NZ Superfood and Company Limited v Ad International Co Limited

[2023] NZHC 2191

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-429

[2023] NZHC 2191

BETWEEN

NZ SUPERFOOD AND COMPANY LIMITED
Applicant

AND

AD INTERNATIONAL CO LIMITED

Respondent

Hearing:	27 June 2023
Appearances:	Isabel Y Ko for the Applicant Seungmin Kang for the Respondent
Judgment:	4 August 2023

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[Application to set aside a statutory demand]

This judgment was delivered by me on 4 August 2023 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Turner Hopkins (M J Robinson/Isabel Y Ko), Takapuna, for the Applicant

Fairbrother Family Law (Pamela A Fairbrother/Seungmin Kang), Napier, for the Respondent

NZ SUPERFOOD AND COMPANY LIMITED v AD INTERNATIONAL CO LIMITED [2023] NZHC 2191
[4 August 2023]

TABLE OF CONTENTS

Paragraph

Introduction  [1]

Background  [2]

NZ Superfood’s application to set aside a statutory demand  [6] Affidavit of Jungoo Kang dated 8 March 2023  [8] Supplementary Affidavit of Jungoo Kang dated 31 March 2023  [17]

AD International’s opposition  [18]

Affidavit of Wan Yong Chang dated 28 April 2023  [19]

Reply affidavit of Jungoo Kang dated 19 May 2023  [26]

Legal principles  [32]

Analysis  [37]

Is there a contractual relationship between NZ Superfood

and AD International?  [39]

Conclusion in relation to the contractual relationship  [46]

Is there a genuine and substantial dispute over the debt upon
which the statutory demand is based?  [48]

Dispute as to the number of boxes  [49]

Dispute as to cancellation of the contract and refund  [54]

Conclusion in relation to genuine and substantial dispute  [67]

Result  [68]

Orders  [69]

Introduction

[1]                 NZ Superfood and Company Limited (NZ Superfood) applies to set aside a statutory demand made on it by AD International Co Limited (AD International) for repayment of monies paid after alleged cancelation by AD International of a contract with NZ Superfood to supply health supplement products.

Background

[2]                 NZ Superfood manufactures and sells green lipped mussel oil extract, powder and capsules.

[3]                 On 22 September 2020, NZ Superfood entered into a contract with Star Guide Ltd (Star Guide), which AD International claims was their agent, to supply green lipped mussel oil capsules for $51,750 (the alleged debt). After multiple delays and accepted faults in some of the initially supplied products, AD International claims NZ Superfood repudiated the contract and AD International cancelled it seeking a full refund.

[4]                 On 20 February  2023,  AD  International  issued  a  statutory  demand  to  NZ Superfood demanding that they refund the $51,750 purchase price (the statutory demand).

[5]                 On 8 March 2023, NZ Superfood filed an application to set aside the statutory demand pursuant to s 290(4)(a) of the Companies Act 1993.

NZ Superfood’s application to set aside statutory demand

[6]NZ Superfood seeks orders:1

a.   Setting aside the statutory demand dated 20 February 2023 purportedly served on the Applicant on 22 February 2023 by the Respondent, AD International Co. Limited (“the Statutory Demand”); and

1 Originating application for order to set aside statutory demand dated 8 March 2023 at [1].

b.   Extending the time for the Applicant to comply with the Statutory Demand until the Court determines the application to set aside the statutory demand, or the Court otherwise orders time to expire; and

c.   Costs of this application, including filing fees and disbursements associated with the filing of this application.

[7]The grounds on which the orders are sought are:2

a.   There is a genuine and substantial dispute as to whether there is a debt owing or due under section 290(4)(a) of the Companies Act 1993, because:

No contractual relationship between the Parties:

(1)    The Statutory Demand states it is for the sum of $51,750 (“the Alleged Debt”) and that it relates to an amount that has not been refunded to the Respondent despite its cancellation of the parties’ contract on 28 July 2021 and its repeated demands;

(2)    There was no binding contract between the Applicant and the Respondent;

(3)    The Alleged Debt is disputed by the Applicant on the basis that a creditor / debtor relationship cannot be established between the Applicant and the Respondent.

(4)    The Alleged Debt contained in the Statutory Demand relates to health supplement products (“the Products”) in the amount of

$51,750 (GST inclusive). The Products were purchased from the Applicant by Star Guide (a third party), not the Respondent. The terms of the agreement [were] agreed between the Applicant and Star Guide, not the Respondent.

i.   On 22 September 2020, the Applicant received an order (“the Purchase Order”) for 1,000 units of the Green Lipped Mussel Oil at $45.00 per unit (“the Products”) from Star Guide Limited (“Star Guide”) an incorporated company in New Zealand.

ii.   On 23 September 2020, the Applicant received payment for the Products in the amount of $51,750 (i.e.,$45,000 plus GST) from Star Guide (“the Payment”).

iii.   On 24 September 2020, the Applicant rendered an invoice and receipt of the payment received for the Products (“the Tax Invoice”) and sent the same to Star Guide.

iv.   In the absence of a contractual relationship between the Applicant and the Respondent, a credit / debtor relationship cannot be established.

2 At [2].

Products delivered to Star Guide:

(5)    The Statutory Demand makes demand for [the] full amount of the Alleged Debt on the basis of the Products. However, the Products were in fact delivered to Star Guide, and the contract with Star Guide was partly performed.

i.   Star Guide admits it received 15 boxes and kept 15 boxes of the Product for their commercial use.

ii.   The Applicant’s position is that Star Guide also received and has kept a further 76 boxes.

Events following Respondent’s purported cancellation of 28 July
 2021 (which is denied):

(6)    The Respondent requested a refund on 28 July 2021 in respect of the Products. This request was rejected by the Applicant.

(7)    In November 2021 (i.e., after 28 July 2021), the Respondent and Star Guide communicated with the Applicant in respect of the Products, the Respondent reaffirmed their desire for the contract to be performed after the purported cancellation on 28 July 2021.

i.   Due to the continuing delays with the manufacturer and dispatch due to COVID-19, the Applicant offered, as a courtesy, a new product as replacements for the returned products. The Applicant advised that if they wanted the new products, then there would be further delays so if Star Guide/the Respondent did not want to wait any longer, the Applicant was happy to provide a credit note or dispatch the original products.

ii.   The Respondent and Star Guide confirmed with the Applicant that the Applicant was to deliver the products in November 2021, and then again in February 2022.

(8)    The Respondent has been put on notice that there is a genuine and substantial dispute that the Alleged Debt is owing or due, but has failed to withdraw the Statutory Demand, despite the Applicant’s request for it to do so.

b.   The grounds set out in the affidavit of JUNGOO KANG sworn on 8 March 2023 in support of this application.

Affidavit of Jungoo Kang dated 8 March 2023

[8]                 Mr  Jungoo  Kang  (Mr  Kang),  sole  director  and  half  shareholder   of   NZ Superfood, has made an affidavit of New Zealand Superfod’s application to set aside the statutory demand: 3

3      Affidavit of Jungoo Kang in support of originating application for order to set aside statutory demand dated 8 March 2023.

[9]                 Mr Kang deposes he received the statutory demand on 22 February 2023 but that there is a genuine and substantial dispute over the alleged debt because:

(a)NZ   Superfood   did   not   have    a    contractual    relationship    with AD International; and

(b)Even if they did, there is a genuine and substantial dispute over the alleged debt as AD International is not entitled to a refund.

[10]              Regarding no contractual relationship, Mr Kang deposes NZ Superfood only ever had a direct contractual relationship with Star Guide, with whom he liaised primarily  with  Ms  Chi-Ju  (Judy)  Lee.  He  says  Star  Guide  first  approached  NZ Superfood on 22 September 2020 and  made  the  following  purchase  order  (the contract) under which:

(a)NZ Superfood would supply Star Guide with 1,000 boxes with 4 blister packs per box of Green Lipped Mussel Oil 35,000 (the products);

(b)Star Guide would pay $45 per box ($45,000 plus GST, totalling

$51,750); and

(c)NZ Superfood would dispatch the products to Star Guide once ready.

[11]Mr Kang then lists the following occurrences in relation to this order:

(a)On 23 September 2020, NZ Superfood received the payment of

$51,750 from Star Guide for which it returned Star Guide a tax invoice to them the following day.

(b)In October 2020, Star Guide requested to have 8 blister packs per box, which meant 500 boxes would be provided instead of 1,000.

(c)In November 2020, the order was completed when NZ Superfood delivered 511 boxes with 8 blister packs per box. These additional

boxes were due to difficulties with producing exact numbers on a packing line.

(d)On 25 November 2020, NZ Superfood  received  an  update  from  Star Guide that they wanted to return the products as there was slight leakage of some blister packets.

(e)On 21 January 2021, Star Guide notified NZ Superfood that they would return 420 boxes and confirmed that they had already used 15 boxes commercially. When the returned product arrived, Mr Kang inspected them and found only minor leaks on a very small number of blister packets. However, in good faith he says NZ Superfood decided to resupply the 420 boxes despite having to get more manufactured, a process which COVID-19 was delaying.

(f)On 4 October 2021, NZ Superfood enquired with Star Guide about the 76 remaining boxes, given that 511 has been sent, 15 were used and only 420 returned.

(g)On 2 November 2021, NZ Superfood advised Star Guide, and they accepted, that the production had been postponed and could not be dispatched before Christmas.

(h)In November 2021, because of ongoing delays from their manufacturer and the inconvenience caused by COVID-19, NZ Superfood offered as a good faith gesture that Star Guide could have the 420 boxes replaced with their new Green Shell Mussel Oil 42,000 product (the new products). Star Guide accepted despite being fully informed of the lack of an exact dispatch date and the lengthy manufacturing delay.

(i)In December 2021, the new products were manufactured but failed a January 2022 quality inspection. NZ Superfood advised Star Guide and offered to dispatch the original products instead, however Star Guide

and AD International advised they were willing to wait longer for the new products.

(j)On 29 December 2022, following a merger and acquisition process at their manufacturing company, and a restructure at the manufacturing company caused further delays, the new products finally passed the quality test and were ready for dispatch on 10 January 2023.

[12]              To conclude on the lack of a contractual relationship, Mr Kang deposes the statutory demand should be set aside as there is no creditor/debtor relationship between NZ Superfood and AD International, only between  NZ  Superfood  and Star Guide.

[13]              Regarding the genuine and substantial dispute, Mr Kang says AD International is not entitled to a  refund  based  on  an  alleged  cancellation  of  the  contract  on 28 July 2021, as there is no contractual relationship with AD International. He also maintains that Star Guide has kept 91 original boxes and requested 420 to be replaced.

[14]              Mr Kang says that even after 28 July 2021, when AD International requested a refund, NZ Superfood and Star Guide, AD International and Mr Chang were still liaising about the products, the manufacturing delays and when the new products would be dispatched. He maintains that he always made clear a refund was not possible.

[15]              Mr Kang deposes that between August and December 2022, NZ Superfood’s agent,  Mr  Dong  (Don)  Hyun  Lee  (Mr   Lee),   informed   Mr   Chang   from   AD International about the new products and COVID-19 related delays. He confirms that NZ Superfood was able to offer a credit note or could dispatch the original products, but says that Mr Chang refused both offers and insisted on waiting for the new products.  Then in December 2022, Mr Chang stopped communicating with   Mr Lee.

[16]              In  conclusion,  Mr  Kang  says  that  NZ   Superfood’s   lawyers   notified AD International of the dispute over the statutory demand on 3 March 2023 and believes that it should be set aside as there is a genuine and substantial dispute.

Supplementary Affidavit of Jungoo Kang dated 31 March 2023

[17]              Various exhibits of Mr Kang’s initial affidavit were translated from Korean to English by Mijung Choi.4 Mr Kang has made a further affidavit with comments about the translated exhibits.5 In a translated message between him and Mr Chang he says the word “direct purchase” should be “cross-border shopping” and the “please make” should be “I am begging” or “I sincerely ask of you”.

AD International’s opposition

[18]AD International opposes the application on the following grounds:6

a.   There was a contractual relationship between the parties, as the respondent was the disclosed principal;

b.   The contract was cancelled on 30 November 2022 and never affirmed thereafter; and

c.   There was otherwise no defect or irregularity that would cause substantial injustice if the statutory demand were not set aside.

Affidavit of Wan Yong Chang dated 28 April 2023

[19]              Mr Chang, the sole director of AD International, has made an affidavit in support of AD International’s opposition to set aside the statutory demand.7 Mr Chang says he is also the sole director of Top Point International Co Limited (Top Point), with whom NZ Superfood had an initial relationship to buy various health products.

[20]              By  way  of  background,  Mr  Chang  deposes   that   in   October   2019   AD International  started  preparing  to  purchase  green   mussel   products   from NZ Superfood by asking Mr Kang for samples and visiting him in January 2020.

4      Affidavit of translator dated 3 April 2023.

5      Supplementary affidavit of Jungoo Kang in support of originating application for order to set aside statutory demand dated 31 March 2023.

6      Notice of opposition dated 28 April 2023 at [1]–[3].

7      Affidavit of Wan Yong Chang in support of respondent’s notice of opposition to applicant’s application for order to set aside statutory demand dated 28 April 2023.

Between January and May 2020, AD International purchased green mussel powder from NZ Superfood, and Mr Chang confirmed the customer was AD International, not Top Point.

[21]              Mr Chang then deposes the following events occurred leading up to the purchase of the green lipped mussel oil products:

(a)On 9 June 2020, Mr Chang requested a quote for the green lipped mussel oil products and Mr Kang confirmed with him that in accordance with Korean law the products would be directly purchased by individual Korean customers from an overseas company. The quote was eventually refined to be for the products and on 25 June 2020   NZ Superfood provided AD International with a draft quote. From there Mr Chang further liaised about the final price and sending slightly more than 1,000 boxes to NZ Superfood to pack the products.

(b)In August 2020, anticipating the imminent purchase of the products, AD International through Top Point purchased 1,100 boxes which they sent to NZ Superfood.

(c)On 18 September 2020 and over the following days, Mr Kang confirmed NZ Superfood had sufficient stocks of the products, confirmed the purchase price of [$51,750-figure corrected] including GST, and Mr Chang confirmed he would arrange AD International’s payment through Star Guide, AD International’s New Zealand agent, so the purchases would be compliant with Korean Law. On 20 September 2020, AD International sent $60,000 to Star Guide to pay NZ Superfood.

(d)On 22 September 2020, Mr Chang accepts that Star Guide issued the purchase   order   to    NZ    Superfood.    The    order    referenced AD International in the purchase number and after receiving it Mr Kang messaged Mr Chang to confirm aspects of the purchase. Mr Chang accepts that Star Guide paid $51,750 to NZ Superfood the next day.

[22]              Mr Chang proceeds to explain the following occurrences after the order had been placed:

(a)In October 2020, due to Mr Kang’s failure to provide the correct box size information (not at Star Guide’s request), AD International through Top Point arranged 530 new boxes to be sent to NZ Superfood so that they could contain 8 blister packs per box.

(b)From 17 November 2020, having heard from Star Guide, Mr Chang raised issued with Mr Kang about faulty products and Mr Kang agreed to meet Star Guide’s costs for separating faulty products and reshipping them to NZ Superfood.

(c)From 14 December, Mr Chang then raised with Mr Kang that those products kept by Star Guide, which they initially believed were not faulty, were also faulty so AD International had to pause marketing until the issue was resolved.

(d)On 15 January 2021, Mr Kang offered to replace all the products with delivery in six weeks or provide a  refund  for  the faulty products.  Mr Chang says relying on the delivery timeframe he chose replacement.

(e)On 26 January 2021, Mr Chang confirmed with Mr Kang that of the

511  boxes  initially  received,  381  were  faulty  and  returned  to  NZ Superfood, 305 were thereafter received by Star Guide which is 76 boxes short and means that on top of the 420 boxes Star Guide sent to NZ Superfood they need to receive 76 extra boxes for a total of  496 to be received in six weeks. Mr Chang says they were not delivered in six weeks and despite following up in February, March and April 2021, there was no progress.

(f)On 7 May 2021, Mr Kang said the products  would be shipped by     11 June 2021 so AD International through Top Point purchased and sent

550 boxes to NZ Superfood. Mr Chang says for the first time in late May, Mr Kang said he should contact NZ Superfood’s manager instead of him.

(g)From 7 June 2021, Mr Kang  did  not  respond  to  Mr  Chang  and  Mr Chang then says he sent an email cancelling the contract and requesting a refund on 28 July 2021. Mr Kang then responded to that email offering the new products for the same price, to which Mr Chang agreed.

(h)Mr Chang says the delay continued despite requests for updates in March, April and May 2022 to which Mr Kang simply responded that there were further delays, and that Mr Chang should visit New Zealand. Mr Chang then never received a response to his follow-ups in July, October and December 2022.

(i)Between October and December 2022, Mr Chang contacted Mr Lee, NZ Superfood’s agent in Korea, to request updates. Mr Lee promised the new products would be manufactured by the end of November or a final resolution would be offered. By the end of November Mr Lee said that, after a discussion with Mr Lee and the manufacturer, he would receive an order credit. Mr Chang insisted on a refund, but Mr Lee said that was not possible and that Mr Chang must wait for the new products to eventually be produced.   On 7 December 2022, Mr Chang said   Mr Lee understood his position on the refund and that they would endeavour to process one.

[23]              Regarding  no  contractual   relationship,   Mr   Chang   says   that   while   NZ Superfood also communicated with Star Guide, this was only regarding limited contractual performance agreements. That contact was always copied to Mr Chang on behalf of AD International, and all other important communication regarding repudiation and cancellation were solely done through AD International.

[24]              Regarding the disputed boxes, Mr Chang  says  the  evidence  shows  that  NZ Superfood sent 76 less boxes than they should have rather than Star Guide keeping

76. As to the 15 retained for use by Star Guide and AD International, he says they were used as samples because they were faulty and therefore had no commercial value. He further says that the statutory demand was solely for the purchase price and not the cost of Top Point purchasing and shipping the required boxes.

[25]              Regarding cancellation, Mr Chang says that Mr Lee’s 30 November 2022 statement about the order credit was a clear repudiation, which was followed by a cancellation requesting a refund by Mr Chang. Mr Lee later attempted to withdraw the repudiation by offering the new products with an unspecified delivery date, but Mr Chang says he did not affirm and requested a refund. Finally, Mr Chang says that significant delays and about 30 months have passed since the contract begun which, due to a change in Star Guide and AD International’s circumstances, means that cancellation is the only reasonable option for them.

Reply affidavit of Jungoo Kang dated 19 May 2023

[26]Mr Kang has made an affidavit in reply to Mr Chang’s.8

[27]              First, Mr Kang stresses that there are significant differences in legal requirements for green lipped mussel oil to be sold domestically or internationally. As AD International admits, they had to purchase the products via their New Zealand agent, Mr Kang says that explains why Mr Chang nominated Star Guide. Therefore, Mr Kang asserts that the contractual status was between Star Guide and NZ Superfood and for domestic rather than international sale. Mr Kang says NZ Superfood originally only communicated with Star  Guide  and  to  the  extent  it  communicated  with  AD International, that was only since Star Guide was introduced by AD International as their agent.

[28]              Second, Mr Kang accepts that the initial box size error resulted from an oversight by NZ Superfood.

8      Reply affidavit of Jungoo Kang dated 19 May 2023.

[29]              Third, Mr Kang denied that he avoided communicating with Mr Chang at any time. He reasserts that the delays in producing were a result of COVID-19 and quality control issues.

[30]              Fourth, Mr Kang  says  that  on  10  January  2022  NZ  Superfood  asked  AD International if they wished to accept the products instead of waiting for the new products, but AD International rejected this claiming the products were outdated.   Mr Kang then says that the new products became available on 7 March 2023, but  Mr Chang rejected to receive them.

[31]              Finally, Mr Kang reasserts that NZ Superfood did not repudiate the contract with AD International as they only contracted with Star Guide and further the offer for order credit did not demonstrate NZ Superfood’s unwillingness to fulfil its contractual obligations.

Legal principles

1. Section 290 of the Companies Act 1993 provides, relevantly:

290     Court may set aside statutory demand

(1)The court may, on the application of the company, set aside a statutory demand.

…

(4)The court may grant an application to set aside a statutory demand if it is satisfied that—

(a)there is a substantial dispute whether or not the debt is owing or is due; or

(b)the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c)the demand ought to be set aside on other grounds.

…

[33]The Court has set out the principles relevant to the application of s 290(4):9

What the applicant must show is that the dispute it raises has substance; the applicant must explain to the court what the dispute is; and the dispute so shown must be a real and not a fanciful or insubstantial dispute. The Court must bear in mind that it is operating in the summary jurisdiction, with the accompanying disadvantages that brings for any applicant. The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.

[34]              As to s 290(4)(a), the Court is to look at whether a genuine substantial dispute exists.10 Mere assertion of a dispute does not suffice, and the applicant has to show a fairly arguable basis for it.11 In practice, it is required that there be some material short of proof that backs up the claim that the amount is in dispute.12

[35]              Where a counterclaim, set-off, or cross-demand is sought to be raised, the Court has a discretionary power to set aside the statutory demand, but the company must show a real basis, on clear and persuasive grounds, for doing so. And “pay now, argue later” considerations have sometimes been allowed to prevail over the effect of liquidation.13

[36]Section 36 of the Contract and Commercial Law Act 2017 (CCLA) provides:

36 Party may cancel contract if another party repudiates it

(1) A party to a contract may cancel the contract if, by words or conduct, another party (B) repudiates the contract by making it clear that B does not intend to—

(a)perform B’s obligations under the contract; or

(b)complete the performance of B’s obligations under the contract.

9      AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338 at [22] (footnotes omitted).

10 Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 301.

11 N F Global Ltd v Sky Capital Management Ltd [2020] NZHC 2196 at [39]. See also United Homes (1998) Ltd v Workman [2001] 3 NZLR 447 (CA) at [27].

12 Arzan Investments Ltd v Beresford Apartments Ltd (2003) 16 PRNZ 825 (HC) at [17].

13  N F Global Ltd v Sky Capital Management Ltd, above n 11, at [40], citing Volcanic Investments   Ltd v Dempsey & Wood Civil Contractors Ltd (2005) 18 PRNZ 97; Browns Real Estate Ltd v Grand Lakes Ltd [2010] NZCA 425, (2010) 20 PRNZ 141; Covington Railways Ltd v Uni- Accommodation Ltd [2001] 1 NZLR 272 (CA) at 274–275.

Analysis

[37]The issues to be determined in this judgment are:

(a)is  there  a  contractual  relationship  between  NZ  Superfood  and  AD International?

(b)is there a genuine and substantial dispute over the debt upon which the statutory demand is based?

[38]I deal with each of these issues in turn.

Is there a contractual relationship between NZ Superfood and AD International?

[39]              Ms Ko, for NZ Superfood, submits that under s 289(1) of the Companies Act 1993 (the Act), a statutory demand is a demand by a creditor in respect of a debt owing by  a  company  made   in   accordance   with   that   section.   She   submits   that AD International is not a creditor under s 289(1) of the Act because there is no binding contract between the parties, and therefore there can be no creditor/debtor relationship.

[40]              Ms Ko makes the following submissions for this argument: the products were purchased by NZ Superfood from Star Guide, not AD International; on 22 September 2020 NZ Superfood received a purchase order for the products from Star Guide; on 23 September 2020 NZ Superfood received payment for the products in the amount of

$51,750.00 from Star Guide; on 24 September 2020 NZ Superfood rendered an invoice in respect of the payment received for the products  and sent the same to  Star Guide.

[41]              Ms Ko submits that accordingly the terms of the agreement were agreed between NZ Superfood and Star Guide, not AD International.

[42]              As to AD International’s proposition that the contractual relationship was between NZ Superfood and AD International, as AD International was a disclosed principal and Star Guide was its agent, Ms Ko submits that irrespective of the structure between AD International and Star Guide, the parties only had a direct commercial

relationship in respect of the international market and the products in respect of which the statutory demand relates were in respect of the domestic market. She submits it was AD International that advised NZ Superfood to enter into a direct commercial agreement with Star Guide and to discuss directly anything that was domestic market- related in respect of the products with Star Guide.

[43]              In summary on this point, Ms Ko  submits  that  NZ  Superfood  assumed  Star Guide was a direct contracting party, not an agent, because:

(a)the purchase order came from Star Guide;

(b)the tax invoice was issued to Star Guide; and

(c)payment was received from Star Guide.

[44]              Mr S Kang,14 for AD International, on this issue submits that it was clearly obvious to NZ Superfood that Star Guide was an agent and AD International was the disclosed principal. In support of this he points to the following:

(a)since about October 2019, the year before the contract was formed, Mr Chang   and   Mr   Kang   had   been    communicating    about  AD International taking steps to purchase the products;

(b)the draft quote dated 25 June 2020 was addressed to, and sent to,    AD International;

(c)AD International arranged shipping of the 1,100 boxes in August 2020, anticipating the contract, which was made known to NZ Superfood;

(d)Mr Chang’s email dated 20 September 2020 put NZ Superfood on clear notice that there would be a principal/agent  relationship  between  AD International and Star Guide in relation to the contract as follows:

14     Not to be confused with director of NZ Superfood, Mr Kang.

“I plan to make payment for 1,000 [packs] of green lipped mussel oil. 1. I would like to know the total amount including GST. 2. Payment will be made through Star Guide Limited in New Zealand. I will proceed with that payment once you provide me with the company name in New Zealand that will receive the payment, the person in charge, email address, and phone number.”

[45]              Mr S Kang submits that NZ Superfood continuously communicated with   AD International after the contract was put in place regarding performance under the contract, and solely communicated with AD International regarding important issues which arose with the contract. In his submission, this demonstrates that NZ Superfood had actual knowledge that AD International was the principal party to the contract and he cites the following examples:

(a)immediately after receiving the purchase  order  for  Star  Guide  on 22 September 2020, Mr Kang chose to contact Mr Chang confirming receipt of the purchase order from Star Guide and asking various questions regarding the contract;

(b)Mr Kang chose to contact Mr Chang as to the incorrect box size;

(c)from November 2020, when the initial faulty products were delivered to Star Guide, Mr Chang raised these issues with NZ Superfood himself, and made arrangements with NZ Superfood;

(d)from 2022, all evidenced communication was either between Mr Chang and Mr Kang, or Mr Chang and Mr Lee as NZ Superfood’s agent — Star Guide no longer took part in the communications.

Conclusion in relation to the contractual relationship

[46]              In my view, it is strongly arguable that there was a contractual relationship between NZ Superfood and AD International, with AD International being the disclosed  principal  of   its   New   Zealand   agent,   Star   Guide.   Accordingly,  NZ Superfood’s  argument  that  no  debt  existed  between  NZ  Superfood  and   AD International because there was no contractual relationship between the parties is

not sufficiently made out. Accordingly, it is not a ground justifying setting aside the statutory demand.

[47]              The reasons for this view are that  I  accept  the  submissions made out by  AD International that it is clear that the  real  party  to  the  contract  was  always  AD International, which funded the purchase price, arranged the pre-contractual discussions, and was the key point of contact in respect of performance of the contract and issues which arose after the alleged defect in the products.

Is there a genuine and substantial dispute over the debt upon which the statutory demand is based?

[48]The alleged areas of dispute are:

(a)the number of boxes of products sent by NZ Superfood to Star Guide and the number retained by Star Guide; and

(b)whether AD International cancelled the contract and was entitled to a refund.

Dispute as to the number of boxes

[49]              Ms Ko submits that while the statutory demand makes demand for the full amount of the alleged value of the refund for the products, the products were in fact delivered to Star Guide and there is also a discrepancy as to how many boxes were delivered and retained by Star Guide. Specifically, she points to the following:

(a)Star Guide admits that it received 15 boxes and kept 15 boxes for its commercial use. NZ Superfood’s position is that Star Guide also received and has kept a further 76 boxes.

(b)AD International claims that NZ Superfood sent 76 boxes less, and Star Guide only used 15 boxes of sample products and not for commercial use.

[50]              Ms Ko submits that in relation to the above, the parties are in dispute as to the exact number of boxes despatched and delivered, and for this reason there is a substantial and genuine dispute as to the products despatched and delivered, and therefore, the amount for which the statutory demand has been issued.

[51]              Mr S Kang, on the other hand, submits that there is no genuine dispute in relation to the 76 boxes as the undisputed contemporaneous evidence, being the parties messages on 26 and 27 January 2021 confirms that NZ Superfood sent 76 boxes less than ordered. He recites the messages as follows:

Mr Chang on 26 January 2021:

“… I heard that the defective products have been sent to you. It’s just that we need to figure out the quantity of the products [that I need to receive].

1.   Total number received at first: 511 boxes

2.   A total of 381 boxes – 333 boxes and 384 blister cards (48 boxes) – were returned due to the defective products occurring in November last year. Number of boxes received after this: 305 boxes.

In conclusion, I received 76 boxes less.

3.   The total number of boxes returned this Monday is said to be 420 boxes.

4.   The total number of boxes we need to receive in 6 weeks is 496 boxes.

Please check and reply.”

Mr Kang on 27 January 2021

“Yes, okay”

[52]In relation to the remaining 15 boxes, he submits:

(a)while AD International accepted they were used by Star Guide as sample products they did not have any commercial value, being also faulty, and this was not disputed in NZ Superfood’s reply affidavit;

(b)if NZ Superfood were to perform the contract by way of re-delivering 496 boxes, it would likely have delivered more than 500 boxes where it has previously sent 511 boxes; and

(c)in any case, AD International has other damages to claim — $2,829.67 being  costs  for  having  shipped  boxes  on  three  occasions,  and  NZ Superfood has not disputed this.

[53]              Mr S Kang submits that, taking these matters into account, NZ Superfood has no genuine or substantial dispute about the statutory demand in relation to the numbers of boxes delivered or returned.

Dispute as to cancellation of the contract and refund

[54]              Ms Ko submits that the statutory demand is based on AD International’s claim for a refund of $51,750, which has not been refunded to AD International despite  AD International cancelling the contract and requesting the refund. She submits that while NZ Superfood does not dispute that AD International requested  a refund on  28 July 2021, NZ Superfood’s position is that even after 28 July 2021 NZ Superfood communicated with Star Guide in respect of the products and the status of the products for despatch. Further, she submits that AD International frequently requested updates in respect of the products and the status of the products that were despatched to    Star Guide on 18 November 2021, 4 February 2022 and 8 February 2022, thereby affirming the contract.

[55]              With respect to the purported cancellation of the contract by AD International, Ms Ko submits as follows:

(a)AD International claimed in the statutory demand that it cancelled the contract on or about 28 July 2021 and now claims that the contract was cancelled on 30 November 2022 and never affirmed after that date. AD International claims that NZ Superfood repudiated the contract by notifying them that the products would be “credited to” (rather than delivering the products), making it clear that it did to intend to complete

performance of its obligations under the contract. AD International’s request for a refund in response to that repudiation constituted a cancellation of the contract.

(b)As to the repudiation and cancellation, Ms Ko refers to s 36 of the CCLA and submits what constitutes repudiation has been defined as:15

(i)an absolute refusal to perform the contract;

(ii)a total refusal to perform the contract;

(iii)a declaration of an intention not to carry out a contract when the time arrives; and

(iv)intention to treat the obligation as altogether at an end.

[56]              Ms Ko submits it must be shown the party to the contract made quite plain an intention not to perform the contract. She submits that NZ Superfood’s position is that:

(a)NZ Superfood did not repudiate any contract with AD International because there was no contract between these two parties and the contractual relationship was between NZ Superfood and Star Guide. As noted at [46], I have determined that it is strongly arguable that there is   a   contractual   relationship    between    NZ    Superfood    and AD International.

(b)Assuming there was a contract between the parties, NZ Superfood did not  repudiate  the  contract  because   the   “credit   to”   was   not   NZ Superfood’s unwillingness to perform its obligations under any contract.

(c)At all material times, NZ Superfood was ready and willing to perform its contractual obligations in all material respects, and she points to the following:

15 Cameron v Worboys [1952] NZLR 962 (CA) at 968; Bow v McGrath Builders Ltd [1974] 2 NZLR 442 (SC); Starlight Enterprises Ltd v Lapco Enterprises Ltd [1979] 2 NZLR 744 (CA); Betham v Margetts [1996] 2 NZLR 708 (HC).

(i)NZ Superfood was ready to despatch the products from November 2021;

(ii)the new products were offered to Star Guide at the same price as the products as a good faith gesture, due to the continuing delays and uncertainties caused by COVID-19;

(iii)due to COVID-19, delays in manufacturing the new products, and quality control issues, NZ Superfood informed Star Guide that it was unable to give an exact date for despatch. Star Guide advised that it was happy to wait for the new products;

(iv)due to continuing delays in manufacturing the new products, NZ Superfood offered to despatch and deliver the products. It was AD International who rejected this offer and advised that it was happy to wait for the new products.

[57]              Ms Ko submits that  by  offering  the  credit  to  AD  International  it  was  NZ Superfood’s way of showing that it was still willing, and able to provide either the products immediately or the new products at a later time, once production delays were dealt with. Ms Ko submits therefore that as at 30 November 2022 (the alleged repudiation date) NZ Superfood was still ready and willing to despatch the products immediately or despatch the new products at a later time once COVID-19 delays were dealt with, and the credit offered in November 2022 did not amount to a repudiation in the terms set out at [55](b).

[58]              Ms Ko therefore submits that NZ Superfood’s position is that it did not repudiate the contract in November 2022 and AD International was not entitled to cancel the contract under s 36 of the CCLA. Accordingly, there is a substantial and genuine dispute as to AD International’s entitlement to cancel the contract and claim a refund and the statutory demand based on that refund should be set aside as a result.

[59]              Mr S Kang, on the other hand, submits that AD International was entitled to a refund whether the contract was cancelled or not, for the following reasons:

(a)On 15 January 2021, after delivering faulty products, Mr Kang proposed two options:

(i)NZ Superfood delivering new products which were to be manufactured in about six weeks; or

(ii)giving a refund; and

(b)While AD International  chose  option  1  at  the  time,  relying  on  NZ Superfood’s representation that the new products would be manufactured in about six weeks, that option was not performed for almost two years to November 2022, and therefore Mr S Kang submits that it is fair and just to interpret that as at November 2022 option 2 was available for AD International to rely on.

[60]              In the alternative, Mr S Kang submits that AD International relies on ss 36, 37 and 42 of the CCLA that it was entitled to cancel the contract and seek a refund as damages where:

(a)NZ Superfood repudiated the contract by making it clear (by words or conduct) that it did not intend to perform or complete performance of its obligations under the contract (s 36); and/or

(b)the effect of the breach or anticipated breach of the contract is, or will be, to substantially reduce the benefit or increase the burden of the contract to AD International, or make the benefit or burden of the contract substantially different from that contracted for (s 37(2)(b)).

[61]              As to repudiation of the contract by NZ Superfood, Mr S Kang submits that the Court of Appeal has held a party repudiates a contract where it has:16

… made it clear (by words or conduct) that it did not intend to perform, or complete the performance of, its obligations under the contract, or indicated that it will only perform the contract in a way substantially inconsistent with its obligations and not in any other way.

16     Jade Residential Ltd v Paul [2020] NZCA 477 at [52].

[62]              Mr S Kang submits that NZ Superfood  repudiated  the  contract  in November 2022. He refers to the following message from Mr Lee to Mr Chang:

Hi, Mr Chang. Mr Kang and Mr Yun from Nutrizone had a discussion today. The bottom line is that they will give you a credit for your order.

He then refers to the background leading up to this message.

[63]              Mr S Kang submits that NZ Superfood’s obligations under the contract at that stage were to deliver 496 boxes of the products and giving AD International a “credit” was not how it was obliged to or entitled to perform under the contract. He submits that AD International reasonably understood what NZ Superfood was saying after more than two years and having long periods of non-responsive contact, was a clear indication that it cannot perform its obligations under the contract as is and it will only perform the contract the way it is substantially inconsistent with its obligation.

[64]              Mr S Kang also disputes that NZ Superfood was ready, able and willing to perform the contract, submitting that while it may have been ready and willing, it was not able  to  perform  the  contract  given  the  products  were  not  delivered  until  30 November 2022.

[65]              In summary, therefore, Mr S Kang submits that AD International was entitled to cancel the contract by relying on NZ Superfood’s repudiation and ask for a refund.

[66]              In addition, Mr S Kang submits that AD International was entitled to cancel the contract under s 37 of the CCLA. He submits that while NZ Superfood had failed to perform the contract for more than two years, AD International’s circumstances have changed in that:

(a)it no longer has a New Zealand agent who could receive the products, check them and ship them to individual customers in Korea, as the relevant person from Star Guide has been re-located to Taiwan;

(b)it no longer has an employee who could manage this contract promoting the products in Korea and finding customers.

Therefore, there is a reduced benefit, increased burden, or AD International would receive something different from what was contracted for, justifying cancellation under s 37(2)(b).

Conclusion in relation to genuine and substantial dispute

[67]              In my view, there are substantial and genuine disputes between the parties in respect of the contract. In my view, the disputes relate to:

(a)the boxes of products which were supplied by NZ Superfood under the contract,  and  the  number  of  boxes  which   were   retained   by  Star Guide/AD International. I do not accept Mr S Kang’s submission that the correspondence between the parties to which he refers definitively answers this issue. As this is in dispute, the value of any refund claimed by AD International, if it was entitled to a refund (as discussed below), is uncertain and therefore the amount claimed in the statutory demand is uncertain;

(b)there is a dispute as to whether a refund was offered by NZ Superfood as a term of the contract and whether or not that offer was accepted by AD International in January 2021, and whether it was incapable of later being accepted on 30 November 2022;

(c)whether the discussions between the parties, relating to a refund or credit,  amounted  to  a  repudiation  of  the  contract.  Ms   Ko,  for NZ Superfood, argues that there was never any clear indication that NZ Superfood  would  not  perform  the  contract.  It  had  offered  AD International options of receiving the products or new products. Mr S Kang, on the other hand, argues that the offer of a credit clearly meant that that NZ Superfood was not able to perform the contract in accordance with its terms. While there is evidence of messages back and forth between the parties, this issue clearly needs to be elucidated by evidence at trial;

(d)whether AD International cancelled the contract on 28 July 2021 or on 30 November 2022, by accepting NZ Superfood’s repudiation of the contract. In addition, it is disputed whether AD International was entitled to cancel the contract under s 37(2)(b) of the CCLA on the basis that NZ Superfood’s breach, or anticipated breach of the contract, is to substantially reduce the benefit or increase the burden of the contract or will make the benefit or burden of the contract substantially different from that contracted for. AD International points to its changed circumstances during the two years during which the contract was not performed as a basis for AD International to cancel the contract under this provision.

Result

[68]              As a result of the conclusions I have reached at [46],[47] and [67], I am of the view that NZ Superfood’s application to set aside the statutory demand should be granted.

Orders

[69]I make the following orders:

(a)NZ Superfood’s application to set aside the statutory demand is granted;

(b)Counsel are directed to endeavour to agree costs. If costs have not been agreed within 20 working days of the date of this judgment, counsel for NZ Superfood will file a memorandum as to  costs (not to exceed      5 pages) within 10 working days of expiry of the 20 working day period and counsel for AD International will file a memorandum in reply (not to exceed 5 pages) within 5 working days of receipt of counsel for NZ Superfood’s memorandum. A decision on costs will then be made on the papers.

…………………………….. Associate Judge Taylor