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

NZ SUPERFOOD AND COMPANY LIMITED v AD INTERNATIONAL CO LIMITED [2023] NZHC 2191[4 August 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2023-404-429[2023] NZHC 2191BETWEEN NZ SUPERFOOD AND COMPANYLIMITEDApplicantAND AD INTERNATIONAL CO LIMITEDRespondentHearing: 27 June 2023Appearances: Isabel Y Ko for the ApplicantSeungmin Kang for the RespondentJudgment: 4 August 2023JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR[Application to set aside a statutory demand]This judgment was delivered by me on 4 August 2023 at 3:00pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:Turner Hopkins (M J Robinson/Isabel Y Ko), Takapuna, for the ApplicantFairbrother Family Law (Pamela A Fairbrother/Seungmin Kang), Napier, for the RespondentTABLE OF CONTENTSParagraphIntroduction [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 Superfoodand AD International? [39]Conclusion in relation to the contractual relationship [46]Is there a genuine and substantial dispute over the debt uponwhich 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 astatutory demand made on it by AD International Co Limited (AD International) forrepayment of monies paid after alleged cancelation by AD International of a contractwith NZ Superfood to supply health supplement products.Background[2] NZ Superfood manufactures and sells green lipped mussel oil extract, powderand capsules.[3] On 22 September 2020, NZ Superfood entered into a contract with Star GuideLtd (Star Guide), which AD International claims was their agent, to supply greenlipped mussel oil capsules for $51,750 (the alleged debt). After multiple delays andaccepted faults in some of the initially supplied products, AD International claimsNZ Superfood repudiated the contract and AD International cancelled it seeking a fullrefund.[4] On 20 February 2023, AD International issued a statutory demand toNZ Superfood demanding that they refund the $51,750 purchase price (the statutorydemand).[5] On 8 March 2023, NZ Superfood filed an application to set aside the statutorydemand 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:1a. Setting aside the statutory demand dated 20 February 2023 purportedlyserved on the Applicant on 22 February 2023 by the Respondent, ADInternational Co. Limited ("the Statutory Demand"); and1 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 StatutoryDemand until the Court determines the application to set aside thestatutory demand, or the Court otherwise orders time to expire; andc. Costs of this application, including filing fees and disbursementsassociated with the filing of this application.[7] The grounds on which the orders are sought are:2a. There is a genuine and substantial dispute as to whether there is a debtowing 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 ("theAlleged Debt") and that it relates to an amount that has not beenrefunded 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 theRespondent;(3) The Alleged Debt is disputed by the Applicant on the basis that acreditor / debtor relationship cannot be established between theApplicant and the Respondent.(4) The Alleged Debt contained in the Statutory Demand relates tohealth supplement products ("the Products") in the amount of$51,750 (GST inclusive). The Products were purchased from theApplicant by Star Guide (a third party), not the Respondent. Theterms of the agreement [were] agreed between the Applicant andStar Guide, not the Respondent.i. On 22 September 2020, the Applicant received an order("the Purchase Order") for 1,000 units of the GreenLipped Mussel Oil at $45.00 per unit ("the Products")from Star Guide Limited ("Star Guide") an incorporatedcompany in New Zealand.ii. On 23 September 2020, the Applicant received paymentfor the Products in the amount of $51,750 (i.e.,$45,000plus GST) from Star Guide ("the Payment").iii. On 24 September 2020, the Applicant rendered aninvoice and receipt of the payment received for theProducts ("the Tax Invoice") and sent the same to StarGuide.iv. In the absence of a contractual relationship between theApplicant and the Respondent, a credit / debtorrelationship cannot be established.2 At [2].Products delivered to Star Guide:(5) The Statutory Demand makes demand for [the] full amount of theAlleged Debt on the basis of the Products. However, the Productswere in fact delivered to Star Guide, and the contract with StarGuide was partly performed.i. Star Guide admits it received 15 boxes and kept 15 boxesof the Product for their commercial use.ii. The Applicant's position is that Star Guide also receivedand has kept a further 76 boxes.Events following Respondent's purported cancellation of 28 July2021 (which is denied):(6) The Respondent requested a refund on 28 July 2021 in respect ofthe Products. This request was rejected by the Applicant.(7) In November 2021 (i.e., after 28 July 2021), the Respondent andStar Guide communicated with the Applicant in respect of theProducts, the Respondent reaffirmed their desire for the contractto be performed after the purported cancellation on 28 July 2021.i. Due to the continuing delays with the manufacturer anddispatch due to COVID-19, the Applicant offered, as acourtesy, a new product as replacements for the returnedproducts. The Applicant advised that if they wanted thenew products, then there would be further delays so ifStar Guide/the Respondent did not want to wait anylonger, the Applicant was happy to provide a credit noteor dispatch the original products.ii. The Respondent and Star Guide confirmed with theApplicant that the Applicant was to deliver the productsin November 2021, and then again in February 2022.(8) The Respondent has been put on notice that there is a genuine andsubstantial dispute that the Alleged Debt is owing or due, but hasfailed to withdraw the Statutory Demand, despite the Applicant'srequest for it to do so.b. The grounds set out in the affidavit of JUNGOO KANG sworn on 8March 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 ofNZ Superfood, has made an affidavit of New Zealand Superfod's application to setaside the statutory demand: 33 Affidavit of Jungoo Kang in support of originating application for order to set aside statutorydemand dated 8 March 2023.[9] Mr Kang deposes he received the statutory demand on 22 February 2023 butthat there is a genuine and substantial dispute over the alleged debt because:(a) NZ Superfood did not have a contractual relationship withAD International; and(b) Even if they did, there is a genuine and substantial dispute over thealleged debt as AD International is not entitled to a refund.[10] Regarding no contractual relationship, Mr Kang deposes NZ Superfood onlyever had a direct contractual relationship with Star Guide, with whom he liaisedprimarily with Ms Chi-Ju (Judy) Lee. He says Star Guide first approachedNZ 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 blisterpacks 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 invoiceto 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 Superfooddelivered 511 boxes with 8 blister packs per box. These additionalboxes were due to difficulties with producing exact numbers on apacking line.(d) On 25 November 2020, NZ Superfood received an update fromStar Guide that they wanted to return the products as there was slightleakage of some blister packets.(e) On 21 January 2021, Star Guide notified NZ Superfood that they wouldreturn 420 boxes and confirmed that they had already used 15 boxescommercially. When the returned product arrived, Mr Kang inspectedthem and found only minor leaks on a very small number of blisterpackets. However, in good faith he says NZ Superfood decided toresupply the 420 boxes despite having to get more manufactured, aprocess which COVID-19 was delaying.(f) On 4 October 2021, NZ Superfood enquired with Star Guide about the76 remaining boxes, given that 511 has been sent, 15 were used andonly 420 returned.(g) On 2 November 2021, NZ Superfood advised Star Guide, and theyaccepted, that the production had been postponed and could not bedispatched before Christmas.(h) In November 2021, because of ongoing delays from their manufacturerand the inconvenience caused by COVID-19, NZ Superfood offered asa good faith gesture that Star Guide could have the 420 boxes replacedwith their new Green Shell Mussel Oil 42,000 product (the newproducts). Star Guide accepted despite being fully informed of thelack of an exact dispatch date and the lengthy manufacturing delay.(i) In December 2021, the new products were manufactured but failed aJanuary 2022 quality inspection. NZ Superfood advised Star Guide andoffered to dispatch the original products instead, however Star Guideand AD International advised they were willing to wait longer for thenew products.(j) On 29 December 2022, following a merger and acquisition process attheir manufacturing company, and a restructure at the manufacturingcompany caused further delays, the new products finally passed thequality test and were ready for dispatch on 10 January 2023.[12] To conclude on the lack of a contractual relationship, Mr Kang deposes thestatutory demand should be set aside as there is no creditor/debtor relationshipbetween NZ Superfood and AD International, only between NZ Superfood andStar Guide.[13] Regarding the genuine and substantial dispute, Mr Kang says AD Internationalis not entitled to a refund based on an alleged cancellation of the contract on28 July 2021, as there is no contractual relationship with AD International. He alsomaintains 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 arefund, NZ Superfood and Star Guide, AD International and Mr Chang were stillliaising about the products, the manufacturing delays and when the new productswould be dispatched. He maintains that he always made clear a refund was notpossible.[15] Mr Kang deposes that between August and December 2022, NZ Superfood'sagent, Mr Dong (Don) Hyun Lee (Mr Lee), informed Mr Chang fromAD International about the new products and COVID-19 related delays. He confirmsthat NZ Superfood was able to offer a credit note or could dispatch the originalproducts, but says that Mr Chang refused both offers and insisted on waiting for thenew products. Then in December 2022, Mr Chang stopped communicating withMr Lee.[16] In conclusion, Mr Kang says that NZ Superfood's lawyers notifiedAD International of the dispute over the statutory demand on 3 March 2023 andbelieves 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 toEnglish by Mijung Choi.4 Mr Kang has made a further affidavit with comments aboutthe translated exhibits.5 In a translated message between him and Mr Chang he saysthe 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:6a. There was a contractual relationship between the parties, as therespondent was the disclosed principal;b. The contract was cancelled on 30 November 2022 and never affirmedthereafter; andc. There was otherwise no defect or irregularity that would cause substantialinjustice 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 insupport of AD International's opposition to set aside the statutory demand.7 Mr Changsays 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 2019AD International started preparing to purchase green mussel products fromNZ 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 asidestatutory 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'sapplication for order to set aside statutory demand dated 28 April 2023.Between January and May 2020, AD International purchased green mussel powderfrom NZ Superfood, and Mr Chang confirmed the customer was AD International, notTop Point.[21] Mr Chang then deposes the following events occurred leading up to thepurchase of the green lipped mussel oil products:(a) On 9 June 2020, Mr Chang requested a quote for the green lippedmussel oil products and Mr Kang confirmed with him that inaccordance with Korean law the products would be directly purchasedby individual Korean customers from an overseas company. The quotewas eventually refined to be for the products and on 25 June 2020NZ Superfood provided AD International with a draft quote. Fromthere Mr Chang further liaised about the final price and sending slightlymore 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 theysent to NZ Superfood.(c) On 18 September 2020 and over the following days, Mr Kangconfirmed NZ Superfood had sufficient stocks of the products,confirmed the purchase price of [$51,750-figure corrected] includingGST, and Mr Chang confirmed he would arrange AD International'spayment through Star Guide, AD International's New Zealand agent,so the purchases would be compliant with Korean Law. On 20September 2020, AD International sent $60,000 to Star Guide to payNZ Superfood.(d) On 22 September 2020, Mr Chang accepts that Star Guide issued thepurchase order to NZ Superfood. The order referencedAD International in the purchase number and after receiving it Mr Kangmessaged Mr Chang to confirm aspects of the purchase. Mr Changaccepts that Star Guide paid $51,750 to NZ Superfood the next day.[22] Mr Chang proceeds to explain the following occurrences after the order hadbeen placed:(a) In October 2020, due to Mr Kang's failure to provide the correct boxsize information (not at Star Guide's request), AD International throughTop Point arranged 530 new boxes to be sent to NZ Superfood so thatthey could contain 8 blister packs per box.(b) From 17 November 2020, having heard from Star Guide, Mr Changraised issued with Mr Kang about faulty products and Mr Kang agreedto meet Star Guide's costs for separating faulty products and reshippingthem to NZ Superfood.(c) From 14 December, Mr Chang then raised with Mr Kang that thoseproducts kept by Star Guide, which they initially believed were notfaulty, were also faulty so AD International had to pause marketinguntil the issue was resolved.(d) On 15 January 2021, Mr Kang offered to replace all the products withdelivery in six weeks or provide a refund for the faulty products.Mr Chang says relying on the delivery timeframe he chosereplacement.(e) On 26 January 2021, Mr Chang confirmed with Mr Kang that of the511 boxes initially received, 381 were faulty and returned toNZ Superfood, 305 were thereafter received by Star Guide which is76 boxes short and means that on top of the 420 boxes Star Guide sentto NZ Superfood they need to receive 76 extra boxes for a total of496 to be received in six weeks. Mr Chang says they were not deliveredin six weeks and despite following up in February, March and April2021, there was no progress.(f) On 7 May 2021, Mr Kang said the products would be shipped by11 June 2021 so AD International through Top Point purchased and sent550 boxes to NZ Superfood. Mr Chang says for the first time in lateMay, Mr Kang said he should contact NZ Superfood's manager insteadof him.(g) From 7 June 2021, Mr Kang did not respond to Mr Chang andMr Chang then says he sent an email cancelling the contract andrequesting a refund on 28 July 2021. Mr Kang then responded to thatemail offering the new products for the same price, to which Mr Changagreed.(h) Mr Chang says the delay continued despite requests for updates inMarch, April and May 2022 to which Mr Kang simply responded thatthere 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 promisedthe new products would be manufactured by the end of November or afinal resolution would be offered. By the end of November Mr Lee saidthat, after a discussion with Mr Lee and the manufacturer, he wouldreceive an order credit. Mr Chang insisted on a refund, but Mr Lee saidthat was not possible and that Mr Chang must wait for the new productsto eventually be produced. On 7 December 2022, Mr Chang saidMr Lee understood his position on the refund and that they wouldendeavour to process one.[23] Regarding no contractual relationship, Mr Chang says that whileNZ Superfood also communicated with Star Guide, this was only regarding limitedcontractual performance agreements. That contact was always copied to Mr Changon behalf of AD International, and all other important communication regardingrepudiation and cancellation were solely done through AD International.[24] Regarding the disputed boxes, Mr Chang says the evidence shows thatNZ Superfood sent 76 less boxes than they should have rather than Star Guide keeping76. As to the 15 retained for use by Star Guide and AD International, he says theywere 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 thecost of Top Point purchasing and shipping the required boxes.[25] Regarding cancellation, Mr Chang says that Mr Lee's 30 November 2022statement about the order credit was a clear repudiation, which was followed by acancellation requesting a refund by Mr Chang. Mr Lee later attempted to withdrawthe repudiation by offering the new products with an unspecified delivery date, butMr Chang says he did not affirm and requested a refund. Finally, Mr Chang says thatsignificant 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 thatcancellation 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 legalrequirements for green lipped mussel oil to be sold domestically or internationally. AsAD International admits, they had to purchase the products via their New Zealandagent, 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 Superfoodand for domestic rather than international sale. Mr Kang says NZ Superfood originallyonly communicated with Star Guide and to the extent it communicated withAD International, that was only since Star Guide was introduced by AD Internationalas their agent.[28] Second, Mr Kang accepts that the initial box size error resulted from anoversight 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 anytime. He reasserts that the delays in producing were a result of COVID-19 and qualitycontrol issues.[30] Fourth, Mr Kang says that on 10 January 2022 NZ Superfood askedAD International if they wished to accept the products instead of waiting for the newproducts, but AD International rejected this claiming the products were outdated.Mr Kang then says that the new products became available on 7 March 2023, butMr Chang rejected to receive them.[31] Finally, Mr Kang reasserts that NZ Superfood did not repudiate the contractwith AD International as they only contracted with Star Guide and further the offer fororder credit did not demonstrate NZ Superfood's unwillingness to fulfil its contractualobligations.Legal principles[32] 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 statutorydemand.(4) The court may grant an application to set aside a statutory demand ifit is satisfied that—(a) there is a substantial dispute whether or not the debt is owingor is due; or(b) the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less theamount of the counterclaim, set-off, or cross-demand is lessthan 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):9What the applicant must show is that the dispute it raises has substance; theapplicant must explain to the court what the dispute is; and the dispute soshown must be a real and not a fanciful or insubstantial dispute. The Courtmust bear in mind that it is operating in the summary jurisdiction, with theaccompanying disadvantages that brings for any applicant. The Court mustalso keep in mind the requirement that what is intended to be a summaryhearing 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 disputeexists.10 Mere assertion of a dispute does not suffice, and the applicant has to show afairly arguable basis for it.11 In practice, it is required that there be some material shortof 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, theCourt has a discretionary power to set aside the statutory demand, but the companymust 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 ofliquidation.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 notintend 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 InvestmentsLtd v Dempsey & Wood Civil Contractors Ltd (2005) 18 PRNZ 97; Browns Real Estate Ltd vGrand 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 andAD International?(b) is there a genuine and substantial dispute over the debt upon which thestatutory 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 Act1993 (the Act), a statutory demand is a demand by a creditor in respect of a debt owingby a company made in accordance with that section. She submits thatAD International is not a creditor under s 289(1) of the Act because there is no bindingcontract between the parties, and therefore there can be no creditor/debtor relationship.[40] Ms Ko makes the following submissions for this argument: the products werepurchased by NZ Superfood from Star Guide, not AD International; on 22 September2020 NZ Superfood received a purchase order for the products from Star Guide; on23 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 aninvoice in respect of the payment received for the products and sent the same toStar Guide.[41] Ms Ko submits that accordingly the terms of the agreement were agreedbetween NZ Superfood and Star Guide, not AD International.[42] As to AD International's proposition that the contractual relationship wasbetween NZ Superfood and AD International, as AD International was a disclosedprincipal and Star Guide was its agent, Ms Ko submits that irrespective of the structurebetween AD International and Star Guide, the parties only had a direct commercialrelationship in respect of the international market and the products in respect of whichthe statutory demand relates were in respect of the domestic market. She submits itwas AD International that advised NZ Superfood to enter into a direct commercialagreement 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 assumedStar 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 clearlyobvious to NZ Superfood that Star Guide was an agent and AD International was thedisclosed 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 aboutAD 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 clearnotice that there would be a principal/agent relationship betweenAD 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 lippedmussel oil. 1. I would like to know the total amount includingGST. 2. Payment will be made through Star Guide Limited inNew Zealand. I will proceed with that payment once youprovide me with the company name in New Zealand that willreceive the payment, the person in charge, email address, andphone number."[45] Mr S Kang submits that NZ Superfood continuously communicated withAD International after the contract was put in place regarding performance under thecontract, and solely communicated with AD International regarding important issueswhich arose with the contract. In his submission, this demonstrates that NZ Superfoodhad actual knowledge that AD International was the principal party to the contract andhe cites the following examples:(a) immediately after receiving the purchase order for Star Guide on22 September 2020, Mr Kang chose to contact Mr Chang confirmingreceipt of the purchase order from Star Guide and asking variousquestions 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 deliveredto Star Guide, Mr Chang raised these issues with NZ Superfoodhimself, and made arrangements with NZ Superfood;(d) from 2022, all evidenced communication was either between Mr Changand 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 relationshipbetween NZ Superfood and AD International, with AD International being thedisclosed principal of its New Zealand agent, Star Guide. Accordingly,NZ Superfood's argument that no debt existed between NZ Superfood andAD International because there was no contractual relationship between the parties isnot sufficiently made out. Accordingly, it is not a ground justifying setting aside thestatutory demand.[47] The reasons for this view are that I accept the submissions made out byAD International that it is clear that the real party to the contract was alwaysAD International, which funded the purchase price, arranged the pre-contractualdiscussions, and was the key point of contact in respect of performance of the contractand issues which arose after the alleged defect in the products.Is there a genuine and substantial dispute over the debt upon which the statutorydemand is based?[48] The alleged areas of dispute are:(a) the number of boxes of products sent by NZ Superfood to Star Guideand the number retained by Star Guide; and(b) whether AD International cancelled the contract and was entitled to arefund.Dispute as to the number of boxes[49] Ms Ko submits that while the statutory demand makes demand for the fullamount of the alleged value of the refund for the products, the products were in factdelivered to Star Guide and there is also a discrepancy as to how many boxes weredelivered 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 itscommercial use. NZ Superfood's position is that Star Guide alsoreceived and has kept a further 76 boxes.(b) AD International claims that NZ Superfood sent 76 boxes less, andStar Guide only used 15 boxes of sample products and not forcommercial use.[50] Ms Ko submits that in relation to the above, the parties are in dispute as to theexact number of boxes despatched and delivered, and for this reason there is asubstantial and genuine dispute as to the products despatched and delivered, andtherefore, 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 inrelation to the 76 boxes as the undisputed contemporaneous evidence, being the partiesmessages on 26 and 27 January 2021 confirms that NZ Superfood sent 76 boxes lessthan 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 justthat we need to figure out the quantity of the products [that I need toreceive].1. Total number received at first: 511 boxes2. A total of 381 boxes – 333 boxes and 384 blister cards(48 boxes) – were returned due to the defective productsoccurring in November last year. Number of boxesreceived after this: 305 boxes.In conclusion, I received 76 boxes less.3. The total number of boxes returned this Monday is saidto be 420 boxes.4. The total number of boxes we need to receive in 6 weeksis 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 assample products they did not have any commercial value, being alsofaulty, and this was not disputed in NZ Superfood's reply affidavit;(b) if NZ Superfood were to perform the contract by way of re-delivering496 boxes, it would likely have delivered more than 500 boxes whereit has previously sent 511 boxes; and(c) in any case, AD International has other damages to claim — $2,829.67being costs for having shipped boxes on three occasions, andNZ Superfood has not disputed this.[53] Mr S Kang submits that, taking these matters into account, NZ Superfood hasno genuine or substantial dispute about the statutory demand in relation to the numbersof 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 claimfor a refund of $51,750, which has not been refunded to AD International despiteAD International cancelling the contract and requesting the refund. She submits thatwhile NZ Superfood does not dispute that AD International requested a refund on28 July 2021, NZ Superfood's position is that even after 28 July 2021 NZ Superfoodcommunicated with Star Guide in respect of the products and the status of the productsfor despatch. Further, she submits that AD International frequently requested updatesin respect of the products and the status of the products that were despatched toStar Guide on 18 November 2021, 4 February 2022 and 8 February 2022, therebyaffirming 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 thecontract on or about 28 July 2021 and now claims that the contract wascancelled on 30 November 2022 and never affirmed after that date.AD International claims that NZ Superfood repudiated the contract bynotifying them that the products would be "credited to" (rather thandelivering the products), making it clear that it did to intend to completeperformance of its obligations under the contract. AD International'srequest for a refund in response to that repudiation constituted acancellation of the contract.(b) As to the repudiation and cancellation, Ms Ko refers to s 36 of theCCLA 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 whenthe 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 anintention not to perform the contract. She submits that NZ Superfood's position isthat:(a) NZ Superfood did not repudiate any contract with AD Internationalbecause there was no contract between these two parties and thecontractual relationship was between NZ Superfood and Star Guide.As noted at [46], I have determined that it is strongly arguable that thereis a contractual relationship between NZ Superfood andAD International.(b) Assuming there was a contract between the parties, NZ Superfood didnot repudiate the contract because the "credit to" was notNZ Superfood's unwillingness to perform its obligations under anycontract.(c) At all material times, NZ Superfood was ready and willing to performits contractual obligations in all material respects, and she points to thefollowing:15 Cameron v Worboys [1952] NZLR 962 (CA) at 968; Bow v McGrath Builders Ltd [1974] 2 NZLR442 (SC); Starlight Enterprises Ltd v Lapco Enterprises Ltd [1979] 2 NZLR 744 (CA); Betham vMargetts [1996] 2 NZLR 708 (HC).(i) NZ Superfood was ready to despatch the products fromNovember 2021;(ii) the new products were offered to Star Guide at the same priceas the products as a good faith gesture, due to the continuingdelays 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 Guidethat it was unable to give an exact date for despatch. Star Guideadvised 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. Itwas AD International who rejected this offer and advised that itwas happy to wait for the new products.[57] Ms Ko submits that by offering the credit to AD International it wasNZ Superfood's way of showing that it was still willing, and able to provide either theproducts immediately or the new products at a later time, once production delays weredealt with. Ms Ko submits therefore that as at 30 November 2022 (the allegedrepudiation date) NZ Superfood was still ready and willing to despatch the productsimmediately or despatch the new products at a later time once COVID-19 delays weredealt with, and the credit offered in November 2022 did not amount to a repudiationin the terms set out at [55](b).[58] Ms Ko therefore submits that NZ Superfood's position is that it did notrepudiate the contract in November 2022 and AD International was not entitled tocancel the contract under s 36 of the CCLA. Accordingly, there is a substantial andgenuine dispute as to AD International's entitlement to cancel the contract and claima 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 arefund whether the contract was cancelled or not, for the following reasons:(a) On 15 January 2021, after delivering faulty products, Mr Kangproposed two options:(i) NZ Superfood delivering new products which were to bemanufactured in about six weeks; or(ii) giving a refund; and(b) While AD International chose option 1 at the time, relying onNZ Superfood's representation that the new products would bemanufactured in about six weeks, that option was not performed foralmost two years to November 2022, and therefore Mr S Kang submitsthat it is fair and just to interpret that as at November 2022 option 2 wasavailable for AD International to rely on.[60] In the alternative, Mr S Kang submits that AD International relies on ss 36, 37and 42 of the CCLA that it was entitled to cancel the contract and seek a refund asdamages where:(a) NZ Superfood repudiated the contract by making it clear (by words orconduct) that it did not intend to perform or complete performance ofits obligations under the contract (s 36); and/or(b) the effect of the breach or anticipated breach of the contract is, or willbe, to substantially reduce the benefit or increase the burden of thecontract to AD International, or make the benefit or burden of thecontract substantially different from that contracted for (s 37(2)(b)).[61] As to repudiation of the contract by NZ Superfood, Mr S Kang submits thatthe 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, orcomplete the performance of, its obligations under the contract, or indicatedthat it will only perform the contract in a way substantially inconsistent withits 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 inNovember 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 thatstage 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 submitsthat AD International reasonably understood what NZ Superfood was saying aftermore than two years and having long periods of non-responsive contact, was a clearindication that it cannot perform its obligations under the contract as is and it will onlyperform 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 toperform the contract, submitting that while it may have been ready and willing, it wasnot able to perform the contract given the products were not delivered until30 November 2022.[65] In summary, therefore, Mr S Kang submits that AD International was entitledto 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 cancelthe contract under s 37 of the CCLA. He submits that while NZ Superfood had failedto perform the contract for more than two years, AD International's circumstanceshave 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 therelevant person from Star Guide has been re-located to Taiwan;(b) it no longer has an employee who could manage this contract promotingthe products in Korea and finding customers.Therefore, there is a reduced benefit, increased burden, or AD International wouldreceive something different from what was contracted for, justifying cancellationunder 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 inrespect of the contract. In my view, the disputes relate to:(a) the boxes of products which were supplied by NZ Superfood under thecontract, and the number of boxes which were retained byStar Guide/AD International. I do not accept Mr S Kang's submissionthat the correspondence between the parties to which he refersdefinitively answers this issue. As this is in dispute, the value of anyrefund claimed by AD International, if it was entitled to a refund (asdiscussed below), is uncertain and therefore the amount claimed in thestatutory demand is uncertain;(b) there is a dispute as to whether a refund was offered by NZ Superfoodas a term of the contract and whether or not that offer was accepted byAD International in January 2021, and whether it was incapable of laterbeing accepted on 30 November 2022;(c) whether the discussions between the parties, relating to a refund orcredit, amounted to a repudiation of the contract. Ms Ko, forNZ Superfood, argues that there was never any clear indication thatNZ Superfood would not perform the contract. It had offeredAD International options of receiving the products or new products.Mr S Kang, on the other hand, argues that the offer of a credit clearlymeant that that NZ Superfood was not able to perform the contract inaccordance with its terms. While there is evidence of messages backand forth between the parties, this issue clearly needs to be elucidatedby evidence at trial;(d) whether AD International cancelled the contract on 28 July 2021 or on30 November 2022, by accepting NZ Superfood's repudiation of thecontract. In addition, it is disputed whether AD International wasentitled to cancel the contract under s 37(2)(b) of the CCLA on the basisthat NZ Superfood's breach, or anticipated breach of the contract, is tosubstantially reduce the benefit or increase the burden of the contractor will make the benefit or burden of the contract substantially differentfrom that contracted for. AD International points to its changedcircumstances during the two years during which the contract was notperformed as a basis for AD International to cancel the contract underthis provision.Result[68] As a result of the conclusions I have reached at [46],[47] and [67], I am of theview that NZ Superfood's application to set aside the statutory demand should begranted.Orders[69] I make the following orders:(a) NZ Superfood's application to set aside the statutory demand isgranted;(b) Counsel are directed to endeavour to agree costs. If costs have not beenagreed within 20 working days of the date of this judgment, counsel forNZ Superfood will file a memorandum as to costs (not to exceed5 pages) within 10 working days of expiry of the 20 working day periodand counsel for AD International will file a memorandum in reply(not to exceed 5 pages) within 5 working days of receipt of counsel forNZ Superfood's memorandum. A decision on costs will then be madeon the papers...Associate Judge Taylor