Ning v Johnson Group Ltd HC Auckland CIV-2011-404-001932 [2011] NZHC 664 (8 July 2011)

Last Updated: 13 July 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2011-404-001932}

BETWEEN WEI WEI NING Plaintiff

AND JOHNSON GROUP NZ LTD Defendant

Hearing: 8 July 2011

Appearances: Shean Sing for Plaintiff

Eva Yu-Wen Kuo for Defendant

Judgment: 8 July 2011

_{ORAL JUDGMENT OF ASSOCIATE JUDGE BELL}

Solicitors:

Shean Singh, PO Box 10018, Dominion Road, Auckland

_{Dawsons, PO Box 38143, Howick, Auckland}

WEI WEI NING V JOHNSON GROUP NZ LTD HC AK CIV-2011-404-001932 8 July 2011

[1] This is an opposed application that the defendant be put into liquidation. Johnson Group NZ Ltd carries on a recycling and export business. The sole director of the company is Johnston Zhang. He is also a 50% shareholder of the company. The plaintiff is Wei Wei Ning, who worked for the company from July 2009 to December 2009.

[2] Mr Ning says that on 24 August 2009, he entered into a written agreement with the defendant to lend it $20,000 to be repaid on 24 February 2010 with interest at 10% p.a. He says that that loan has not been repaid. His lawyer sent a letter of demand, which may not have been received, and his lawyer then sent a statutory demand. Johnson Group NZ Ltd did not comply with the statutory demand but in the period for compliance with the statutory demand, its lawyers wrote a letter contesting liability. After the period for compliance with the statutory demand expired, the plaintiff filed this application for the defendant to be put into liquidation.

[3] The defendant’s essential defence is that the transaction Mr Ning entered into was in the nature of a private loan between Mr Ning and another employee called Kevin. Mr Zhang says that the other employee, Kevin, did not have the defendant’s authority to enter into the agreement. Mr Zhang also shows from his passport that he was absent from New Zealand on 24 August 2009, the date of the agreement.

[4] Before I deal with the substantive issues, there are some procedural matters that need to be addressed. In a reply affidavit, the plaintiff has put in evidence a without prejudice letter of the defendant’s lawyers dated 24 April 2011. This letter was clearly intended to be confidential and was made in connection with an attempt to resolve the present proceeding. It is accordingly subject to the privilege in s 57 of the Evidence Act 2006. It should not have been put in evidence. It is not admissible. I have ignored that letter in considering this matter and in giving my decision.

[5] There is also a small technical point about the wording of the statutory demand. After setting out the basic words of demand, the statutory demand goes on to set out the consequences of non-compliance. Setting out the consequence of no compliance, the statutory demand refers to the consequences of not paying “the judgment sum”. There is objection taken to the words “the judgment sum”. Those

words are clearly in error because the plaintiff has not obtained a judgment against the defendant. But while that might be a misstatement, it is not such a defect that the statutory demand should be set aside. That is because there is no substantial injustice caused to the defendant by allowing these words to remain. I bear in mind that once it was served with the statutory demand, the defendant instructed its lawyers who were able to write in reply to the statutory demand, addressing the matters in issue. That letter from the defendant’s lass is dated 14 February 2011. It is also headed “without prejudice”, but on my reading of it, it does not seem to contain any confidential information and it does not appear to involve any communications which would come within s 57 of the Evidence Act. Accordingly, that was an open document and it was not subject to privilege.

[6] Another point is that, while the defendant’s lawyers wrote to the plaintiff’s lawyers during the 10 working days after service of the statutory demand, the defendant did not apply to set aside the statutory demand under s 290 of the Companies Act. Ms Kuo, counsel for the defendant, has very properly referred to the decision of Associate Judge Abbott in Balmoral Marketing Ltd and Karapiro Spa Ltd.1 In that decision, Associate Judge Abbott followed a line of cases that held that, if a defendant does not apply within time to set aside a statutory demand, then the defendant is not able to raise the same matters when opposing a liquidation application. Associate Judge Abbott recognised that there are exceptions to that

approach. At [46] of his decision, he said that the test was:

(a) Each case must be decided on its particular facts;

(b) A defendant that fails to apply to set aside a statutory demand on the ground that the debt is disputable needs to show some exceptional factor to justify that failure to apply: that factor is likely to reflect the existence of a genuine dispute;

(c) The Court retains a discretion to consider a dispute where it is satisfied that there is a genuine basis for it; and

(d) A defence raised late may count against the defendant in relation to costs.

[7] With due respect to Associate Judge Abbott and the judges who decided the other cases cited in his decision, I take a different approach. In my judgment, the effect of not applying to set aside a statutory demand under s 290 is that a presumption of insolvency arises under s 287(a) of the Companies Act if the company served with the demand does not comply with it. It is a rebuttable presumption of insolvency. But aside from that presumption of insolvency, the failure to apply to set aside a statutory demand is neutral. A company that receives a statutory demand but does not apply to set it aside, retains the right to defend a liquidation application on the merits, except that it is faced with the presumption of insolvency. One ground on which that defendant can defend an application is to contest the plaintiff’s status as a creditor. It can contest the plaintiff’s status as a creditor by showing that the debt is contested. I have given my grounds for taking this approach more fully in my decision of Heron’s Flight Ltd v NZ Properties

International Ltd.2

[8] Accordingly, while the defendant’s counsel very correctly referred me to Balmoral Marketing Ltd v Karapiro Spa Ltd as a case against her, I do not follow it. Instead, I address the question whether the debt is subject to a genuine dispute.

Is there a genuine dispute as to the defendant’s liability?

[9] A Court will not make an order that the defendant be put into liquidation if there is a genuine dispute as to its liability. A company that genuinely contests its liability will refuse to pay a debt demanded. Accordingly, when there is a genuine contest as to liability, failure to pay is not evidence of insolvency. Contested liability can be consistent with solvency and therefore contested liability can be a proper ground for refusing to make an order for liquidation. I inquire whether Johnson Group NZ Ltd can properly contest the liability the plaintiff alleges.

[10] The plaintiff has put in evidence a written contract in Chinese but translated into English, which records an agreement for Johnson Group NZ Ltd to borrow the sum of $20,000 from the plaintiff. It also includes the provisions for payment of interest. The document is signed by the plaintiff and there is a signature for someone who has signed on behalf of the defendant.

[11] Mr Zhang says that he did not sign the agreement. He says that the person who signed the agreement was another employee called Kevin. Kevin left the company shortly afterwards. He says that Kevin had no authority to enter into the agreement on the company’s behalf.

[12] Mr Ning has not adduced any evidence to show that the employee, Kevin, did in fact have authority to enter into the agreement on behalf of the company. It is apparent that Kevin had an email address and he seems to have had access to the company letterhead. But those are not matters that point to Kevin having authority to enter into loan agreements to borrow money for the company. Decisions whether a company should borrow money are usually made at managerial level. In an export and recycling company, I would expect people at management level to make that decision, not people lower down. There is no evidence that the employee, Kevin, had any managerial function.

[13] I also record that the plaintiff has not adduced any evidence that Johnson Group NZ Ltd ratified the transaction. Accordingly, Johnson Group NZ Ltd has an arguable defence that it is not bound by the loan agreement which Kevin entered into on 24 August 2009.

[14] But that does not conclude the matter. The plaintiff’s evidence shows that it did pay the sum of $20,000 to Johnson Group NZ Ltd. It has put in evidence a National Bank deposit slip showing $20,000 paid to the credit of the company’s account. The defendant has not adduced any evidence that it did not receive that payment. In submissions, Ms Kuo advised me about matters that the defendant had inquired into, but that is not evidence. She also raised the point that the plaintiff had not put in evidence his own bank account showing that $20,000 of his funds had been paid out of his account. In my judgment, it was not necessary for the plaintiff

to do that in the circumstances of this case where the defendant’s receipt of the funds

was not put in issue.

[15] The circumstances here are that the company has received $20,000, apparently under an agreement which its employee entered into, although he arguably did not have authority to enter into that contract. Having received the money under an unauthorised transaction, Johnson Group NZ Ltd was under an obligation to repay the funds. It is an obligation that arises in restitution. Johnson Group NZ Ltd has not adduced any evidence to show that any of the defences to the restitutionary claim would be available to it in this case.

[16] Accordingly, I find that Johnson Group NZ Ltd did have an obligation to repay the sum of $20,000 that it had received. In OPC Managed Rehab Ltd v ACC3 the Court of Appeal held that a claim for money had and received could be a debt for the purpose of a statutory demand under s 289 of the Companies Act. If such a liability can constitute a debt for a statutory demand, it can clearly constitute a liability giving the claimant the status of a creditor for bringing an application for liquidation.

[17] In my judgment, the plaintiff has established that Johnson Group NZ Ltd has an indisputable liability to it for the sum of $20,000. The argument as to the loan agreement being unauthorised only gives it an arguable defence as to any liability to pay interest.

[18] As Johnson Group NZ Ltd did not pay the plaintiff the sum of $20,000 within time under the statutory demand, the presumption of insolvency has been established.

[19] Johnson Group NZ Ltd has not put anything before the Court that suggests that the Court should not exercise its discretion to make a winding-up order.

[20] I have reached the point in my judgment where I would ordinarily make an order for the liquidation of Johnson Group NZ Ltd.

3 [2006] 1 NZLR 778 (CA) at [51].

[21] Ms Kuo advises that her client would pay the sum of $20,000 and would also pay costs. The parties have agreed costs in the sum of $1,912.89. In fixing costs, Ms Kuo referred me to the letter her firm had sent to Mr Singh on 14 April 2011. That letter was sent on a without prejudice except as to costs basis. It contained an offer for payment of $20,000 over a period of five months. Since that letter was written, three months have expired. Accordingly, if Mr Ning had accepted that offer, he would be marginally better off than he is under the present arrangements, but he is getting the $20,000 today. That is, he would have received payment of three-fifths three months ahead of today and the rest two months after. On that very narrow basis, the offer was right on the button. The outcome of that is that the plaintiff is still entitled to have his costs for the issue of proceedings because the proceedings were already underway, but he does not get the costs of the hearing today.

[22] I adjourn the case to 2:15 pm today, but no appearances are required if I

_{receive confirmation that the debt has been paid.}

R M Bell

Associate Judge