment contract should have been prepared and entered into in its name.

[9] After the signing of the employment agreement, relations between Ms Knauf and her employer deteriorated. There were a series of incidents involving allegations and counter-allegations which ultimately resulted in Ms Knauf resigning her employment on 29 December 2008. Her last day of work was 9 January 2009.

[10] On 26 February, Mr Marshall received notification of a personal grievance from lawyers instructed by Ms Knauf. The letter referred to Ms Knauf being employed by Mainfreight, Central Freight Services.

[11] Mr Marshall’s lawyers replied on 2 March. They advised that TOL was the appropriate company, and raised concern regarding a potential conflict of interest the solicitors may have arising from their firm acting for Mr Marshall’s estranged wife, in respect of a separate relationship property matter. The wife was a shareholder in TOL.

[12] In May 2009, Mr Marshall was diagnosed with non-Hodgkin Lymphoma, a terminal form of blood cancer, with a limited life expectancy of some five years. During this period, Mr Marshall was also going through a protracted matrimonial property settlement process. As a result of these experiences, he sold the Mainfreight franchise in September 2009. In December, Central Freight Services changed its name to Picture Vehicles Limited (Picture Vehicles).

[13] After the potential conflict of interest was raised with her initial solicitors, Ms Knauf sought alternative legal representation. Ms Knauf made application for legal aid for the purposes of her personal grievance. In March 2010, her new solicitors contacted Mr Marshall’s solicitors detailing her personal grievance,

advising of the reasons for the delay in Ms Knauf securing alternative legal representation and that a legal aid grant had now been secured.

[14] The following month, Mr Marshall’s solicitors replied, noting the delay in progressing the matter since February 2009, and advising that TOL no longer owned the Mainfreight franchise. Mr Marshall’s solicitors advised the business had been sold and the company “essentially wound up”. Reference was also made to Mr Marshall’s ill health, and that “as the company no longer trades there are no assets that are available in terms of payment that your client seeks ...”. The letter recorded that Mr Marshall disputed the allegations.

[15] In June, Ms Knauf’s solicitors, by reference to the employment contract she had signed, advised her that it appeared Central Freight Services was “her true employer”. However, they were unable to obtain a company search of Central Freight Services because, as it was advised to Ms Knauf, that company “no longer exists in the Company Register”. It will be remembered that Central Freight Services had by this time changed its name to Picture Vehicles. The solicitors advised Ms Knauf they were having difficulties locating a suitable entity that could be sued.

[16] Ms Knauf ’s solicitors also wrote to the Legal Services Agency. They sought a continuation of legal aid, but advised that it would appear unlikely any judgment ultimately obtained before the Employment Relations Authority (ERA) would be recoverable, in light of the advice received that the defendant company (TOL) had sold the Mainfreight franchise and no longer had any assets.

[17] In July, the Legal Services Agency advised of its decision to withdraw legal aid. The declination of legal aid was confirmed in August. However, after recourse to the Legal Aid Review Panel, Ms Knauf, in May 2011, made application for her legal aid to be reconsidered. In September of that year it was reinstated.

[18] In November, a statement of problem was filed with the ERA. It named Picture Vehicles formerly trading as Central Freight Services as the respondent. Mr Marshall’s statement in reply advised that Ms Knauf had not been employed by

Picture Vehicles, nor Central Freight Services, but by TOL trading as Central Freight Services, which owned and operated the Mainfreight franchise. The statement of reply formally advised that Ms Knauf needed to make her claim against her former employer, TOL.

[19] In January 2012, the ERA directed a preliminary investigation to determine Ms Knauf’s actual employer. Subsequently, Ms Knauf made application for TOL to be joined to the ERA proceedings. In support of her position, Ms Knauf filed a brief of evidence outlining her belief that her employer was Central Freight Services because this was the entity she signed the employment contract with. Because of the financial position of Central Freight Services under its changed name of Picture Vehicles, compared to TOL, which she believed was now a shell company with no assets, Ms Knauf indicated a preferred finding that Central Freight Services was her employer.

[20] A notice of defence to the application for joinder was filed on behalf of Mr Marshall. It reiterated that TOL was at all material times Ms Knauf ’s employer, and this had been made clear to Ms Knauf ’s previous solicitors in February 2009. However, because of the delay in prosecuting the claim, and TOL’s considerably changed position over the intervening years, it was submitted Ms Knauf’s claim should be stayed or struck out for want of prosecution.

[21] The ERA’s preliminary hearing to determine the correct employer did not proceed as scheduled in March. This was because of an error made by Mr Marshall’s solicitor failing to diary the hearing, and Mr Marshall’s health difficulties. In the absence of the hearing proceeding, Ms Knauf’s solicitors inquired whether TOL could be joined as an additional respondent without further objection or argument. A further preliminary investigation, however, was required, and in October 2012, the ERA determined that Ms Knauf’s employer was TOL. This had not been disputed by Mr Marshall or Picture Vehicles (the first respondent to the ERA claim). However, the grounds of opposition to the joinder of TOL, based on the passage of time and alleged prejudice in being able to defend the claim, were dismissed and TOL joined as a party.

[22] On 15 April 2013, the day before the hearing of Ms Knauf’s personal grievance, the ERA received a formal request from Mr Marshall’s legal advisor seeking leave to withdraw as counsel on the basis he had received no instructions to act or progress the matter. Mr Marshall’s solicitor advised that since the hearing in October the previous year, neither respondent company had any assets and, from preliminary instructions received from Mr Marshall, no resources to locate and brief witnesses to assist the authority. Reference was made to TOL trading as Mainfreight having sold its assets in the three year period since Ms Knauf had initiated her claim in February 2009.

[23] Mr Marshall in evidence claimed his lawyer had no authority to make these representations, that he had arranged at that stage to represent himself before the ERA, and that his lawyer had failed to forward his file to him and advise him of the date of the hearing.

[24] The ERA hearing proceeded in the absence of the companies or Mr Marshall. It determined that Ms Knauf had been unjustifiably dismissed, disadvantaged, sexually harassed and discriminated against. As a result, TOL was ordered to pay

$38,243.38 for lost wages and a further $25,000 as compensation for humiliation, loss of dignity and injury to feelings.

[25] Upon receipt of advice of the ERA’s orders, Mr Marshall sought to appeal the findings. In December 2013, the Employment Court directed a de novo hearing of the matter. This came after a number of interlocutory steps, including an application by TOL for an extension of time to file a challenge to the ERA decision, and the obtaining of a good faith report and an affidavit from Mr Marshall in response to the draft report obtained under the Employment Relations Act. Pleadings were filed in the Employment Court. However, on 28 January, TOL filed a notice of discontinuance to its challenge to the ERA determination. In May 2014, following the discontinuance, the Employment Court awarded costs against TOL. Later, on

21 May, TOL was struck off the Companies Register for failing to file an annual return.

[26] Ms Knauf made a statutory demand for payment of the judgment debt on

29 May. This was met with the response that “as the company had been struck off the Register, it was no longer in existence at the time the statutory demand was made”. In August 2014, the present proceeding was commenced seeking to make Mr Marshall personally liable for TOL’s debt pursuant to s 25 of the Act.

The applicable law

[27] Section 25 of the Act provides as follows:

25 Use of company name

(1) A company must ensure that its name is clearly stated in—

(a) every written communication sent by, or on behalf of, the company; and

(b) every document issued or signed by, or on behalf of, the company that evidences or creates a legal obligation of the company.

(2) Where—

(a) a document that evidences or creates a legal obligation of a company is issued or signed by or on behalf of the company; and

(b) the name of the company is incorrectly stated in the document,—

every person who issued or signed the document is liable to the same extent as the company if the company fails to discharge the obligation unless—

(c) the person who issued or signed the document proves that the person in whose favour the obligation was incurred was aware at the time the document was issued or signed that the obligation was incurred by the company; or

(d) the court is satisfied that it would not be just and equitable for the person who issued or signed the document to be so liable.

[28] The parties are agreed that the leading case on the interpretation and

application of s 25 is the Court of Appeal’s decision of Clarence Holdings Ltd v Hall

(Clarence Holdings).¹ In summarising the general policy and purpose of s 25, McGrath J observed:²

[that] every company should state its name clearly and accurately in its written communications and in all documents which evidence or create legal obligations for the company. Imposition by statute of civil liability on those persons who issue or sign documents of obligation on behalf of the company which incorrectly state its name is the principal means of giving effect to the policy. Where the company fails to discharge such an obligation, those who issued or signed the document are made personally liable, subject to the section, to the same extent as the company, if the company fails to discharge the obligation. They are made sureties of the company by the Act in relation to its failure to discharge the obligations concerned.

[29] By this means, the interests of persons unaware that an obligation has been incurred by a different corporate entity are protected.³ The potential harshness of the provision rendering an individual liable for the obligations of a company will be avoided in two situations:

(a) Where the person in whose favour the obligation was incurred was aware of the true identity of the company that had in fact incurred the obligation. There is an onus of proof on the person who issued or signed the document to prove the person to whom the obligation was owed was aware the obligation had been incurred by the incorrectly stated company. That is a subjective mental element which may be difficult to establish. The point of time at which that subjective

knowledge is to be assessed is at the time of the misstatement;⁴ or

(b) If the Court is satisfied that it would not be just and equitable for the person issuing or signing the document to be held personally liable. This is a broad provision conferring the flexibility of a judicial discretion which must be exercised consistently with the purpose of

_{the statute.}⁵

¹ _{Clarence Holdings Ltd v Hall [2001] NZCA 148; (2001) 9 NZCLC 262,566 (CA) [Clarence Holdings].}

² _{At [39].}

³ _{At [49].}

⁴ _{At [40] and [41].}

⁵ At [41].

Ms Knauf ’s case

[30] Ms Knauf submitted she had discharged the onus on her to prove the elements of s 25(2), making Mr Marshall liable for TOL’s failure to discharge its obligations:

(a) Mr Marshall issued or signed the employment agreement that created

or evidenced a legal obligation of TOL as Ms Knauf’s employer;

(b) the company’s (TOL’s) name was incorrectly stated in the

employment agreement; and

(c) TOL failed to discharge the legal obligation set out in the document. [31] Further, Ms Knauf submitted Mr Marshall had failed to prove on the balance

of probabilities that she was aware at the time she signed the employment agreement that the obligation was being incurred by TOL. Secondly, that the Court could not be satisfied that it would not be just and equitable for Mr Marshall to be liable for TOL’s failure to discharge its obligation.

Mr Marshall’s response

[32] Mr Marshall admitted issuing and signing the employment agreement to Ms Knauf, and that the agreement created legal obligations on TOL. He also acknowledged that TOL was Ms Knauf ’s employer, and that the employment agreement incorrectly referred to “Central Freight Services”.

[33] Mr Marshall denied that TOL had breached an obligation contained in the employment agreement. He submitted that s 25(2) required Ms Knauf to prove that a legal obligation created or evidenced by the employment agreement had not been discharged by the company.

[34] Mr Marshall submitted that Ms Knauf was aware at the time the employment agreement was signed that TOL was her employer, and that any obligations under the

agreement would be incurred by it. Further, that it would not be just and equitable to hold Mr Marshall liable for the obligations incurred by the company.

Issues

[35] The issues that I must decide can be distilled as follows:

(a) did TOL breach an obligation under Ms Knauf’s employment

agreement?

(b) whether Ms Knauf was aware at the time the employment agreement was issued or signed that its obligations were actually being incurred by TOL (in other words, that TOL was her employer?).

(c) whether it would not be just and equitable for Mr Marshall, as the person who signed the employment agreement, to be liable for TOL’s failure to discharge its obligation(s)?

[36] In addressing the issue of whether it would be unjust or inequitable to make Mr Marshall personally liable for TOL’s failure to discharge its obligation, the following questions require consideration:

(a) Was there a sufficient causal connection between the misdescription

of the company in the employment agreement and Ms Knauf’s loss?

(b) In the absence of a contributory link, could the Court still be satisfied it would not be unjust or inequitable to find Mr Marshall liable?

Did TOL breach an obligation under Ms Knauf’s employment agreement?

[37] Mr Marshall submitted that a precondition to relief under s 25(2) had not been established by Ms Knauf. While Mr Marshall admitted the employment agreement created legal obligations, he submitted in order for s 25 to be triggered there must be an obligation created or evidenced by the contractual document which the company failed to discharge. It was acknowledged that the ERA made findings regarding the conduct of TOL as an employer. However, it was submitted these did

not amount to a breach of any of the terms of the written employment contract. In the absence of any failure by the company to discharge a legal obligation created by that document, s 25 has no application.

[38] Ms Knauf placed some reliance on Mr Marshall’s formal admission in his statement of defence that the agreement did create legal obligations on the company, including, she submitted, to treat her as an employee in good faith. I do not, however, read Mr Marshall’s pleading as extending to an admission that the terms of the employment agreement itself created that particular obligation.

[39] Ms Knauf submitted the employment agreement created a legal obligation on TOL to treat her in good faith. She emphasised the reference to s 60 of the Employment Relations Act at the commencement of the employment agreement. Section 60 of that Act sets out the object of Part 6, which relates to individual employees’ terms and conditions of employment, including recognition that, in relation to individual employees and their employers, good faith behaviour is consistent with, but not limited to, the implied term of mutual trust and confidence in

the relationship between employee and employer.⁶

[40] Ms Knauf submitted the employment agreement either implicitly or expressly incorporated a duty of good faith on the employer, and that having regard to the findings of the ERA, that duty of good faith had been breached. Accordingly, there had been a failure to discharge the legal obligation in the written employment agreement.

[41] As an alternative argument, Ms Knauf submitted her employer had failed to discharge an express obligation in the agreement. A specific clause of the agreement provided that “the company shall take reasonable care to ensure your health and safety, and not to cause exposure to risks other than as may be incidental to the nature of the employment”. She submitted TOL had breached this express obligation by exposing her to sexual harassment and discrimination which impacted significantly on her mental and physical health. Therefore, TOL had failed to take

_{reasonable care to ensure her health and safety.}

⁶ Employment Relations Act 2000, s 60(c)(ii).

[42] Reference was made to the terms in which Ms Knauf’s legal representative had framed her original personal grievance in February 2009. In giving notice to Mr Marshall, her solicitors alleged there had been “a failure by Mainfreight to take all practicable steps to ensure [Ms Knauf’s] physical and mental safety when at work...”.

[43] The ERA concluded that Ms Knauf had a personal grievance because she was unjustifiably dismissed, unjustifiably disadvantaged, sexually harassed, and discriminated against. The question arises as to whether those findings are equivalent to TOL failing to discharge a legal obligation evidenced or created by the document issued or signed on behalf of TOL by Mr Marshall.

[44] In addressing this issue, it is important to be cognisant of the purpose of s 25. The provision prescribes the manner and form in which a company must publish its name, and requires the company’s name to be stated clearly in every document issued or signed by or on behalf of the company, which evidences or creates a legal obligation. The purpose of this section is to place a responsibility on the person who issues or signs the document evidencing or creating a legal obligation to ensure the accuracy of the description of the name of the company which is incurring the legal obligation.

[45] The duties of good faith and of mutual trust and confidence arising from an employment relationship will undoubtedly be breached upon findings of unjustifiable dismissal or disadvantage, or of discrimination or sexual harassment. However, the existence of such obligations are not dependent on the terms of any written contract between an employer and the employee. The written employment contract entered into between Ms Knauf and her employer did not create those legal obligations. Such obligations were owed whether or not any written employment agreement was signed between Ms Knauf and TOL, and notwithstanding its particular terms and conditions.

[46] Arguably, the written employment agreement evidenced the legal obligation of the company as an employer to act in good faith and to avoid or prohibit the type of actions the subject of the personal grievance. However, in the absence of the

identification of any express term, the evidencing of the obligation by the document is limited to the existence of the employment relationship itself. That relationship was already in existence, and had been for some months prior to the issuing or signing of the written contract. The legal obligations owed by TOL were inherent to the employer/employee relationship and existed independently from any signed employment agreement.

[47] Similar considerations apply in respect to Ms Knauf’s alternative argument, where she relies upon the express term of a clause of the individual employment agreement requiring the company to take reasonable care to ensure her health and safety, and not expose her to risks other than as may be incidental to the nature of the employment. That is a legal obligation which rests with an employer independent of any individual written employment contract. The reference by Ms Knauf’s legal advisors in correspondence to Mr Marshall in 2009, referring to the employers obligations “to take all practicable steps” to ensure her physical and mental safety when at work, appears likely to be a reference to the Health and Safety in Employment Act 1992, rather than a particular clause of the individual employment agreement which was not referred to in the correspondence.

[48] Unlike the overarching obligations of good faith, there was an express clause in the written contract which did explicitly address the company’s obligation to ensure Ms Knauf ’s health and safety in the workplace. However, the clause is declaratory of an existing statutory obligation. Arguably, the contractual document cannot be said to have created that legal obligation. Similarly, while the express clause of the contract does evidence the existence of the legal obligation on the company as an employer, it does not appear to extend the company’s obligation beyond that already existing as a matter of law, and therefore already plainly evident as such.

[49] Having regard to my findings in relation to the other issues, it is not necessary for me to come to any final concluded view regarding whether the conduct found established by the ERA amounted to breaches of obligations which the signed employment contract evidenced or created. For present purposes, I am inclined to the view that the express clause relating to the employers obligations to keep Ms

Knauf safe in the workplace did at least evidence a legal obligation of the company, and I proceed on that basis.

[50] In choosing that course, I also note that an important function of an individual employment agreement, which must be in writing, is the identification of the name of the employer.⁷ An employment agreement must not contain anything contrary to law or inconsistent with the Employment Relations Act. Arguably, therefore, and of particular importance in the context of the present case where the prime issue between the parties centres on the accurate identification of Ms Knauf’s employer, the written agreement, while arguably not the source of the legal obligation, did purport to identify the corporate employer from whom that obligation

was owed.

[51] The express clause therefore did sheet home the legal obligation to a particularly entity, or at least ought to have achieved that effect. To that extent, the effect of the written employment contract may be construed as at least evidencing, if not creating a legal obligation owed by an identified employer, and particularly so in relation to the clause declaratory of the employer’s obligations regarding Ms Knauf’s health and safety in the workplace.

Was Ms Knauf aware that her employer was TOL at the time she signed the agreement?

[52] Ms Knauf’s awareness of the true identity of her employer is to be assessed at the time the misstatement occurred.⁸ Mr Marshall submitted that, because Ms Knauf had been employed by his business since August 2008, by the time she signed the employment agreement, in November, she must have been aware that her employer was TOL.

[53] Mr Marshall’s evidence was that all new employees have the company structure explained to them during the interview process, although he himself had not been present at that interview. He stated Ms Knauf was inducted in the company

_{policies, and around that time she filled out a “team member detail sheet” which,}

⁷ _{Employment Relations Act 2000, s 65.}

⁸ Clarence Holdingsl, above n 1, at [40].

beneath the Mainfreight logo, recorded across the top of the document the words

“Thunderbird One Limited”.

[54] Reliance was placed on the fact Ms Knauf received wage slips each fortnight, which were left in a pigeonhole for her to collect. TOL’s name was recorded on the wage slips. Other indicators, which it was submitted Ms Knauf could not ignore, included the fact that each of the freight company’s trucks, while displaying the Mainfreight livery, had the words “Thunderbird One Limited Cromwell” written on the driver’s door. Ms Knauf must have seen these words each working day.

[55] Similarly, reference was made to Ms Knauf having access to fuel cards, at least one of which had the words “Thunderbird One Limited” written on the card. Emphasis was also placed on company records that showed that salary payments had been made from TOL’s bank account, the particulars of which would have been recorded in Ms Knauf’s bank statements. A number of former employees of TOL gave evidence, who stated they had understood they were employed by TOL at the time of their engagement with the company.

[56] Based on this evidence, Mr Marshall submitted that by the time Ms Knauf came to sign the employment agreement she must have appreciated that her employer was TOL, and that its obligations as her employer were being incurred by that company.

[57] Competing submissions were made by the parties regarding the effect of these various references to TOL in documents and other items, including the trucks which Ms Knauf drove as part of her employment. Ms Knauf emphasised, however, that both the employment agreement and the written correspondence attached to the employment document referred to Central Freight Services as her employer. Ms Knauf also received a number of employment related notices during the course of her engagement with the letterhead “Central Freight Services”.

[58] A further consideration is that the various references to TOL and Central Freight Services during the course of Ms Knauf’s employment occurred in the context of the overarching description of the business as being part of the national

freight service “Mainfreight”. Signage at the depot referred to the Mainfreight brand, as did the bulk of the livery on the trucks and uniforms worn by staff members. Timesheets and log books completed by Ms Knauf made no reference to TOL.

[59] There is an onus on Mr Marshall to prove on the balance of probabilities that Ms Knauf knew that TOL was her employer at the time she signed the employment agreement. I accept there were strong indications available to her which perhaps should have put her on notice as to who her actual employer was. Equally, however, there were apparently three entities associated with the freight business at that time; Central Freight Services, TOL and Mainfreight, and therefore the potential for confusion existed. There is no evidence that Ms Knauf took the employment agreement at other than face value when both it and the associated correspondence referred to Central Freight Services as her employer.

[60] In my view, Mr Marshall has not discharged the onus upon him to prove that Ms Knauf, at the time the agreement was signed knew that any employment obligations contained in the document were being incurred by TOL.

Would it be unjust or inequitable to make Mr Marshall personally liable for the debt?

[61] Ms Knauf submitted that, on the authority of Clarence Holdings, the Court needed to be satisfied that Ms Knauf’s lack of awareness of the true identity of her employer was a contributing factor to her loss and that it need not be the sole factor.⁹

Ms Knauf further submitted that the Court could not be satisfied that it would not be just and equitable to make Mr Marshall personally liable when, in her submission, he did not “come to the Court with clean hands”. Ms Knauf referred to what she submitted were Mr Marshall’s false statements about the financial status of TOL, which at best were misleading and at the root of unnecessary delays which ultimately resulted in her not being able to recover the judgment debt from TOL.

[62] Mr Marshall submitted that it would not be just and equitable for him to be

_{personally liable for the company’s debt. He also relied on Clarence Holdings for}

⁹ At [47] and [48].

the proposition that in the absence of a causal connection between the misnaming of the employer in the employment contract and Ms Knauf’s ultimate loss, it would not be equitable for him to be held liable. Mr Marshall submitted that Ms Knauf would be in no better or worse position if TOL had been correctly stated in the document as her employer. It was not, he submitted, either a reason for, nor a contributing factor in Ms Knauf being unable to recover the ERA award from TOL.

Was there a sufficient causal connection between the misdescription of the company in the employment agreement and Ms Knauf ’s loss?

[63] Subsequent to Ms Knauf ’s resignation, her solicitors wrote to Mr Marshall in February 2009 giving notice of Ms Knauf ’s personal grievance. The letter referred to Ms Knauf being employed by “Mainfreight, Central Freight Services”. It is therefore apparent there was at this point confusion regarding the identification of Ms Knauf’s employer. The position, however, was clarified the following week, when Mr Marshall’s solicitors replied advising that TOL was the appropriate company. The file reference used by the solicitors in the heading to their letter was “Harrington (Ms Knauf ’s maiden name) – Thunderbird One matter”.

[64] Ms Knauf’s solicitors wrote to her enclosing the correspondence from Mr Marshall’s lawyers. The letter to Ms Knauf was headed “Re: Employment matter against Thunderbird One Limited (Mainfreight Cromwell)” and referred to the conflict of interest raised by Mr Marshall’s solicitors and the options available to Ms Knauf in that regard.

[65] It is therefore apparent that from March 2009 Ms Knauf was made aware her employer had been TOL, and for the purpose of the employment dispute, the appropriate party in respect of which to raise her personal grievance was TOL. The assessment of whether it would be just and equitable for Mr Marshall to be held personally liable for the legal obligation held by TOL, as a result of the misstatement of the company’s name in the employment agreement, must be considered against the fact that within two months of her resignation the error had been formally corrected.

[66] I also do not overlook the fact that Ms Knauf, in her letter of resignation of

29 December 2008, referred to TOL as her employer. The letter read:

Dear whom it may concern

I, Rachael Lee Harrington am giving my two weeks notice of my resignation as a driver within this company (Thunderbird One Limited) due to the unresolved issues that have been brought forward to management’s attention. Further advice will be sought. My last day will the 10-01-09.

Yours sincerely

Rachael Lee Harrington

[67] Ms Knauf’s evidence was that she only included the reference to TOL in the letter because another member of staff and her apparent supervisor, Mr Brent Jones, told her at the time that “if you are going to sue the company, then it’s Thunderbird One Limited who is your employer”. Ms Knauf’s evidence was that she had not previously considered that company to be her employer. Mr Jones, who also gave evidence, denied having such a conversation with Ms Knauf.

[68] It is not necessary for me to resolve that conflict in the evidence for two reasons. Firstly, when Ms Knauf’s solicitors wrote to Mr Marshall in the following month, there appeared to still be some confusion regarding the identification of the company that had employed Ms Knauf, no doubt because of the error in the written employment contract. Secondly, Mr Marshall’s solicitor, as I have already observed, formally clarified the position, and Ms Knauf was advised accordingly in mid March

2009.

[69] After the conflict of interest difficulty was brought to Ms Knauf’s attention, she sought out new legal representation. Ms Knauf’s evidence was that she approached lawyers in Dunedin and Cromwell but, because one firm of solicitors did not take legal aid instructions and another lawyer failed to take substantive steps, the matter was not progressed.

[70] It was not until December 2009, after Ms Knauf had moved to Christchurch, that an application for legal aid was lodged, and subsequently granted in February

2010. Ms Knauf’s new lawyer wrote a detailed letter to Mr Marshall’s lawyer

outlining Ms Knauf’s personal grievance and the reasons for the delay. Again, it is apparent there was no confusion regarding the true identity of Ms Knauf ’s employer. TOL is referred to and identified as Ms Knauf ’s employer in the letter.

[71] It is apparent therefore that since March 2009 Ms Knauf was aware the identity of her employer had been misdescribed in the employment agreement document. When she was able to renew her personal grievance a year later, it is clear that, notwithstanding that error, she was able to instruct her new solicitors that she was employed by TOL. This would have been plain from the previous correspondence between the lawyers in early 2009, and it is apparent that both she and her lawyers proceeded on that basis from that point, at least initially.

[72] In my view, any chain of causation relating to Ms Knauf’s loss sourced from the failure to correctly identify the company in the written contract which employed Ms Knauf was broken from that point. I find that the difficulties that subsequently arose regarding the prosecution of Ms Knauf ’s personal grievance were not contributed to by that failure. I do so notwithstanding the need for the ERA to make a preliminary determination as to the identity of the employer. It is necessary for me to review those subsequent events.

[73] In response to Ms Knauf’s solicitor’s letter of March 2010, Mr Marshall’s solicitors replied the following month. There was no need for them to clarify the identity of Ms Knauf ’s employer as all parties were proceeding on the correct basis in respect of that issue. I accept that Mr Marshall’s reply through his solicitors is disingenuous. It refers to the fact that TOL no longer owned the Mainfreight franchise and suggested that, as a result, Mr Marshall no longer had any contact or “the ability to question or defend this matter, given that he is no longer associated with the Mainfreight franchise operating out of Cromwell”. The letter also contained the erroneous statement upon which Ms Knauf places much reliance, that the company had “essentially” been wound up, that it no longer traded, and had no assets.

[74] It is apparent these representations made on behalf of Mr Marshall stalled Ms

Knauf’s personal grievance. Ms Knauf referred to correspondence she received from

her lawyers in June 2010 regarding efforts to search the company record for Central Freight Services, which was referred to in a letter to her as being her “true employer”. This is likely to be a reference to the individual employment agreement, however, the lawyers refer to “having increasing difficulties locating a suitable entity that can be sued for the purpose of this dispute”. It is apparent, given the advice regarding the financial state of TOL, that Ms Knauf’s legal advisors were considering whether an alternative course available to her was to sue Central Freight Services.

[75] In a letter to the Legal Services Agency from Ms Knauf’s lawyer two weeks later it is apparent that neither Ms Knauf, nor her legal advisors, had, at least at that stage, been deterred or diverted from suing TOL. The defendant company identified in the letter to the Legal Services Agency remains TOL, with reference made to the advice received regarding its financial situation. As a result, it was incumbent upon Ms Knauf’s lawyers to advise the agency of the unlikelihood of any financial return from taking a proceeding before the ERA. Ms Knauf’s lawyers, however, advised the agency that Ms Knauf wished to proceed to obtain judgment against the company so as to ensure that what happened to her did not happen to any future employee. It was noted that although the company “is no longer operating”, Mr Marshall has other business interests and is still an employer.

[76] It was after this advice was received by the Legal Services Agency that legal aid was withdrawn and not reinstated until September 2011. The question I must ask is whether that subsequent delay, which Ms Knauf submitted was a significant contributor to her personal grievance being delayed and her not being able to ultimately recover the award made in her favour before TOL was struck off, was because of the misdescription of the company’s name in the employment agreement. In my view it was not.

[77] The reason for the delay was because of the misinformation provided regarding the status of TOL, and not its identity as Ms Knauf’s employer. Consideration of the alternative course, of suing Central Freight Services, was a reaction to the unlikelihood of any monetary judgment awarded against TOL being

recoverable, and not, in my view, because of any lingering confusion as to

Ms Knauf’s employer.

[78] When Ms Knauf was finally able to file her statement of problem with the ERA, she named Picture Vehicles, formerly known as Central Freight Services as the respondent, and asserted that Central Freight Services was her employer. I have little doubt that Ms Knauf and her legal advisors chose to proceed on that basis because they had assessed that, given the advice received regarding the financial situation of TOL, it was no longer worthwhile proceeding against TOL.

[79] The statement of problem made reference to having been advised that TOL was her employer, however, Ms Knauf alleged that Central Freight Services was her “true employer”. Ms Knauf stated she believed she had a valid claim against Picture Vehicles Limited, as this was the new name for Central Freight Services, and the company was still operating under this name.

[80] The statement in reply filed on behalf of Mr Marshall repeated that Ms Knauf has never been employed by Picture Vehicles or Central Freight Services, and was actually employed by TOL trading as Central Freight Services. It was reiterated that Ms Knauf needed to make application against her former employer, TOL, and not Picture Vehicles. This contest between the parties lead to the ERA requiring an investigation meeting to determine the preliminary matter as to who Ms Knauf’s correct employer was.

[81] The ERA had little difficulty in concluding that TOL was Ms Knauf’s employer. The ERA, in dismissing Mr Marshall’s opposition to that company being joined to the ERA proceeding on the grounds of prejudice and delay, observed that it had always been his position (or, at least, Picture Vehicles position as the original respondent) that TOL was Ms Knauf’s employer.

[82] It is therefore clear that although there was an ongoing contest between the parties regarding the identification of Ms Knauf ’s employer, perhaps paradoxically given Ms Knauf ’s present application, Mr Marshall’s position had consistently been that TOL had employed Ms Knauf. For her part, Ms Knauf had, since March 2009,

been made aware that TOL was her employer, and as the ERA found, there was, notwithstanding the error in the employment agreement, no reason for Ms Knauf to have assumed anything different. That had been the position since she was formally informed by Mr Marshall’s legal advisors of the correct position shortly after her resignation.

[83] It follows from this review of the circumstances that I am not satisfied there was any causal link between Ms Knauf’s inability or lost opportunity to enforce the judgment debt as a result of delay, and the misnaming of her employer in the employment agreement. It was not a contributing factor in why she was unable to effectively enforce the judgment debt. Ms Knauf chose to persist with her personal grievance against Central Freight Services under its new name of Picture Vehicles. It is apparent that she chose to do so not because of any confusion regarding who had employed her, but because of a preference to proceed against that company because of the advice received that TOL had become a shell company with no assets.

[84] Ms Knauf proceeded on the basis that, in the absence of a causal or contributory link between the misdescription of the company in the employment agreement and her loss, the Court could not be satisfied that it would not be just and equitable for Mr Marshall to be held liable. I consider that concession was properly made because of the approach taken by the Court of Appeal in Clarence Holdings. However, because of the protracted nature of the employment proceedings and the representations and actions of Mr Marshall and his agents, I consider myself obliged to review the subsequent events after Ms Knauf was informed of the correct identity of her employer.

Would it be otherwise unjust or inequitable to find Mr Marshall liable?

[85] I have found there was a break in the chain of causation between the misnaming of the company and Ms Knauf’s ultimate inability to enforce the judgment debt. It is, however, clear that the main reason for the delays experienced by Ms Knauf resulted from inaccurate, if not false, representations made on behalf of Mr Marshall in March 2010 that the company had sold its assets and was essentially wound up.

[86] These assertions were not correct, yet they caused Ms Knauf significant difficulties. She lost access to legal aid, and was forced to make a strategic decision to seek recovery from Central Freight Services under its new name Picture Vehicles at a time when she must have known that this entity was not her employer. Further delay was caused by the failure of Mr Marshall and his lawyer to appear at the preliminary hearing in March 2012, which necessitated an adjournment to October of that year.

[87] The fact remains, however, that the mischief with which s 25 is concerned had been extinguished long before those representations and failures were made, and no longer had any contributing influence, or, at least, ought not to have any further contributing influence on Ms Knauf’s approach to her claim. Any misconception sourced from the misstatement of the company’s name in the employment agreement had been, or, on any objective analysis of the facts, should have come to an end by that time.

[88] In Clarence Holdings, McGrath J observed that the discretion available to the Court was required to be exercised consistently with the purposes of the statute. The Court of Appeal commented that what was at the “heart of the issue” was whether it was just and equitable for the person who issued or signed the document incorrectly stating the name of company to be excused liability. The Court in that case concluded that no disadvantage had been caused to the appellant as a result of its lack of awareness at the time the document was signed creating the legal obligation. The discretion to excuse liability has to be exercised against the effect of the error. The issue of whether it would not be just and equitable to hold the person who issued or signed the document liable is required to be determined within that context.

[89] Ms Knauf sought to place some emphasis on what was alleged to be deliberately misleading conduct on the part of Mr Marshall, which she maintained had delayed or denied her justice. Insofar as reliance was placed on the claim made on behalf of Mr Marshall by his solicitors that Ms Knauf’s first lawyer had a conflict of interest in acting for her, I do not consider there are grounds for such an

allegation. Mr Marshall’s estranged wife was a shareholder in TOL which Ms Knauf was suing for a monetary award. The company which at that time housed the Mainfreight business would have been a valuable relationship property asset, and there would have been at least some issue of conflict which was required to be clarified.

[90] Ms Knauf also referred to Mr Marshall defending the application for joinder of TOL. It is apparent, however, in the context of that application the roles were reversed. Mr Marshall, consistent with the position that he had taken upon first receiving notice of Ms Knauf’s personal grievance, acknowledged the appropriate respondent was TOL. The application for joinder was opposed on grounds of delay and prejudice in having to defend the personal grievance proceeding after such a lapse of time. That opposition was dismissed by the ERA, but there was no inconsistency in Mr Marshall’s approach to the identification of TOL as Ms Knauf’s employer.

[91] I accept the failure by Mr Marshall or his counsel to appear at the first investigative meeting before the ERA for the purpose of determining the correct respondent created further delay. While that does not reflect well on Mr Marshall, as I have already found, that failure was immaterial to whether Ms Knauf’s loss could be linked with the misstatement of the company’s name in the employment contract. Similarly, the failure to appear at the substantive hearing before the ERA could not be linked with the error in the identification of her employer in the employment contract.

[92] The conflicting accounts of the reason for that failure tendered by Mr Marshall’s solicitor on the day before the scheduled hearing and Mr Marshall’s own evidence in explanation provided for the purposes of this proceeding, cannot be reconciled. The fact remains, however, by that stage the effect of the error in the employment contract had expired, and, in any case, the hearing proceeded in Mr Marshall’s absence and did not result in any further delay.

[93] Ms Knauf contended that Mr Marshall’s subsequent actions in seeking to appeal to the Employment Court and the delays that this involved had the cumulative effect of ultimately preventing her being able to recover the award made by the ERA before the company was struck off. She referred to the steps taken by Mr Marshall to secure a de novo hearing, and his subsequent failure to prosecute that appeal.

[94] In her submission an available inference was that this was a delaying tactic to avoid the two year claw back period for voidable transactions. This was a reference to Mr Marshall having received a $98,000 dividend from TOL, paid to him in May

2012. Mr Marshall’s evidence was that he discontinued his appeal because TOL had ceased trading some four years beforehand and had no assets. Mr Marshall claimed it would be misleading to continue his appeal when no compensation would be available if any was awarded in the Employment Court proceeding, and he was funding the appeal at his own cost.

[95] I accept Ms Knauf may have cause for some grievance at the approach taken by Mr Marshall in seeking the de novo hearing before the Employment Court, particularly given the reasons identified for ultimately discontinuing that proceeding. These would have been readily apparent to Mr Marshall long before he abandoned his appeal in January 2014. Be that as it may, as I have already found, the effect of the misstatement of the company’s name in the employment agreement by this stage had long ended, and any disadvantage arising to Ms Knauf from that error had, in my view, been extinguished some years before.

Conclusion

[96] The purpose of s 25 is to ensure that a company states its name clearly and accurately in its written communications and in all documents which evidence or create legal obligations for the company. The principal means by which that requirement can be enforced is by imposing a liability on persons who issue or sign documents of obligation on behalf of a company which incorrectly state its name. By that means, the party contracting with the company the name of which has been incorrectly described, will be protected from the consequences of not otherwise being able to enforce the legal obligation evidenced or created by that document.

[97] In the circumstances of this case, the misdescription of the company name did not lead to Ms Knauf’s loss, be it framed as a monetary one or the lost opportunity to enforce the judgment debt. No disadvantage was caused to Ms Knauf as a result of her lack of awareness, at the time she entered into the employment agreement in November 2008 of the failure to correctly identify in that document the company with which she was employed. She was informed shortly after her resignation of the fact that TOL was the company with which she was employed, and for a period, at least some 18 months, her legal advisors correctly proceeded on that basis. It is apparent therefore that this error no longer had any causative or contributory effect.

[98] I have accepted that Ms Knauf’s approach to her personal grievance altered as a result of the representation made on behalf of Mr Marshall regarding the financial status of TOL. That, however, was an entirely separate development from the type of situation sought to be governed by s 25, and falls outside the framework of the section or the purpose the provision seeks to achieve.

[99] While s 25(2)(d) is concerned with an issue of justice and equity, that must be considered within the context of whether Mr Marshall should be held liable for the consequence of the failure to accurately identify the company which incurred the legal obligation set out in the employment contract. In that regard, the error, as I have previously noted, was immediately corrected upon notice of Ms Knauf’s personal grievance. As a result, Mr Marshall’s responsibility for that error was effectively discharged, and from that point any causal connection between Ms Knauf’s ultimate loss and the original error was severed. As a result, I consider it would not be just and equitable for Mr Marshall, being the person who issued or signed the employment contract, to be liable pursuant to s 25(2) of the Act.

[100] Accordingly, Ms Knauf’s application for an order pursuant to that section is

dismissed.

Costs

[101] The issue of costs is reserved. In the absence of the parties being unable to agree costs, they are to file and exchange memoranda (not more than five pages) to address the question of costs.

Solicitors:

B Nevell, Dunedin

Duncan Cotterill, Christchurch