Cayman Spectrum (NZ) Co v Spark New Zealand Trading Limited

[2024] NZHC 107

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

COMMERCIAL PANEL

CIV-2018-404-002687

[2024] NZHC 107

BETWEEN

CAYMAN SPECTRUM (NZ) CO

First Plaintiff/Counterclaim First Defendant

EVEREST WIRELESS PARTNERS I LP
Second Plaintiff/Counterclaim Second Defendant

AND

SPARK NEW ZEALAND TRADING LIMITED

Defendant/Counterclaim Plaintiff

Hearing:	6-10, 13-14 and 20-21 November 2023
Appearances:	A F Pilditch KC, M B Wigley and N M Foulis for Plaintiffs Z G Kennedy and M D Toulmin for the Defendant
Judgment:	8 February 2024
Reissued:	19 February 2024

JUDGMENT OF LANG J

This judgment was delivered by Justice Lang On 8 February 2024 at11.30 am

Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar

Date:…………………………

Solicitors/counsel:

Wigley and Company, Wellington/A F Pilditch KC, Auckland MinterEllisonRuddWatts, Auckland

CAYMAN SPECTRUM (NZ) CO v SPARK NEW ZEALAND TRADING LTD [2024] NZHC 107 [8 February 2024]

CONTENTS

PART A: INTRODUCTION............................................................................. [1]

Summary of conclusions...................................................................................... [6]
The radio frequency spectrum regime............................................................... [9]
Events leading to the present disputes............................................................. [15]
The NSA and the GBA...................................................................................... [36]
The claims, defences and counterclaim............................................................ [43]

PART B:  CAYMAN’S CLAIMS AGAINST SPARK  [49]
Legal principles.................................................................................................. [49]

The cause of action based in knowing receipt  [49]

The cause of action based on providing dishonest assistance  [51]

Did the NSA and the GBA provide Spark with a benefit at Cayman’s expense in relation to the ASP’s that it entered into with Woosh and

Craig Wireless for the purchase of the 2.3 spectrum?.................................... [60]

Did the NSA and the GBA enable Woosh and Craig Wireless to obtain a sale of the rights for the 2.3 spectrum on more advantageous terms than

would otherwise have been the case?  [67]
Were Craig Wireless and Woosh able to secure a sale of the rights to the
2.3 spectrum when this would not have happened but for the NSA and the

GBA?  [69]

Conclusion  [96]

Did Mr Craig breach his fiduciary obligations to Cayman when he

caused it to enter into the NSA and the GBA?............................................. [100]

Did Mr Craig have the authority to cause Cayman to enter into the NSA

and the GBA?  [106]
Did Mr Craig withhold information from, and mislead, Everest?                 [109]
Did Mr Craig and/or his companies profit from his dealings with
Cayman’s assets?  [111]

Did Mr Craig act on Cayman’s behalf in circumstances where he had a conflict of interest or where there was a risk that his interests may conflict

with Cayman’s interests?  [114]
Did Mr Craig breach his obligation of loyalty to Cayman by failing to act

in good faith and in Cayman’s best interests?  [116]

Did Spark know, or was it wilfully blind to the possibility, that Mr Craig was breaching his fiduciary duty to Cayman when he caused it to enter

into the NSA and GBA?.................................................................................. [146]

The knowledge Spark gained about Mr Craig’s character during the

negotiation process  [148]

The text message Mr Craig sent to Mr Cowley on 26 November 2015         [154] The requests that Mr Craig provide evidence of his authority to act on Cayman’s behalf [158]

Subsequent events............................................................................................ [168]

PART C:  SPARK’S AFFIRMATIVE DEFENCES..................................... [181]

Change of position  [182]
Bona fide purchaser for value  [185]

Ratification  [187]

Estoppel  [190]
Exclusion or limitation of liability under the NSA  [193]

PART D:  SPARK’S COUNTERCLAIMS AGAINST CAYMAN.............. [197]

Breach of contract............................................................................................ [197]

Principles relevant to a claim of a director’s apparent authority  [202] Quantum meruit........................................................................................................................... [217]

Result................................................................................................................ [220]

Costs.................................................................................................................. [222]

PART A: INTRODUCTION

[1]    This proceeding involves disputes between entities involved in the telecommunications industry. The disputes arise out of transactions involving the purchase, use and sale of radio spectrum.

[2]    The first plaintiff, Cayman Spectrum (NZ) Co (Cayman), alleges that the defendant, Spark New Zealand Trading Co Ltd (Spark), acquired valuable contractual rights from it following negotiations that Spark undertook with one of Cayman’s two directors, Mr Boyd Craig. It says Mr Craig had no authority to grant Spark these rights and that he breached his fiduciary obligations to Cayman in doing so.

[3]    Cayman alleges that Spark knew or was wilfully blind to the fact Mr Craig was breaching his fiduciary duties when he caused Cayman to grant the rights in favour of Spark. It therefore says it would be unconscionable for Spark to retain the benefit of those rights. Cayman seeks orders requiring Spark to disgorge any profits it has derived through use of the rights.

[4]    Spark advances several positive defences to Cayman’s claims. It also advances a counterclaim seeking to enforce the rights that Cayman granted to it. In the alternative, Spark seeks compensation for the services it provided in exchange for receiving those rights.

[5]    This judgment determines only the issue of liability on Cayman’s claims. If Cayman is successful in establishing any of its claims a further hearing will be required to determine the relief to be granted. Spark seeks immediate judgment on the first of its counterclaims. If this is not successful it seeks judgment as to liability on its alternative counterclaim. In that event a further hearing will be necessary to determine the compensation to be paid on its alternative counterclaim.

Summary of conclusions

[6]    For the reasons that follow I have reached the following conclusions in relation to Cayman’s claims against Spark:

(a)Mr Craig did not breach his fiduciary obligations to Cayman in his dealings with Spark;

(b)if this conclusion is incorrect, I find that Spark did not know of, and was not wilfully blind to, any breach of fiduciary duty on the part of Mr Craig; and

(c)it would not in any event be unconscionable for Spark to retain the benefit of the contractual arrangements it entered into with Cayman.

[7]    These conclusions mean that Cayman has failed to establish either of its claims against Spark.

[8]    For the reasons that follow I have reached the following conclusions in relation to Spark’s counterclaims against Cayman:

(a)Spark has failed to establish its claim based on breach of contract because Mr Craig did not have actual or ostensible authority to enter into the arrangements with Spark on Cayman’s behalf; but

(b)Spark has succeeded in establishing its alternative counterclaim against Cayman based on quantum meruit.

The radio frequency spectrum regime

[9]    The long title to the Radiocommunications Act 1989 (the Act) states that it is “[a]n Act to provide for the management of the radio frequency spectrum”. The Act creates a property regime similar to the Torrens system of property rights now embodied in the Land Transfer Act 2017. The registered owner of proprietary rights under the Act enjoys protection of those rights against unregistered interests.

[10]   The Act provides for the establishment of a Register of Radio Frequencies1 and the registration of management rights and related instruments on the Register.2

1      Radiocommunications Act 1989, s 5.

2      Section 6.

Management rights set the frequency boundaries and boundary conditions for the management rights. These may be subject to a limit specifying the maximum power of transmissions permitted so as to mitigate the risk of interference between bands. Such limits are commonly referred to as guard bands.

[11]   The owner of management rights may issue spectrum licences that permit the use of frequencies within the boundaries of those rights.3 A spectrum licence establishes the right to transmit and/or receive radio communications free from harmful interference. Records of management rights kept on the Register must specify, among other things, any emission limits applying to the frequencies to which the record of management rights relates together with any variation or removal of those limits.

[12]   The Crown allocated management rights for radio spectrum to the private sector in 2007. It did so by auctioning the management rights for blocks of spectrum within specified bands. At that time the dominant entities in the telecommunications industry were Telecom New Zealand Ltd (Telecom), Vodafone New Zealand Ltd and (to a lesser extent) 2degrees Wireless Ltd (2degrees). Telecom changed its name to Spark in 2014.

[13]   Successful bidders for spectrum were required to enter into a deed with the Crown. This set out their rights and obligations in relation to the use of the spectrum. Management rights are transferable, but this requires the consent of both the Commerce Commission and the Ministry of Business, Immigration and Employment (MBIE). MBIE is the agency responsible for administering the Act.

[14]   The deed that owners of management rights entered into with the Crown required them to use their best endeavours to negotiate agreements with those holding management rights to adjacent spectrum. Owners of management rights were also required to co-ordinate the use of frequencies so as to maximise technical efficiency and minimise interference risks in a fair and objective spirit through discussion. This meant that the owners of management rights were free to reach agreement with those

3      Section 48.

who owned adjoining blocks of spectrum to modify or remove any restriction on the use of their spectrum.

Events leading to the present disputes

[15]   As its name suggests, Cayman is incorporated in the Cayman Islands. It acquired the management rights for two blocks of spectrum in the 2.5 to 2.7 GHz range (the 2.5 spectrum). The shareholders in Cayman were the second plaintiff, Everest Wireless Partnership I LP, and Craig Wireless Systems Ltd (Craig Wireless). Everest was a limited partnership existing under the law of Virginia in the United States of America whilst Craig Wireless was incorporated in Canada. Each shareholder held 50 per cent of the issued shares in Cayman.

[16]   Cayman had two directors, one appointed by Everest and one appointed by Craig Wireless.  Mr  Boyd  Craig  was  the  director  of  Cayman  appointed  by Craig Wireless. Mr Craig lives in North America. He and his brothers are the controlling force behind a large group of companies involved globally in the telecommunications field.

[17]   Until April 2016, Mr Rahul Prakash was the director of Cayman appointed by Everest. He liaised closely with Everest’s attorney, Mr Peter Deliso, who was based in Virginia. In April 2016 Mr Malcolm Dick took control of Everest and replaced  Mr Prakash as the second director of Cayman. Mr Dick has had extensive experience in the telecommunications industry in both Australia and New Zealand, most recently through companies in the Blue Reach group.

[18]   Craig   Wireless   also   controlled   Woosh   Wireless   Holdings   Ltd  (Woosh Holdings) and its subsidiary, Woosh Wireless (NZ) Ltd (Woosh NZ) (together, Woosh). Craig Wireless and Woosh each held the management rights for a block of spectrum in the 2.3 GHz band (the 2.3 spectrum).

[19]   The disputes that form the basis of the present proceeding arose out of transactions involving Spark, Craig Wireless, Woosh and Cayman during 2015 and 2016. On or about 29 November 2015 Spark entered into agreements for sale and purchase (ASP’s) under which it agreed to pay the sum of NZD 4.5 million to purchase

the management rights for each of the blocks of 2.3 spectrum held by Craig Wireless and Woosh. Cayman contends that Spark derived a financial benefit from these transactions at Cayman’s expense. This flowed from contemporaneous contractual arrangements that Mr Craig caused Cayman to enter into with Spark in relation to Cayman’s 2.5 spectrum.

[20]   Neither Mr Prakash nor Everest was aware of the arrangements that Mr Craig entered into on Cayman’s behalf with Spark. Cayman’s articles of association and the shareholders agreement between Everest and Craig Wireless required both shareholders and directors to agree to any transactions that affected the 2.5 spectrum. It is common ground that Everest and Mr Prakash never agreed to the contractual arrangements that Mr Craig entered into with Spark on Cayman’s behalf.

[21]   The arrangements related to the implementation of Cayman’s 2.5 spectrum. Those who purchased management rights for spectrum were required to satisfy implementation criteria by a specified date. If they failed to do so, the management rights would be forfeit and the spectrum would revert to the Crown. The implementation requirements varied depending on whether the owner of the spectrum proposed to offer fixed wireless access (FWA) services, otherwise known as wireless broadband services, or other forms of services. Service providers who offered wireless broadband services were required to be using their spectrum to transmit to 30 per cent of the residential population in 15 nominated Territorial Local Authority (TLA) areas by a specified date.

[22]   Cayman decided to use its spectrum to offer wireless broadband services on a commercial basis. FWA enables a service provider to provide broadband access to consumers using radio frequencies instead of copper or fibre cables. This avoids the need to pay fees to network providers for access to cable networks. By 2015 FWA was generally regarded as not being suitable for consumers who needed to use high volumes of data. However, it was ideal for low volume data consumers such as users of the internet. Unlike fixed line broadband, FWA was easy to set up and it was also transportable if the consumer moved address.

[23]   Cayman was required to satisfy the implementation obligations in relation to its 2.5 spectrum no later than 30 November 2015. However, by mid-November 2015 it did not have the ability to transmit to 30 per cent of the population in the 15 TLA’s it had nominated.

[24]   At this time Spark owned the management rights for two blocks of spectrum in the 2.5 to 2.7 GHz range (the 2.6 spectrum). The management rights for spectrum adjoining each of Spark’s blocks were held by Cayman. Like Cayman, Spark decided to use its spectrum to offer FWA services commercially and was required to implement its spectrum by 30 November 2015. Between June and November 2015 Spark installed and tested the componentry necessary to enable it to satisfy its implementation obligations. It achieved compliance approximately 10 days before the deadline of 30 November 2015.

[25]   In October 2015, whilst it was in the throes of rendering its 2.6 spectrum compliant, Spark received advice from MBIE that its management rights were subject to a condition that prohibited it from operating at full power in the lower 5 Mhz range of each of its two blocks of spectrum. This meant it was required to obtain Cayman’s consent if it wished to operate at full power in that range. Rather than seek Cayman’s consent Spark elected to achieve compliance with its implementation obligations using the remaining 15 Mhz in each block of spectrum.

[26]   On or about 24 November 2015, nearing the end of the negotiations relating to Spark’s purchase of the 2.3 spectrum from Woosh and Craig Wireless, Mr Craig sought Spark’s assistance in achieving compliance for Cayman’s 2.5 spectrum. This arrangement was subsequently formalised in a document known as the network services agreement (the NSA). Woosh NZ guaranteed the performance of Cayman’s obligations under the NSA.

[27]   Under this arrangement Spark agreed to use its best endeavours to assist Cayman to meet its implementation obligations by 30 November 2015. Over the next six days Spark modified the technology and componentry on its existing transmission towers to enable Cayman to transmit on the 2.5 spectrum to 30 per cent of the

population in 10 of the 15 TLA’s it had nominated. Spark achieved compliance for Cayman on 29 November 2015.

[28]   On or about 9 December 2015 Spark became aware that Woosh NZ had transferred the 2.3 spectrum that it owned into the name of its parent company, Woosh Holdings. It did so because the Registrar of Companies was threatening to remove Woosh NZ from the register because it did not have a New Zealand-based director. In transferring the spectrum in this way Woosh NZ breached the terms of the ASP under which it had agreed to sell the spectrum to Spark. Spark immediately required Woosh Holdings to execute a fresh ASP in the same terms as the original ASP that it had entered into with Woosh NZ.

[29]   Spark was required to obtain clearance from the Commerce Commission for the acquisition of the 2.3 spectrum from Woosh and Craig Wireless. Spark sent a draft application for clearance to the Commerce Commission on 11 December 2015, followed by a finalised application on 18 December 2015. The Commerce Commission provided clearance for Spark to acquire the spectrum on 23 March 2016.

[30]   In December 2015, whilst the parties were waiting for Commerce Commission clearance, Mr Craig told Spark that Woosh NZ needed funding to remain in business. He asked Spark to advance Woosh NZ the sum of NZD 1 million for this purpose. Spark was concerned that if Woosh NZ was placed in administration or liquidation the management rights for the 2.3 spectrum would revert to the Crown. Spark therefore agreed to loan the funds provided the loan was adequately secured. Woosh Holdings subsequently signed security documentation in favour of Spark and Spark advanced the funds to it in January 2016.

[31]   On 16 December 2015 Mr Cowley and Mr Wesley-Smith met with Mr Dick to informally discuss potential business opportunities. During this discussion Mr Dick told Mr Cowley and Mr Wesley-Smith that Cayman had another shareholder and that Mr Craig may not have been able to act without that party’s consent.

[32]   This was confirmed on 22 December 2015 when Spark received a letter from the Auckland law firm Lowndes. This advised Spark that Mr Craig did not have

authority to bind Cayman to the terms of the NSA because any such transaction also required the consent of both Everest and Mr Prakash. Lowndes also warned Spark that by entering into the agreements to purchase the 2.3 spectrum from Woosh and Craig Wireless it was participating in a “fraudulent conveyance”. Spark responded by refuting Mr Lowndes’ claims.

[33]   Spark continued to host Cayman’s transmission services under the NSA during the first half of 2016. Shortly after Mr Dick was appointed to replace Mr Prakash as Everest’s director he sought confirmation from Spark that it would continue the hosting arrangement until December 2016 in terms of the arrangement documented in the NSA. However, issues arose on 25 May 2016 after Woosh Holdings and Woosh NZ entered into voluntary administration. This rendered the guarantee Woosh NZ had provided under the NSA valueless.

[34]   Spark then exercised its right under the NSA to require Cayman to provide substitute or additional security. It initially suggested that Cayman provide a bank guarantee in the sum of NZD 250,000 to secure ongoing compliance by Cayman with its obligations under the NSA. Mr Craig rejected this suggestion and proposed instead that Spark should take security over Cayman’s 2.5 spectrum. After taking legal advice Spark agreed to this suggestion. There was then some discussion regarding the terms of the proposed security, following which Mr Dick suggested that the parties revert to the original proposal involving a bank guarantee. Spark declined this proposal and required Cayman to provide security over its spectrum. Cayman failed to provide this within the timeframe stipulated by Spark and Spark then terminated the NSA on     15 July 2016.

[35]   Mr Dick was overseas when Spark terminated the NSA. When he learned of this development he tried to persuade Spark to continue hosting Cayman’s transmission services for a fixed fee in place of  the  NSA.  When  Spark  refused, Mr Dick was forced to make alternative arrangements for the hosting of Cayman’s transmission services so it could remain compliant. He did this in part by providing Cayman with access to technology and componentry owned and operated by companies in his Blue Reach group.

The NSA and the GBA

[36]   As will shortly become evident, Spark’s legal team prepared the NSA as a matter of urgency once Mr Craig had reached agreement with Spark regarding the terms on which Spark would assist Cayman to achieve compliance for its 2.5 spectrum. They had never prepared a document of this type before and endeavoured to modify another type of contract to record the terms of the arrangement the parties had agreed to.

[37]   Although nothing turns on the issue it is fair to say that the final iteration of the NSA does not spell out clearly what the parties intended. It is therefore not surprising that Mr Dick had difficulty in understanding the terms of the NSA when he acquired Everest’s interest in Cayman in April 2016. With the benefit of hindsight it may have been preferable for Spark to have used the wording contained in an earlier document in which it provided Mr Craig with a non-binding indicative offer to assist it to achieve compliance. However, Mr Craig and Spark both clearly understood that the NSA was intended to record that Spark agreed to use its best endeavours to assist Cayman in achieving compliance in return for specified benefits that Cayman was to provide to it.

[38]   Three aspects of the arrangements between Spark and Cayman provide the focal points in this proceeding. Two of these flow from the following clauses in the NSA:

15.SALE OF SPECTRUM LICENCES

15.1Sale Proceeds: in consideration of Spark providing the Services and subject to clause 15.2, You [Cayman] will pay Spark 20% of the gross proceeds of the total value of any transaction which relates to or includes the sale of the Spectrum Licence and/or business of the Guarantor [Woosh] provided that if Spark considers the transaction was not, or the Spectrum Licence was not transferred, at fair value, Spark may appoint a duly qualified expert to determine fair value and Spark shall receive 20% of the fair value as determined by the expert.

15.2Right of last refusal: Where You [Cayman] intend to enter into any transaction which relates to or includes the sale of the Spectrum Licence, you must provide Spark with a right of last refusal with respect to such transaction. Spark’s entry into such transaction will be subject to Spark obtaining all approvals by any relevant authority or body and any other reasonable terms Spark may require.

[39]   The parties often referred to the obligation contained in cl 15.1 as the “uptick”, whilst they referred to the right of last refusal in cl 15.2 as the “last look”.

[40]   It is notable that, in addition to the obligation to pay Spark 20 per cent of any amount for which Cayman sold its spectrum, Cayman also agreed to pay Spark      20 per cent of any amount for which Woosh NZ (the guarantor under the NSA) sold its business. Spark’s witnesses said this obligation was included in the NSA to prevent Cayman from transferring the management rights for the 2.5 spectrum to Woosh NZ and thereby avoiding its obligation to pay 20 per cent of the sale proceeds to Spark. At the time they prepared the NSA Spark’s legal team believed Cayman was a subsidiary of one of Mr Craig’s companies.

[41]   Spark’s witnesses said that cl 15.2 was inserted for two reasons. First, it gave Spark the ability to purchase the management rights for the 2.5 spectrum in the future if the regulatory environment changed to make that a feasible option. Secondly, it gave Spark visibility over any future sale of the spectrum that Cayman might contemplate because it would enable Spark to know the amount for which Cayman was proposing to sell its spectrum. This was important given that Cayman was required to account to Spark for 20 per cent of the eventual sale price.

[42]   The third aspect of the arrangement relates to another agreement known as the Guard Band Agreement (the GBA). Spark and Mr Craig agreed to the terms in this document on or about 24 November 2015 and they signed it on the same day. The GBA removed the restriction requiring Spark to use low power when using the lower 5Mhz in each of its two blocks of 2.6 spectrum. Spark lodged the GBA for registration with MBIE on or about 16 December 2015. However, MBIE failed to note the removal of the condition on Spark’s management rights. MBIE did not rectify this oversight until Spark brought it to MBIE’s attention in April 2016.

The claims, defences and counterclaim

[43]   Cayman advances two claims against Spark. First, it contends Spark received the rights given to it under the NSA and the GBA when it knew or was wilfully blind to the fact that Mr Craig had granted those rights to it in breach of his fiduciary duties as a director of Cayman. A claim of this type is commonly referred to as a claim in

knowing receipt. Secondly, Cayman contends that Spark assisted Mr Craig to breach his fiduciary duties to Cayman when it knew or was wilfully blind to the fact that he was breaching those duties. A claim of this type is commonly referred to as a claim based on providing dishonest assistance.

[44]   Cayman also contends that the arrangements documented in the GBA and the NSA enabled Woosh and Craig Wireless to derive a financial benefit at Cayman’s expense under the ASP’s relating to the sale of their 2.3 spectrum to Spark.

[45]   At the commencement of the hearing Cayman abandoned its remaining claims against Spark. Everest also abandoned its claims against Spark. This leaves only Cayman’s claims based on knowing receipt and providing dishonest assistance to be determined.

[46]   Spark denies that it is liable under the causes of action based on knowing receipt and providing dishonest assistance. It also advances five affirmative defences. These are based on allegations that it was a bona fide purchaser for value and that it changed its position to its detriment in reliance on the agreements that it entered into with Cayman. Spark also contends that Mr Dick’s conduct between April and June 2015 means that Cayman ratified the NSA and that it is now estopped from challenging its obligations under the NSA. Finally, Spark contends it is entitled to the benefit of clauses in the NSA that exclude or limit its liability under or in relation to the NSA.

[47]   As I have already noted, Spark advances two counterclaims. The first seeks damages for Cayman breaching its obligation under the NSA to account to Spark for 20 per cent of the price for which it ultimately sold the 2.5 spectrum. It is common ground that Mr Dick acquired the shares in Cayman held by Craig Wireless in August 2018 and then sold the spectrum to a third party for USD 10 million three months later. Spark therefore seeks judgment against Cayman in the sum of USD 2 million.

[48]   In the alternative, Spark seeks compensation on a quantum meruit basis for the services it provided to Cayman between November 2015 and July 2016.

PART B: CAYMAN’S CLAIMS AGAINST SPARK

Legal principles

The cause of action based in knowing receipt

[49]   In Green & McCahill Holdings Ltd v Ara Weiti Development Ltd the Court of Appeal observed:4

[78]      The essential prerequisites for liability for knowing receipt are described in these broad terms by Lewin on Trusts:

(1)There is property subject to a trust.

(2)The property is transferred.

(3)The transfer is in breach of trust.

(4)The property (or its traceable proceeds) is received by the defendant.

(5)The receipt is for the defendant’s own benefit.

(6)The defendant receives the property with knowledge that the property is trust property and has been transferred in breach of trust, or if not a bono fide purchaser or a legal estate without notice, retains the property, or deals inconsistently with the trust, after acquiring such knowledge.

These six elements have given rise to much debate, including the famous analysis in Baden v Sociéte Générale pour Favoriser le Développement du Commerce et de l’industrie en France SA which focuses on the last of them.

[50]   The modern view of the basis for liability in knowing receipt focusses on unconscionability, as observed by the Court of Appeal in McLennan v Livaja:5

[38] A claim for knowing receipt, however, depends on the tainted circumstances of receipt of property. Liability will arise where it is unconscionable for the recipient to retain it because of the recipient’s state of knowledge in respect of the fact that the transfer involved a breach of fiduciary obligations owed by the transferor.

…

[40] We consider that the correct basis for knowing receipt is unconscionability. We prefer to characterise the liability incurred on a finding

4      Green & McCahill Holdings Ltd v Ara Weiti Development Ltd [2022] NZCA 218, (2022) 23 NZCPR 259 (footnotes omitted).

5      McLennan v Livaja [2017] NZCA 446, [2018] NZAR 405 (footnotes omitted).

of knowing receipt as a personal liability to account in equity to the beneficiaries by restoring the property lost by the unconscionable receipt.

The cause of action based on providing dishonest assistance

[51]   The leading New Zealand decision on providing dishonest assistance is Sandman v McKay.6 That case, and other significant cases on the law of dishonest assistance in New Zealand and the United Kingdom, were recently reviewed and considered by the High Court in Scott v ANZ Bank New Zealand Ltd.7

[52]   A cause of action based on providing dishonest assistance reflects the rationale that:8

Beneficiaries are entitled to expect that those who become trustees will fulfil their obligations. They are also entitled to expect, and this is only a short step further, that those who become trustees will be permitted to fulfil their obligations without deliberate intervention from third parties. They are entitled to expect that third parties will refrain from intentionally intruding in the trustee-beneficiary relationship and thereby hindering a beneficiary from receiving his entitlement in accordance with the terms of the trust instrument. There is here a close analogy with breach of contract. A person who knowingly procures a breach of contract, or knowingly interferes with the due performance of a contract, is liable to the innocent party. The underlying rationale is the same.

[53]The elements of the cause of action are:

(a)the existence of a trust;

(b)a breach of that trust by a trustee that results in loss;

(c)conduct by a third party (the defendant) that assists the breach of trust; and

(d)“dishonesty” on the part of the defendant in so assisting.

6      Sandman v McKay [2019] NZSC 41, [2019] 1 NZLR 519.

7      Scott v ANZ Bank New Zealand Ltd [2020] NZHC 906, [2020] 3 NZLR 145 at [24].

8      Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (PC) at 387, referenced with approval in

McKay v Sandman [2018] NZCA 103, [2018] NZAR 707 at [21].

[54]   As to the first two elements, the Supreme Court in Sandman v McKay left open the question of whether a breach of fiduciary duty was sufficient to give rise to a cause of action in dishonest assistance.9 The Court of Appeal in that case had held that a breach of fiduciary duty was sufficient.10 The courts in the United Kingdom are tending to the view that a breach of fiduciary obligations may give rise to a cause of action in providing dishonest assistance.11 Both Cayman and Spark are content for me to proceed on the basis that a breach of fiduciary duty will be sufficient to give rise to a cause of action in providing dishonest assistance even though this point is not yet finally settled in New Zealand.

[55]   The test for dishonesty in this context comprises subjective and objective components:12

(a)the defendant’s actual state of mind (the subjective component); and

(b)whether the conduct of the defendant with that state of mind would be regarded as dishonest when compared to normally acceptable standards of honest conduct (the objective component).

[56]   The subjective component requires consideration of the actual knowledge held by the defendant but can also include wilful blindness on the defendant’s part:13

[78] A defendant is dishonest if he or she has actual knowledge that the transaction is one in which the defendant cannot honestly participate. Wilful blindness, which equates in equity with actual knowledge, also suffices. This arises where a defendant strongly suspects a breach of trust but makes a deliberate decision not to inquire in case the inquiry results in actual knowledge. It is “necessary that the strength of the suspicion … makes it dishonest to decide not to make inquiry”.

[57]When assessing the subjective component, relevant factors include:14

9      Sandman v McKay, above n 6, at [46], [100] per Glazebrook, O’Regan, Ellen France and Arnold JJ and [126] per Elias CJ.

10 McKay v Sandman, above n 8, at [22].

11 See for instance Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA 908 (Civ), [2015] QB 499 at [66]–[85]. In Sandman v McKay, above n 6, at [66], n 37 it was submitted that Novoship (UK) Ltd v Mikhaylyuk should not be adopted in New Zealand. However, this point did not need to be addressed, and this case has not otherwise been considered by New Zealand courts.

12     Sandman v McKay, above n 6, at [77] per Glazebrook, O’Regan, Ellen France and Arnold JJ.

13     Sandman v McKay, above n 6 (footnotes omitted).

14     Royal Brunei Airlines Sdn Bhd v Tan, above n 8, at 391.

(a)all the circumstances known to the defendant at the time. This requires either actual knowledge of such circumstances, or wilful blindness of them;

(b)the personal attributes of the defendant such as experience and intelligence; and

(c)the reasons the defendant acted as it did. Courts have accepted that considering a party’s motives may assist in assessing its state of mind at the relevant time.15

[58]   The objective component means that a defendant does not have to consciously appreciate that its conduct would be regarded as dishonest by the standards of ordinary decent people. The fact that the conduct would be regarded as such by ordinary decent people is sufficient. It is irrelevant that the defendant might subjectively regard its conduct as being honest.16

[59]   I propose to deal first with Cayman’s argument that the NSA and the GBA provided Spark with a benefit at Cayman’s expense in relation to the ASP’s that it entered into with Woosh and Craig Wireless for the purchase of the 2.3 spectrum.

Did the NSA and the GBA provide Spark with a benefit at Cayman’s expense in relation to the ASP’s that it entered into with Woosh and Craig Wireless for the purchase of the 2.3 spectrum?

[60]   Cayman had no interest in either of the blocks of 2.3 spectrum held by Woosh and Craig Wireless. When dealing with Spark on behalf of those companies regarding the sale of the 2.3 spectrum Mr Craig therefore owed no fiduciary duty to Cayman unless his actions brought him into conflict with Cayman’s interests. This could occur,

15 Attorney General of Zambia v Meer Care & Desai [2007] EWHC 1540 (Ch); and Simetra Global Assets Ltd v Ikon Finance Ltd [2019] EWCA 1413 (Civ) at [48]. See also Diver v Loktronic Industries Ltd [2012] NZCA 131 at [97]–[98]. This case was centered on the tort of inducement of breach of contract. The Court applied the approach to assessing a party’s state of mind espoused in Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751.

16 Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2005] UKPC 37, [2006] 1 WLR 1476 at [10]–[19]; applied in Westpac New Zealand Ltd v MAP and Associates Ltd, above n 15, at [26]–[27].

for example, if Mr Craig’s dealings with Spark enabled Woosh and Craig Wireless to obtain a benefit at Cayman’s expense.

[61]   At the heart of Cayman’s case is the proposition that the various agreements that Spark entered into with Woosh, Craig Wireless and Cayman were interrelated and collateral with each other. Cayman says it gave away valuable rights to Spark under the NSA and the GBA as part of this interconnected contractual arrangement. In doing so Cayman enabled Craig Wireless and Woosh to sell the management rights to the

2.3 spectrum to Spark in circumstances where they would not have been able to do so but for the NSA and the GBA. They were also able to sell those rights on more advantageous terms than would have been the case if Cayman had not entered into the NSA and the GBA. This was to Mr Craig’s benefit given the interest he held, directly or indirectly, in both companies. Cayman therefore says Mr Craig was in a position of conflict when he was dealing with Spark in relation to the sale of the 2.3 spectrum.

[62]   The agreements that Spark entered into in November and December 2015 were obviously connected with each other to the extent that the negotiations that led to them overlapped. However, none of the agreements referred to any of the others. None was expressed to be contingent or dependent on the others.

[63]   Further, although Spark was a party to each agreement, the other parties to the agreements differed. Spark entered into ASPs for the 2.3 spectrum with Woosh and Craig Wireless. Cayman, Spark and Woosh were parties to the NSA whilst Cayman and Spark were parties to the GBA. The obligations contained in each agreement were not expressed to be collateral with, or dependent on, the performance of the obligations contained in any other agreement.

[64]   Equitable claims such as those advanced by Cayman focus on the substance of transactions rather than the form. However, in the absence of any explicit connection between the various agreements I consider that Cayman’s claim in relation to the

2.3 spectrum can only succeed if it can establish that Craig Wireless and Woosh obtained a benefit at Cayman’s expense arising out of the fact that Mr Craig caused Cayman to enter into the NSA and the GBA with Spark.

[65]   The final version of the statement of claim alleged that Spark obtained the following benefits from the NSA:

203.The terms of the NSA enabled Spark to benefit by producing a situation by which the Cayman MRs [management rights] could be terminated by the Crown, including by enabling termination of the NSA by Spark, leading to that outcome.

204.CW [Craig Wireless] interests were able to secure:

(a)more favourable terms on the sale of the Woosh/Craig MRs including higher sale prices and/or

(b)whether or not at a higher price, a sale of the Woosh/Craig MRs in any event, which would not otherwise have happened but for the NSA, the GBA and the Cayman assets and rights given to Spark.

[66]   Counsel for Cayman did not address the first of these pleadings in their closing submissions. This may reflect the fact that at an interlocutory stage I struck out an allegation that Spark terminated the NSA with the intention of lessening competition within the telecommunications market by keeping new entrants out of the market.17 The Court of Appeal upheld this decision.18 I was certainly of the impression by the end of the trial that Cayman did not rely on any aspect of the termination of the NSA for the purpose of advancing its claims. I therefore focus only on the allegations contained in para 204 of the statement of claim.

Did the NSA and the GBA enable Woosh and Craig Wireless to obtain a sale of the rights for the 2.3 spectrum on more advantageous terms than would otherwise have been the case?

[67]   In closing submissions counsel for Cayman formally abandoned the allegations in para 204 that the NSA and the GBA enabled Craig Wireless and Woosh to obtain a higher price for the sale of the management rights for the 2.3 spectrum than would otherwise have been the case. This no doubt reflected Cayman’s acceptance that the evidence did not support this aspect of its claim. Rather, the evidence confirmed that Spark had conducted its own assessment of the value of the rights and based its offer

17     Cayman Spectrum (NZ) Co v Spark New Zealand Trading Ltd [2023] NZHC 1063 at [34]–[35] and [37].

18     Cayman Spectrum (NZ) Co v Spark Trading New Zealand Ltd [2023] NZCA 428 at [48] and [57]-[59].

to purchase them on that assessment. It never agreed to pay the price that Mr Craig wanted for them.

[68]   Cayman did not  formally  abandon  the  balance  of  its  allegation  that  Craig Wireless and Woosh were able to secure a sale of the 2.3 spectrum on more favourable terms than would have been the case if Cayman had not entered into the NSA and the GBA. However, in response to a question from me, Mr Wigley was unable to point to any other term of the ASP’s that was more favourable to Craig Wireless and Woosh than would have been the case if Cayman had not entered into the NSA and the GBA. Putting the issue of price to one side I am unable to discern any other basis on which it can be said that the arrangements contained in the NSA and the GBA enabled Craig Wireless and Woosh to obtain a greater benefit under the ASP’s than would otherwise have been the case. Cayman has therefore failed to establish this aspect of its claim.

Were Craig Wireless and Woosh able to secure a sale of the rights to the 2.3 spectrum when this would not have happened but for the NSA and the GBA?

[69]   This leaves only Cayman’s final allegation that Craig Wireless and Woosh were able to secure a sale of the management rights to the 2.3 spectrum when “this would not otherwise have happened but for the NSA, the GBA and the Cayman assets and rights given to Spark”. This issue requires consideration of the negotiation process between Spark and Mr Craig that led to the parties entering into the ASP’s.

[70]   Spark had considered purchasing the 2.3 spectrum from Woosh in 2013 but elected not to proceed because it was uneconomic at that time to deliver an FWA broadband service. Mr Simon Moutter, Spark’s Chief Executive Officer and Managing Director between 2008 and 2019, gave evidence that FWA technology had been developed by 2013 but the cost per unit of data delivered to customers was too high to make it commercially viable. By 2015 technological developments with 4G cell site equipment had reduced the data unit cost of providing FWA services significantly. This meant Spark saw a significant opportunity to launch a cost-effective FWA broadband service.

[71]   Mr Moutter became aware of a further opportunity to purchase the management rights for the 2.3 spectrum held by Woosh and Craig Wireless in July 2015. He delegated responsibility for approaching those parties to Mr Lindsay Cowley, who was at that time Spark’s General Manager: Wholesale and International. Mr Cowley liaised closely with Mr John Wesley-Smith, who at that stage was Spark’s General Manager for regulatory affairs. Mr Wesley-Smith provided Mr Cowley and Mr Moutter with advice regarding spectrum strategy as well as issues that could affect Spark’s regulatory position.

[72]   Mr Cowley also involved members of Spark’s legal team.  These included  Ms Melissa  Anastasiou,  who  was   Spark’s   General   Counsel   at   that   time.   Ms Anastasiou obtained advice and assistance from Mr Sasha Daniels, who was Senior Counsel specialising in competition and regulation. Ms Anastasiou also involved Ms Charlotte Swan, who was both  acting  Company  Secretary  and  Senior Counsel assisting with strategic projects. Ms Swan’s focus was on corporate and commercial contracts.

[73]   Mr Cowley had not previously dealt with Mr Craig and he first made contact with him by email on 3 August 2015. The purpose of the email was to initiate discussions regarding the possible purchase of the 2.3 spectrum. Mr Cowley then spoke to Mr Craig by telephone on 7 and 11 August 2015. Mr Wesley-Smith participated in the discussion on 11 August 2015. During this discussion Mr Craig said that he also had management rights for spectrum in the 2.5 band and this needed to be compliant by the end of 2015. Mr Cowley and Mr Wesley-Smith told Mr Craig that Spark was not interested in obtaining rights within the 2.5 band because it already had rights in the 2.6 band. They did not consider Spark would be able to get clearance from MBIE or the Commerce Commission to acquire further rights in the same band.

[74]   The ensuing negotiations were frustrating from Spark’s perspective because of Mr Craig’s tendency to suddenly change course and follow different approaches. At times he would appear to be going down one track in the negotiations only to change to a different track a short time later. This meant it was difficult for Mr Cowley and Mr Wesley-Smith to gain a sense of where the discussions were heading.

[75]   In the latter part of August 2015 Spark undertook a benchmarking exercise to set an indicative value for the management rights held by Craig Wireless and Woosh. This led Mr Cowley to believe that the rights had a value of between NZD 2 and NZD 9.7 million. Mr Cowley was aware that Craig Wireless and Woosh had originally paid the sum of NZD 2.9 million to acquire the rights from the Crown.

[76]   On or about 25 August 2015 Mr Cowley verbally offered to pay the sum of NZD  4.2  million  for  the  2.3  spectrum.  Mr  Craig  made  a  counteroffer  of   NZD 64 million and then, unprompted, reduced this to NZD 36 million. Mr Cowley decided to make a best and final counteroffer for the sum of NZD 9.5 million, subject to Government and internal approvals. Before he could do so, Mr Craig told Mr Cowley in early September 2015 that the rights for the 2.3 spectrum had been valued at more than NZD 20 million.

[77]   Negotiations  then  continued  sporadically  during  September  2015.  On   28 September 2015 Mr Cowley sent an email to Mr Craig advising him that he had secured time in Spark’s September board meeting for discussion regarding the purchase of the rights to the 2.3 spectrum. He asked Mr Craig to submit a formal statement of offer to sell those rights to Spark for the sum of NZD 9 million. He did not receive a response until 29 September 2015, when he received a text message from Mr Craig advising that Woosh and Craig Wireless now proposed to retain the

2.3 spectrum because of sudden and unexpected changes in the telecommunications market. Discussions then ceased for a period of approximately three weeks.

[78]   On 5 October 2015, Spark obtained an external valuation from a consultancy firm based in London. This assessed the value of the management rights for the

2.3 spectrum as falling between NZD 6.9 and NZD 13.9 million. It recommended a value of NZD 10 million. Mr Cowley took this as confirming that Spark’s internal valuation of approximately NZD 9 million was reasonably accurate. He therefore decided not to increase Spark’s offer.

[79]   On 24 October 2015, Mr Craig sent an email to Mr Cowley asking whether Spark would be prepared to pay the sum of NZD 9 million and include its 2.6 spectrum as part of the purchase price. Mr Cowley did not reply to this offer because Spark was

not  interested in  disposing of its 2.6 spectrum.   Just  over three  weeks later,  on   17 November 2015, Mr Craig emailed Mr Cowley to advise that Craig Wireless and Woosh would accept an offer of USD 9 million for the 2.3 spectrum. Mr Cowley did not reply to this email because he was not prepared to pay the sum Mr Craig was asking.

[80]   Mr Cowley spoke with Mr Craig on 19 November 2015. During this conversation, Mr Craig agreed in principle to sell the 2.3 spectrum for the sum of NZD 9 million. Following this discussion, Mr Cowley emailed Mr Craig a draft terms sheet for the sale of the 2.3 spectrum at the price agreed during their telephone discussion.

[81]   On the following day, Mr Craig sent Mr Cowley an email attaching draft ASP’s for the sale and purchase of the management rights for the 2.3 spectrum. After reviewing these documents, Mr Cowley and Spark’s legal team concluded the drafts were not fit for purpose for several reasons. These included the fact that the purchase price was recorded at USD 9 million rather than NZD 9 million as had previously been agreed. In addition, the agreements required Spark to pay a non-refundable deposit in the sum of USD 500,000 for each block of spectrum. The draft ASP’s were also inadequate from Spark’s perspective because they did not stipulate that the management rights would be sold free of encumbrances and did not make the transactions conditional on approval being granted by the Commerce Commission and MBIE.

[82]   At or about this time, Mr Cowley and Mr Wesley-Smith learned that Craig Wireless’ shareholders, including Mr Craig and his brothers, had called on Craig Wireless to repay a debt owing to them of just under USD 9 million. They concluded this explained why Mr Craig had attempted to increase the sale price to USD 9 million rather than NZD 9 million as had previously been agreed.

[83]   Spark’s legal team then prepared new ASP’s for the two blocks of spectrum showing the sale price as being NZD 9 million. The new agreements required the management rights to be unencumbered and were conditional on the Commerce

Commission and MBIE approving the transactions. Mr Cowley sent the draft ASP’s to Mr Craig by email on 23 November 2015.

[84]   Shortly before sending this email Mr Cowley discovered an email in his spam mailbox that Mr Craig had sent on 4 November 2015 but which Mr Cowley had not previously  seen.   The email  stated “Hi.   Do you want  to  buy our 2.5 license for   2 million USD”. At that point Mr Cowley advised Mr Craig that Spark was keen to discuss this issue further if the opportunity still existed. Mr Cowley was aware that it was highly unlikely Spark would be able to obtain regulatory approval from the Commerce Commission to acquire the 2.5 spectrum. However, he considered it was worthwhile exploring the issue further in case the regulatory environment changed in the future.

[85]   Mr Cowley spoke to Mr Craig by telephone on 24 November 2015. During this discussion Mr Craig advised Mr Cowley that he was not prepared to sell the rights to the 2.3 spectrum for NZD 9 million as Craig Wireless owed him money and a sale at that price would not repay that debt in full.

[86]   Mr Cowley and Mr Craig then discussed the 2.5 spectrum referred to in the email Mr Craig had sent on 4 November 2015.   During the ensuing conversation   Mr Craig asked whether Spark would assist Cayman, another company of which he was a director, to launch its FWA service by 30 November 2015. Mr Craig explained that the spectrum would revert to the Crown if Cayman was unable to satisfy its implementation obligations by 30 November. Mr Craig told Mr Cowley that Cayman had “lit”, or made operational, 13 out of 15 nominated TLA sites and only needed assistance  to  render  the  remaining  two  sites  operational.  Mr Craig  also  told  Mr Cowley that Cayman would provide Spark with an option to purchase the

2.5 spectrum in six months’ time if Spark was prepared to assist in enabling Cayman to meet its implementation requirements.

[87]   Thereafter discussions about the sale of the 2.3 spectrum and the implementation of Cayman’s 2.5  spectrum  proceeded  in  tandem.  These  led  to Mr Cowley sending Mr Craig a series of documents relating to both transactions on the evening of 24 November 2015. During a telephone conversation between

Mr Craig and Mr Cowley that evening Mr Craig told Mr Cowley that Cayman would be happy to consent to the removal of the 5 Mhz guard band restriction to which Spark’s 2.6 spectrum was subject. He also told Mr Cowley that Cayman needed Spark’s help with five sites rather than two as he had previously advised.

[88]   Negotiations gathered speed at this point because Cayman needed to comply with its implementation obligations within less than a week. On 25 November 2015, Mr Cowley sent Mr Craig a text message to advise him that Spark’s engineers were meeting at 9 am that day to begin the review process for the implementation of Cayman’s 2.5 spectrum. Later that morning, Mr Craig advised Mr Cowley that he was about to visit Craig Wireless’ lenders to obtain approval to sell the 2.3 spectrum. He also attached a list of the tower sites Cayman required assistance with. At this stage it became clear that Cayman was seeking assistance in relation to 10 sites. This increased the size and complexity of the task for Spark considerably. Later the same day, Mr Craig sent Mr Cowley an email stating that Cayman could sell Spark the

2.5 spectrum immediately but that the sale of the 2.3 spectrum was going to take some weeks because Woosh and Craig Wireless needed to solve some debt issues.

[89]   At 4.48 am on 26 November 2015 Mr Craig sent an email to Mr Cowley advising that he had sent the draft agreements to his lawyers for review. At 10.19 am on the same date, Mr Craig sent Mr Cowley the following text message:

I got them [the draft agreements]. We are reviewing now. If you use your best efforts to assist us into compliance on the 2.5 we can agree to sell you the 2.3. What is causing a little indigestion is the uptick you requested on the 2.5 and the last look. That is a decision that involves our partner in the 2.5 and they are difficult.

[90]   Two hours later, at 12.28 pm, Mr Craig sent Mr Cowley following text messages:

Lindsay last look and 15 percent of sale price on Cayman.

Lindsay. Can you send me the contact info for your engineers.

I am pretty much good to go on this. Sarah [C Roberts] at Buddle Findlay is taking [one] last look.

[91]Mr Cowley responded to these with the following text messages:

Best set up meeting with engineers through me. When are you available to meet?

Re Cayman – we’d go 25% and last look.

[92]   At 2.25 pm on 26 November 2015, Mr Craig sent Mr Cowley a scanned copy of the documents Mr Cowley had sent to him on 24 November 2015. Two minutes later he emailed Mr Cowley the contact details of a radio frequency engineer employed by Woosh. He also texted Mr Cowley to advise that he had just emailed the signed documents. At 3.29 pm, Mr Cowley emailed Mr Craig acknowledging receipt of the signed documents. Mr Cowley also noted that Spark required the sale proceeds clause to be 25 per cent and pointed out that Cayman now required assistance with eight sites.

[93]   At 3.34 pm, Mr Craig sent Mr Cowley an email suggesting that Spark and Cayman split the difference on the sale proceeds at 20 per cent. Mr Cowley discussed this proposal with members of his team and concluded that 20 per cent was fair. At

3.47 pm, he confirmed to Mr Craig that Spark agreed to 20 per cent and, in addition, said that he would re-send the ASPs for the 2.3 spectrum for Mr Craig’s signature. The ASPs that Mr Craig had signed still had a “draft” watermark on them.

[94]   At 6.20 pm, Mr Craig emailed Mr Cowley a photograph of the signed execution pages of the ASPs. He told Mr Cowley he would provide copies of the full documents the following day. After discussing the situation with other members of Spark’s team Mr Cowley decided he would countersign the ASP’s on Spark’s behalf to finalise the purchase of the rights for the 2.3 spectrum even though the documents bore the “draft” watermark. He did this on 29 November 2015 at 10.35 am. This concluded the negotiations in relation to the sale of the management rights for the

2.3 spectrum.

[95]   Negotiations regarding the final form of the NSA continued on 30 November 2015. By this stage, Spark had already carried out the work necessary to enable Cayman to meet its implementation obligations.  Spark had done so even though   Mr Cowley had not yet reached final agreement with Mr Craig regarding the terms of the NSA. Mr Craig forwarded Mr Cowley the signature page of the NSA on the evening of 30 November 2015 and then sent him a copy of the entire document on

2 December 2015. Mr Cowley emailed Mr Craig a countersigned copy of the NSA on 3 December 2015.

Conclusion

[96]   The events I have just described inform the assessment of Cayman’s allegation that Craig Wireless and Woosh were able to secure a sale of the management rights for the 2.3 spectrum when that would not have happened but for Cayman entering into the NSA and the GBA with Spark.

[97]   I have no doubt that one of the reasons Mr Cowley initially agreed to assist Cayman to achieve compliance with its implementation obligations was that he wanted to remain on good terms with Mr Craig whilst negotiations regarding the sale of the management rights for the 2.3 spectrum remained on foot. Mr Craig then placed pressure on Mr Cowley when he sent the text message on 26 November 2015 advising him that Spark could purchase the 2.3 spectrum provided it also assisted Cayman to achieve compliance with its 2.5 spectrum.19 In doing so Mr Craig effectively committed Craig Wireless and Woosh to assist Cayman by agreeing to sell their management rights for the 2.3 spectrum to Spark on that condition.

[98]However, this does not mean the sale of the management rights for the

2.3 spectrum to Spark would not have occurred but for Cayman entering into the NSA and the GBA. Mr Craig sought to link the two transactions not to provide his companies with a benefit at Cayman’s expense but to assist Cayman to achieve compliance. He did not need to do that to enable Craig Wireless and Woosh to sell the rights for the 2.3 spectrum. And. as I have found, those companies did not derive any additional benefit from the sale of their rights than would otherwise have been the case. They could have sold their rights to Spark on the same terms at any time without Spark’s agreement to assist Cayman into compliance.

[99]   I therefore do not accept Cayman’s assertion that Craig Wireless and Woosh were only able to sell the rights to the 2.3 spectrum to Spark because Cayman entered into the NSA and the GBA. This aspect of Cayman’s claim cannot succeed.

19 Set out above at [89].

Did Mr Craig breach his fiduciary obligations to Cayman when he caused it to enter into the NSA and the GBA?

[100]   At the heart of both of Cayman’s claims in relation to the NSA and the GBA is an allegation that Mr Craig breached his fiduciary obligations to Cayman when he caused it to enter into those transactions. If Cayman cannot establish this element neither of its claims can succeed.

[101]   In Bristol and West Building Society v Mothew, Lord Millett summarised the obligations of a fiduciary in the following way:20

A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations.

[102]   The fiduciary obligations owed by a director to a company are similarly uncontroversial. The learned authors of Directors Powers and Duties summarise the duties owed by a company director as follows:21

[W]  hat are the fiduciary duties as applicable to directors? There are said to be two:

1.Directors should not enter into transactions where their interests conflict or might conflict with those of the company, without obtaining appropriate consent; and

2.Directors should not benefit in any way from their office, again without appropriate approval of their doing so.

These duties are said to be prophylactic or preventative. They operate regardless of any actual corruption or desire on the part of the director to act against the company’s interests. Indeed, at common law, these rules operate even if the relevant transaction is not only believed by the director to be for the good of the company, notwithstanding the conflict of interest, but is, on any reasonable view, beneficial to the company.

The duty to act in good faith in the company’s best interests, on the other hand, generates a curial reaction only where there is mismotivation. There will

20     Bristol & West Building Society v Mothew [1998] Ch 1 (CA), [1996] 4 All ER 698 at 711–712.

21     Peter Watts Directors Powers and Duties (3rd ed, LexisNexis, Wellington, 2022) at [6.2].

usually also be a conflict of interest or a desire to profit, but there is more; there is actual disloyalty. So there will be at least an indifference on the part of the director as to whether his or her action will further company’s interests, and there may even be a positive intention to harm those interests. It seems unlikely that judges will ever refrain from speaking of breach of fiduciary duty in relation to acts of disloyalty, given that actionable disloyalty operates a fortiori the prophylactic duties.

[103]   The duty of directors to act in good faith and in what the director believes is in the best interests of the company is contained in s 131 of the Companies Act 1993. There has been some debate as to whether the duty to act in the best interests of the company is fiduciary in character.22 However, the Court of Appeal has accepted that a breach of the duty under s 131 constitutes the breach of a fiduciary obligation.23 I therefore proceed on the basis that a breach of the duty to act in good faith and in the company’s best interests will amount to a breach of fiduciary duty for present purposes.

[104]   As refined in closing submissions, Cayman alleges that Mr Craig breached his fiduciary duties to Cayman in the following ways:

(a)In dealing with Spark in relation to the NSA and the GBA when he had no authority from Cayman or Everest to do so.

(b)In withholding information from and misleading Everest.

(c)In profiting from his dealings with Cayman’s rights and interests.

(d)In acting on Cayman’s behalf in circumstances where he had a conflict of interest or there was a risk that his interests may have been in conflict with Cayman’s interests.

(e)In perpetuating and continuing these breaches.

[105]   These allegations need to be measured against the fiduciary duties owed by Mr Craig as a director of Cayman.  If established, the allegations contained in (c) and

22     Plumpton v Terry [2019] NZHC 3450 at [130], referencing Watts, Campbell, Hare Company Law in New Zealand (2nd ed, LexisNexis, Wellington 2016), at [13.2].

23     Morgenstern v Jeffreys [2014] NZCA 449 at [99].

(d) would clearly amount to breaches of Mr Craig’s fiduciary duties to Cayman. The allegations in (a) and (b) could also amount to breaches of his fiduciary duties if he was not acting in good faith and in Cayman’s best interests. The allegation in (e) takes matters no further than the earlier allegations.

Did Mr Craig have the authority to cause Cayman to enter into the NSA and the GBA?

[106]   Counsel for both parties provided extensive submissions addressing the issue of whether Mr Craig had actual or apparent (ostensible) authority to bind Cayman to the agreements that he caused Cayman to enter into with Spark. I do not consider the principles relating to apparent or ostensible authority are engaged in the present context. They relate to the ability of an agent to bind a principal to contractual arrangements with third parties. The present enquiry is different. It does not relate to a claim by a third party seeking to prove that a contract is valid and binding. The issue for present purposes is whether, as a matter of fact, Mr Craig had actual authority to enter into the arrangements with Spark.

[107]   Cayman’s articles of association and shareholders agreement required all decisions affecting the company’s spectrum to be made by both directors and agreed to by both shareholders. It follows that Mr Craig (and Craig Wireless) had no authority to unilaterally make any decisions or enter into any agreements on Cayman’s behalf that affected Cayman’s spectrum without the informed consent of Mr Prakash as the director nominated by Everest and, through him, Everest. This means that Mr Craig did not have the authority to sign the NSA and the GBA on Cayman’s behalf without first obtaining Everest’s informed consent.

[108]   A breach of this kind could obviously give rise to claims by Cayman and Everest against Mr Craig for any damage they may have suffered through his actions. However, it does not necessarily mean that Mr Craig also breached his fiduciary obligations to Cayman. That would only be the case if, by causing Cayman to enter into the agreements, he either ran the risk of placing himself in a position of conflict with Cayman or was not acting in good faith and in Cayman’s best interests in doing so. I will consider those issues once I have determined whether there is an evidential basis for Cayman’s remaining allegations.

Did Mr Craig withhold information from, and mislead, Everest?

[109]   It seems that Everest did not become aware that Mr Craig had commenced discussions with Spark until Mr Deliso received an email from Mr Craig’s assistant, Mr Gary Birkland, on 25 November 2015. This advised Mr Deliso that Mr Craig had been able to use the negotiations for the sale of Craig Wireless’ 2.3 spectrum to obtain Spark’s assistance in achieving compliance for Cayman’s 2.5 spectrum.24 However, Mr Birkland’s email did not advise Mr Deliso that Mr Craig had already reached agreement with Spark regarding the GBA. He was also in the throes of negotiating the proportion of sale proceeds that Spark should receive from the sale of the

2.5 spectrum and the right of last refusal for the purchase of that spectrum. The email did not refer to either of these issues.

[110]   In failing to advise Mr Deliso of the current state of Mr Craig’s negotiations with Spark Mr Birkland was clearly misleading Everest and withholding information from it on Mr Craig’s behalf. Thereafter Mr Birkland and Mr Craig never communicated with Mr Prakash or Mr Deliso to keep them informed of the negotiations Mr Craig was conducting with Spark. Everest did not become aware of the agreement contained in the NSA until Mr Birkland spoke to Mr Deliso in early December 2015. Even then Mr Birkland did not tell Mr Deliso that Cayman and Spark had entered into the GBA. It follows that Mr Craig and Mr Birkland withheld information from Everest and also misled it as to the nature of the agreement Mr Craig had entered into with Spark on Cayman’s behalf.

Did Mr Craig and/or his companies profit from his dealings with Cayman’s assets?

[111]   I have already found that Craig Wireless and Woosh did not derive a benefit at Cayman’s expense when Spark acquired their 2.3 spectrum.

[112]   However, the email that Mr Birkland sent to Mr Deliso on 25 November 2015 had the potential to provide Craig Wireless with a financial advantage because it also suggested that Everest’s share of the sale proceeds of Cayman’s spectrum should be capped at USD 500,000. Depending on the sale price Cayman achieved for the

24 Set out below at [210].

spectrum Mr Craig and Craig Wireless potentially stood to gain from such an arrangement.   However, Mr Deliso rejected this proposal in an  email he sent to    Mr Birkland on 27 November 2015.25 In doing so Mr Deliso made it clear that the sale proceeds would be divided in accordance with the shareholders agreement Craig Wireless and Everest had signed.

[113]   Following this attempt by Mr Birkland there is no evidence that Mr Craig or Craig Wireless benefited from Cayman’s spectrum to a greater extent than Everest. Cayman has therefore failed to establish the allegation that Mr Craig and/or his companies profited from Mr Craig’s dealings with Cayman’s assets.

Did Mr Craig act on Cayman’s behalf in circumstances where he had a conflict of interest or where there was a risk that his interests may conflict with Cayman’s interests?

[114]   I have already found that Mr Craig did not breach any fiduciary duty he may have owed to Cayman when he caused Craig Wireless and Woosh to sell the management rights to their 2.3 spectrum to Spark. If those transactions are put to one side there is no evidence that the negotiation and execution of the NSA and the GBA placed Mr Craig in a position of conflict or that he and/or his companies stood to benefit from the arrangements recorded in those documents. It follows that Cayman has failed to establish this allegation.

[115]   Having found two of the allegations established, namely that Mr Craig dealt with Spark in relation to the NSA and the GBA when he had no authority to do so and that he withheld information from and misled Everest, it is now necessary to determine whether those breaches resulted in Mr Craig breaching his fiduciary duty to Cayman. This involves considering whether Mr Craig breached his obligation of loyalty to Cayman by failing to act in good faith and in Cayman’s best interests.

25 Set out below at [211].

Did Mr Craig breach his obligation of loyalty to Cayman by failing to act in good faith and in Cayman’s best interests?

[116]   This issue requires a more detailed consideration of the circumstances that led to Mr Craig causing Cayman to enter into the NSA and the GBA.

[117]   By 24 November 2015 Woosh had already provided Cayman with assistance to meet its implementation obligations in five of the TLA’s Cayman had nominated. Before it could become compliant Cayman needed to achieve transmission capability for 13 sites in the ten remaining TLA’s. It did not have transmission towers of its own in these areas and did not have the necessary componentry to enable transmissions to commence. Nor did it have the equipment it needed to provide to consumers, or end users, so they could receive transmissions.

[118]   Mr Craig was not called to give evidence at the trial by either party and there is no other evidence to explain why Cayman was so far behind in meeting its implementation obligations when Mr Craig first spoke to Mr Cowley about the issue on 24 November 2015.   It seems  clear,  however, that when Mr Craig spoke to     Mr Cowley on that date he was concerned there was a substantial risk that Cayman would forfeit its management rights to the 2.5 spectrum.

[119]   The evidence given by Mr Dick confirms that this was likely to occur if Cayman could not achieve compliance by 30 November 2015. Between June and September 2015 Mr Dick had been discussing the possibility of entering into a joint venture with Mr Craig that involved  the  use  of  Cayman’s  spectrum  by  one  of Mr Dick’s Blue Reach companies. Mr Dick had also made an offer to purchase the spectrum for NZD 3 million provided it was compliant.

[120]   On 23 September 2015 Mr Dick sent an email to Mr Birkland advising him that he was “very concerned” about the lack of compliance of the Cayman spectrum. He said MBIE had told him they “had no wiggle room” on the issue of non-compliance. This meant the management rights for the spectrum would revert to the Crown if compliance was not achieved by 30 November 2015. Mr Dick also said there was very little time within which to achieve compliance.

[121]   In an email sent to Mr Craig on 16 November 2015 Mr Dick reiterated that MBIE was subject to growing pressure to retrieve spectrum so that 2degrees could purchase it. He said MBIE would be measuring compliance in detail. In cross-examination at trial Mr Dick said that he had learned from discussions with MBIE that 2degrees was exerting pressure on MBIE to ensure that owners of management rights complied strictly with their implementation obligations. Mr Dick said he was also aware that 2degrees had been complaining to MBIE that it did not have access to sufficient spectrum. He believed 2degrees was hoping to acquire management rights that were forfeited to the Crown for non-compliance and then re-sold. Mr Dick said he believed Cayman would have lost the management rights for the 2.5 spectrum if it did not achieve compliance by 30 November 2015.

[122]   On 22 November 2015 Mr Dick sent Mr Birkland a further email stating that he had reviewed his offer to purchase the 2.5 spectrum. Mr Dick said he believed there was a very real  risk  Cayman  would  not  be  in  a  state  of  compliance  by  30 November given the current state of its deployment. He also said that any attempt by Blue Reach to acquire the management rights for Cayman’s spectrum was likely to be the subject of a challenge by least one of the other spectrum owners. In cross-examination Mr Dick confirmed he was referring in this context to 2degrees.

[123]   In the same email Mr Dick also told Mr Birkland that MBIE had advised him that Blue Reach would be putting its own spectrum at risk if it assisted Cayman to achieve compliance. Mr Dick concluded the email by advising Mr Birkland that Blue Reach did not have the time or equipment available to assist Cayman to meet its compliance obligations by 30 November 2015. He suggested that Cayman should approach MBIE and seek an extension of time within which to achieve compliance.

[124]   Cayman had already applied to MBIE for an extension of time within which to achieve compliance. However, in a letter dated 23 November 2015 MBIE observed that several factors left it “yet to be convinced” that Cayman had made substantial progress towards implementing a service for its spectrum. MBIE made it clear that it was not prepared to grant Cayman the extension that it sought.

[125]   Mr Dick travelled to Wellington on 25 November 2015 to put a proposal to Mr Len Starling of MBIE that was designed to save the Cayman spectrum from being forfeited. This involved one of his Blue Reach companies taking control of the Cayman  spectrum  on  the  basis  that  MBIE  would  grant  it  an  extension  until  30 November 2016 to comply with the implementation obligations. Mr Starling told Mr Dick that MBIE could not change the rules to facilitate a purchase of the spectrum by a third party. He said MBIE would apply this policy to any party that sought to purchase Cayman’s spectrum. It therefore appears that by 25 November 2015 Cayman had effectively run out of alternative options to achieve compliance.

[126]   This means Mr Craig was extremely fortunate to discover that Mr Cowley believed Spark could assist Cayman to become compliant notwithstanding the very short timeframe within which this needed to occur. Spark could only achieve this outcome because it had very recently completed the exercise of meeting its own implementation obligations. Spark’s staff therefore knew what was required to enable Cayman to achieve compliance using Spark’s towers and componentry. The only additional items of equipment that Spark needed to enable Cayman to become compliant were the SIM cards and receiver units to be provided to Cayman’s end users.

[127]   Spark was required to pay additional licence fees to Huawei for these and other items. Huawei agreed to allow Spark to defer the payment of these fees. Mr Craig gave Spark to believe that it would only be required to host Cayman’s transmission services for a short period while it made alternative arrangements. However, the NSA provided for Spark to continue to provide hosting services until the end of the compliance period in December 2016. Spark subsequently became concerned that it would be required to pay the licence fees to Huawei given the length of time it was required to host Cayman’s transmission services.

[128]   Spark also risked jeopardising its relationship with MBIE if it assisted Cayman to achieve compliance. Mr Wesley-Smith said that Spark was aware MBIE did not approve of the assistance Spark was providing to Cayman. This flowed from the fact that Everest and Craig Wireless had agreed that Cayman would seek to achieve compliance at minimum cost because they did not intend Cayman to build up a

customer base. Rather, they intended to sell the spectrum in a compliant state after 30 November 2016.

[129]   This  type   of   strategy   did   not   conform   with   MBIE’s   philosophy.   Mr Wesley-Smith said that MBIE viewed spectrum as a scarce resource that should be gainfully employed for the benefit of the community as a whole. It did not approve of efforts by spectrum owners to assist others to achieve compliance when those entities did not intend to offer transmission services to the public.

[130]   Given the pressure Cayman was under to achieve compliance within a matter of days it had very little bargaining power. Mr Craig must therefore have anticipated that Spark would want some form of reward for its services. There is no evidence that he raised any conceptual objection when Spark first suggested that it should be remunerated for its efforts by receiving a share of the amount Cayman ultimately received from any sale of the 2.5 spectrum. The advantage of such an arrangement for Cayman was that it was not required to meet any upfront costs. It also provided Spark with an incentive to assist Cayman to achieve compliance because that was the only means by which it would be rewarded for its efforts.

[131]   The efforts that Spark was prepared to go to on Cayman’s behalf plainly had substantial value for Cayman. This is demonstrated by an email that Mr Dick sent to Spark in July 2016 after he learned Spark had terminated the NSA. Mr Dick proposed that the NSA be replaced by an arrangement under which Blue Reach would pay Spark the sum of NZD 600,000 to continue hosting Cayman’s existing transmission services on Blue Reach’s behalf until December 2016. Mr Dick made that offer after he had told Mr Birkland it would cost approximately NZD 100,000 in legal fees to obtain an injunction to compel Spark to continue providing transmission services to Cayman under the NSA.

[132]   Blue Reach was therefore prepared to pay Spark the sum of NZD 600,000 for hosting transmission services for a period of just five months. That figure did not include the cost of establishing transmission capability on an extremely urgent basis. This places in perspective the level of consideration Mr Craig was prepared to offer Spark in November 2015.

[133]   It is understandable that Mr Deliso and Mr Prakash were not happy when they learned that Mr Craig had caused Cayman to enter into the arrangement recorded in the NSA without first obtaining Everest’s consent. They were no doubt equally upset when they subsequently discovered Mr Craig had also caused Cayman to enter into the GBA. However, by making these concessions Mr Craig enabled Cayman to preserve the spectrum and, with it, the ability to receive 80 per cent of any eventual sale price. If Mr Craig had not taken that step Cayman would have been in a significantly worse position because it would inevitably have lost its only asset.

[134]   Mr Deliso acknowledged in cross-examination that Everest would have agreed to the payment of consideration for the services Spark was prepared to provide. His objection related to the nature and the size of the consideration Mr Craig had negotiated. He said he viewed the entitlement to 20 per cent of the sale proceeds with “shock and awe” because it was “out of proportion to what it would have taken to … assist with turning a few sites on air”. He said Everest would have been amenable to a transaction that was “sort of more consistent with market and did not encumber the spectrum”.

[173]   I consider this argument contains an element of unreality because Mr Pilditch does not suggest that Spark should also have immediately ceased providing hosting services for Cayman’s 2.5 spectrum. The letter from Lowndes was silent regarding that issue. It is difficult to see how Cayman can realistically argue that Spark should have continued to provide hosting services under the NSA whilst at the same time renouncing its entitlement under the same document to be remunerated for those services.

[174]   Mr Cowley and Mr Wesley-Smith knew that Cayman would no longer be compliant if it ceased to provide hosting services for the 2.5 spectrum. When he was sent a copy of the Lowndes letter Mr Wesley-Smith responded by asking Mr Cowley whether  they  should   terminate   the   hosting   arrangement.   Mr   Cowley   and Mr Wesley-Smith also knew that Mr Craig did not accept the allegations contained in

the Lowndes letter and wanted the arrangement he had reached with Spark to remain in place.

[175]   These factors led Mr Cowley and Mr Wesley-Smith to conclude that Spark should not place Cayman’s management rights for the 2.5 spectrum in jeopardy by terminating the NSA immediately. They believed Spark had been unwittingly caught in a dispute between Everest’s shareholders. Spark therefore elected to refute Cayman’s allegations and continued to provide hosting services for Cayman’s

2.5 spectrum. The right of last refusal and the right to receive a share of the sale proceeds of the spectrum were not a pressing issue at that stage because there was no suggestion Cayman was considering the sale of the spectrum.

[176]   I do not accept Cayman’s argument that an honest and reasonable person in Spark’s position would have immediately rescinded the GBA and renounced its rights under the NSA once it received the letter from Lowndes. Spark had met, and was continuing to meet, its obligation under the NSA to assist Cayman to ensure its management rights were compliant. I consider an honest and reasonable person in Spark’s position could legitimately elect to endeavour to maintain the status quo and leave any argument about its entitlements under the NSA and the GBA to be determined if and when the need arose. Neither party could be disadvantaged by Spark adopting that course.

[177]   Cayman’s argument also needs to be examined in the light of how Mr Dick acted once he assumed control of Everest in April 2016. The agreement that he signed when he acquired Everest’s shares in Cayman expressly stated that he acquired those shares in the knowledge that Cayman was subject to the NSA. He did not seek to terminate the NSA immediately because he knew this would cause Cayman to become non-compliant. Nor did he challenge Spark’s entitlements under the NSA.  Instead, he sought confirmation that Spark would continue to provide hosting services for Cayman’s spectrum as required by the NSA until December 2016.

[178]   After Woosh went into administration in June 2016 Mr Dick also took steps to provide Spark with alternative security in the form of a bank guarantee. This

amounted to a tacit acknowledgement by Mr Dick that Spark was entitled to security to protect its rights under the NSA.

[179]   Mr Dick said in cross-examination that he did not want to accept the terms of the NSA and preferred to negotiate a new arrangement with Spark that he would have found more palatable. In answer to a question from me, Mr Dick said that he wanted to resolve the security issue by providing a bank guarantee to satisfy Spark’s immediate concerns and then leave the issue of Spark’s entitlements under the NSA to be argued later if necessary.

[180]   Viewed in this light, I consider Spark acted in the same way as Mr Dick. It sought to maintain the status quo and leave any arguments as to its entitlements under the NSA and the GBA to a later date. I am therefore satisfied that Spark acted as an honest and reasonable person in its position would have done once it received the letter from Lowndes on 22 December 2015. It would therefore not be unconscionable to allow Spark to retain the benefit of the NSA and the GBA. Nor would its conduct be regarded by ordinary decent people as being dishonest. It follows that Spark’s actions after receiving the letter from Lowndes do not give rise to liability under either cause of action advanced by Cayman.

PART C: SPARK’S AFFIRMATIVE DEFENCES

[181]   My conclusions in relation to Cayman’s claims mean it is not necessary to consider Spark’s affirmative defences. However, in case they are found to be wrong I will deal with the affirmative defences very briefly.

Change of position

[182]   This defence can only apply to the cause of action based on knowing receipt. It is based on the principle that it may be unjust to require a person who receives property in good faith to repay or disgorge that property where the person has altered their position on the faith of receipt of that property.27

27     Alastair Hudson Equity and Trusts (10th ed, Routledge, Oxford) at [20.7.1].

[183]   In the present case it is difficult to see how the defence could apply if Cayman is able to establish the elements of knowing receipt. In that event Spark would not have received the rights under the GBA and NSA in good faith. It would not be an innocent party to those transactions.

[184]   Further, Cayman is not seeking restitution of the rights removed by the GBA or any other form of restitution. Rather, it is seeking an order requiring Spark to disgorge the profits it has derived from the 2.3 spectrum, the GBA and the NSA. For these reasons I do not consider this defence would be available if Cayman is able to establish the elements of knowing receipt.

Bona fide purchaser for value

[185]   This defence also applies to the cause of action based on knowing receipt. It is based on the principle that a defendant will not be liable for purchasing an item subject to an equitable interest held by another where he or she purchases the item for value and without notice of any equitable interest. The test is whether a reasonable person in the recipient’s position should have appreciated that it was receiving property subject to another’s proprietary right, or should have made enquiries or sought advice that would have revealed the probable existence of the right.28

[186]   In his closing submissions Mr Kennedy acknowledged on Spark’s behalf that there may be little room for this defence if I found that Cayman had established the elements of knowing receipt and/or providing dishonest assistance. This must be correct given that those elements include knowledge of, or wilful blindness to, the fact that the asset in question is held on trust for another.

Ratification

[187]   This defence may be raised where a person on whose behalf an unauthorised act has been done makes it clear by act or conduct that he or she treats the act as authorised and thereby becomes a party to the transaction. Ratification may be implied

28     Credit Agricole Corporation and Investment Bank v Papadimitriou [2015] UKPC 13, [2015] 1 WLR 4265.

where such a person makes it clear that he or she adopts or recognises the act or transaction in whole or in part.29

[188]   In the present case Everest made it clear through the letter from Lowndes on 22 December 2015 that it did not adopt or recognise the NSA because Mr Craig had entered into it without authority. Spark contends, however, that Mr Dick subsequently ratified the NSA by seeking Spark’s assurance in June 2016 that it would continue to host Cayman’s transmission services until December 2016 as provided for in the NSA. It cannot make the same submission about the GBA because Mr Dick did not become aware of the existence of that document until some months later.

[189]   The difficulty with Spark’s argument is that it cannot apply to the period before Mr Dick became a director of Everest. Further, ratification is a principle derived from the law of contract. It is generally used by one party to a contract to respond to an argument by the other party that an agent did not have actual or apparent authority to bind the agent’s principal to the contract. In the present case it cannot respond to Cayman’s claim that it would be unconscionable for Spark to retain the rights it received under the NSA because it knowingly obtained those rights through Mr Craig breaching his fiduciary duty to Cayman.

Estoppel

[190]   Spark contends that Mr Dick’s actions in seeking to confirm that Spark would continue to host transmission services for Cayman until December 2016 amounted to an unequivocal representation that Cayman accepted the ongoing validity of the NSA. This was reinforced when Mr Dick engaged positively on Cayman’s behalf in the discussions relating to the bank guarantee in June 2016 after Woosh was placed in administration. Spark says it continued to host Cayman’s transmission services on the basis of Mr Dick’s representation and that it would now be unconscionable to permit Cayman to depart from that representation.

[191]   There are several difficulties with this defence. First, it cannot apply to the GBA because Mr Dick was not aware of the GBA when he dealt with Spark between

29     Clark v Libra Developments Ltd [2007] 2 NZLR 709 (CA) at [163]–[164].

April and July 2016. Secondly, Mr Dick did not unequivocally represent to Spark that Cayman accepted the validity of the NSA in its entirety. Rather, he referred only to the hosting services Spark was to provide under it. Thirdly, Spark did not alter its position to its detriment on the basis of Mr Dick’s representation. It did not alter its position in any way between April and June 2016. Rather, it continued to provide the same services to Cayman that it had been providing since 30 November 2015.

[192]   It follows that the affirmative defence of estoppel would not have assisted Spark if I had concluded the elements of knowing receipt and providing dishonest assistance had been made out.

Exclusion or limitation of liability under the NSA

[193]   In advancing this affirmative defence Spark relies on the following clauses in the NSA:

16.1      Maximum liability: The total liability of Spark in respect of any and all claims arising under or in relation to this Agreement is limited to:

(a)  for any event or any series of related events, the lesser of:

(i)   the total Charges paid for the affected Services in the 12 month period preceding the event or circumstance giving rise to the relevant claim: or

(ii) $50,000; and

(b)  in aggregate for all events (connected or unconnected) occurring in any 12 month period, $100,000.

16.2      Exclusion of liability: Spark will not be liable to You (under the law of contract, tort (including negligence), equity, or otherwise) for any indirect or consequential loss, or to any loss of revenue, profits, goodwill, business or anticipated business, anticipated savings, data or for any business interruption, whether direct or indirect and whether or not that loss was, or ought to have been, contemplated by Spark, arising under or in relation to this Agreement.

[194]   I consider Spark’s reliance on cl 16.2 to be misplaced because Cayman is not seeking to recover loss suffered by it as a result of Spark’s actions. Rather, it is seeking an order requiring Spark to disgorge the profits it has derived from the various agreements. Clause 16.2 has no application in those circumstances.

[195]   Clause 16.1 could be relevant because Cayman is making claims against Spark in relation to the NSA. However, this depends on the enforceability of the NSA, which is the issue I am required to determine in the first of Spark’s counterclaims.

[196]I therefore turn to that issue now.

PART D: SPARK’S COUNTERCLAIMS AGAINST CAYMAN

Breach of contract

[197]   Spark’s first counterclaim alleges that the NSA required Cayman to account to Spark for 20 per cent of the sale price of the 2.5 spectrum. There is no dispute that Cayman sold its 2.5 spectrum in November 2018 for the sum of USD 10 million. It has never accounted to Spark for 20 per cent of that sum. Spark therefore seeks damages for breach of contract in the sum of USD 2 million.

[198]   Cayman defends the counterclaim on the basis that Mr Craig caused it to enter into the NSA when he had no actual or apparent authority to do so. I have already held that Mr Craig had no actual authority to enter into the NSA on Cayman’s behalf.30 It is therefore now necessary to determine whether he had apparent or ostensible authority to do so.

[199]The starting point in this context is summarised by the learned authors of

Burrows, Finn and Todd on the Law of Contract in New Zealand as follows:31

It is obvious that the principal is bound by every contract or disposition of property made by the agent with his or her authority. The reverse is equally obvious. If a person acts as agent without any authority, or if an agent exceeds his or her authority, the principal (apart from ratification), is not liable at all in the first case and in the second is not liable for the excess.

[200]   In Bishop Warden Property Holdings Ltd v Autumn Tree Ltd the Court of Appeal explained the two types of authority as follows:32

30 At [107].

31     Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at [16.4.1(a)].

32     Bishop Warden Property Holdings Ltd v Autumn Tree Ltd [2018] NZCA 285, [2018] 3 NZLR 809 at [28]–[29] (footnotes omitted).

[28]What constitutes actual authority was explained by this Court in

Giltrap City Ltd v Commerce Commission:

Actual authority can be of two kinds – express or implied. Express authority is authority which is expressly given by the principal to the agent for or covering the transaction in question. One form of implied authority is the authority which the law regards as existing by reference to the position held by the agent vis-à-vis the principal. In the corporate arena, as here, the role performed by the servant or agent in the corporate structure will influence the extent of that person’s implied authority. In general terms the more senior the role the greater the person’s implied authority is likely to be.

[29]Apparent authority is well described as:

… when an agent does not have actual authority but the principal allows the agent to appear to have authority to third parties. The principal (being persons with the company’s actual authority to do so) must make an express or implied representation in some way to the third party. The essence of the doctrine of apparent authority is that it is the principal’s representation that creates the authority, not the agent’s assertion that he has that authority.

[201]   The party seeking to enforce the right or interest against the company has the onus of proving either limb of authority.33

Principles relevant to a claim of a director’s apparent authority

[202]   As will be evident from the authorities to which I have referred, the party seeking to enforce the contract must prove:

(a)that the agent was held out as having authority to enter into the transaction by someone who had actual or apparent authority to do so on behalf of the company;

(b)the third party dealing with the company knew of the holding out; and

(c)it reasonably relied upon it.34

33     At [30], referencing Lysaght Bros & Co v Falk (1905) 2 CLR 421 at 427.

34     New Zealand Tenancy Bonds Ltd v Mooney [1986] 1 NZLR 280 (CA) at 283–284; and Kop-Coat New Zealand Ltd v Incodo Ltd [2018] NZCA 430, [2019] NZCCLR 2 at [43].

[203]   Whether there has been a representation, express or implied, that the agent has authority to enter into the transaction is to be viewed objectively.35

[204]   The authority of a single director has been acknowledged to be generally limited:36

[27] Authority to bind a company to contracts is primarily reserved to the Board of Directors. Whether an agreement entered into by a director is valid depends upon whether the director had actual or apparent authority to enter into the agreement on behalf of the company. The customary authority of one director of a board acting alone (as opposed to a sole director) is very limited. As was said by the High Court of Australia in Northside Developments Pty Ltd v Registrar-General:

... ordinary directors may have quite significant functions entrusted to them by the company, although usually these are of a more or less formal nature, such as affixing the company seal to documents which the company requires to be executed ... [but] the position of director does not carry with it any ostensible authority to act on behalf of the company. Directors can act only collectively as a board, and the function of an individual director is to participate in decisions of the board. In the absence of some representation made by the company, a director has no ostensible authority to bind it.

[205]   The difficulty for Spark is that Mr Cowley and Mr Wesley-Smith did not deal with any representative of Cayman other than Mr Craig. It follows that Spark relied solely on assertions by Mr Craig as to his authority to act on Cayman’s behalf in relation to the 2.5 spectrum. This would not generally be sufficient to establish that Mr Craig had apparent or ostensible authority to act on Cayman’s behalf.

[206]   However, there are situations in which representations as to authority may be made by the agent. This may occur where the principal puts an agent in a position from which it can be inferred that the agent’s representation of authority in himself is in fact correct.37 Where a principal has given an agent actual authority to make representations on its behalf, a third party may be entitled to rely upon the agent’s representation as it is authorised to enter into transactions. In IRC v Ufitec Group Ltd May J observed:38

35     Mountain Lake Holdings Ltd v Darrell McGregor (Contractor) Ltd (2007) 8 NZCPR 85 at [17].

36     Bishop Warden Property Holdings Ltd v Autumn Tree Ltd, above n 32 (footnotes omitted).

37     Cromwell Corporation v Sofrana Immobilier (NZ) Ltd (1992) 6 NZCLC 67,997 (CA) at 36.

38     IRC v Ufitec Group Ltd [1977] 3 All ER 924 at 938.

In all these circumstances, I have no doubt that by its conduct in permitting Mr Zilkha and Messrs Berwin Leighton, the firm in which Mr Benjamin was a partner, to conduct these negotiations as they did, the board of the taxpayer company, either directly, or by Mr Zilkha, or by its solicitors, clearly represented that Mr Zilkha did have authority to enter into the agreement of 10 March 1971 as he did, and that once Edsa acted on that representation, by itself entering into that agreement, the taxpayer company was estopped from denying that Mr Zilkha had the requisite authority.

[207]In Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd,

Browne-Wilkinson LJ also recognised this possibility:39

By parity of reasoning, if a company confers actual or apparent authority on A to make representations on the company's behalf but no actual authority on A to enter into the specific transaction, why should a representation made by A as to his authority not be capable of being relied on as one of the acts of holding out? There is substantial authority that it can be: … If, as I am inclined to think, an agent with authority to make representations can make a representation that he has authority to enter into a transaction, then the judge was entitled to hold, as he did, that Mr Booth, as the representative of Refson in charge of the transaction, had implied or apparent authority to make the representation that only one signature was required and that this representation was a relevant consideration in deciding whether Refson had held out Mr Booth as having authority to sign the undertaking. However, since it is not necessary to decide this point for the purposes of this appeal, I express no concluded view on it.

[208]   The problem for Spark in the present case is that Everest and Cayman never placed Mr Craig in a position where he was able to assert to third parties that he had authority to enter into any transaction that related to Cayman’s spectrum. To the contrary, Cayman’s articles of association and the shareholders agreement expressly prohibited any such transactions without the consent of both shareholders and directors.

[209]   Everest’s representatives, Mr Prakash and Mr Deliso, were based overseas. In practical terms it appears that they left it to Mr Craig in the first instance to undertake such tasks as were necessary to ensure Cayman met its implementation obligations in New Zealand. Mr Deliso referred to these as the “protect build”. The following passage from an email Mr Deliso sent to Mr Craig on 25 September 2015 explains the position from Everest’s perspective as follows:

39     Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd [1985] 2 Lloyd’s Rep 36 at 43.

Everest is not the one managing the protect build activities in NZ. Craig undertook that responsibility, using local resources, and has been the one on point with regulators, with operational teams, in building the protect build plan, in developing the sites, and laying out the timelines and activities.

Everest does not control the teams on the ground, Craig does. We have not been involved nor invited to participate in developing the build plan. Craig has managed the plan and shared few details. We have not been in conversations with the regulators regarding the requirements or any possible extension, Craig has been managing these conversations and efforts. With the limited exception of our conversations with Malcolm [Mr Dick], coordinated with Craig, we have not been engaged in any meaningful way with conversations to sell the assets, finance the build, or similar actions. Craig has been lead on all these discussions. Craig has been and is the lead on developing, managing and implementing essentially all compliance activities in NZ. If we fall out of compliance, that is on Craig.

Again, our only requirement was that the build be conducted in an independent manner, with a degree of separation between Woosh assets and Cayman assets. We have proposed various solutions to this problem, including heading down the path of trying to separate the network elements with Gary, but Craig has simply been unwilling to address this concern.

We would be happy to arrange a call to discuss, and start dealing with the details on the ground.

An e-mail essentially saying we are going out of compliance, with no details, information or facts, is not very helpful.

Please let us know when you might want to discuss.

[210]   On 25 November 2015, Mr Birkland sent an email to Mr Deliso in which he advised Mr Deliso as follows:40

Recently, Telecom/Spark approached us on purchasing our 2.3GHz spectrum. They have no interest in the 2.5GHz (strange but true).

We have been able to negotiate as part of the sale of the 2.3GHz spectrum, provision for Telecom/Spark to place Cayman’s spectrum into compliance.

As a result, CWS [Craig Wireless Services] would be discounting the 2.3GHz sale by $2mUS. Accounting for that discount combined with CWS/Woosh moneys used to date to get compliance efforts to where they are today, we believe when the sale of the 2.5GHz occurs the Everest distribution be fixed at $500kUS.

We would like to have agreement from Everest as we move forward to close the agreement with Telecom/Spark on the sale of the 2.3GHz with their efforts to bring the 2.5GHz into compliance.

As we all know, time is of the essence with regard to the 2.5GHz spectrum.

40     Mr Deliso was in the United States and received the email on the evening of 24 November 2015.

We look forward to your response and moving forward to getting the 2.5GHz into compliance.

[211]   Mr Deliso forwarded the email to Mr Prakash, who rejected Mr Birkland’s proposal in no  uncertain  terms.  Mr  Deliso  then  responded  to  Mr  Birkland  on 27 November 2015 as follows:

Gary,

Thanks for the note.

Sorry for the delay in responding, but given that our first indication that any possible arrangement was in play with Telecom came on the evening of Nov 24, we are still trying to digest the implications. While we support efforts to get the licenses in compliance by the deadline, we don’t believe a $2 Mill allocation to Cayman is reasonable. This is an effort that, in order to work, will take a few days. The problem is that this is all tied up in Craig’s deal with Telecom, and it is precisely for that reason there is no way to separate or ascribe a stand-alone value to the benefit received by Cayman.

We have a similar issue with the “value” ascribed to Woosh’s prior compliance efforts. There is no way for us to decipher between work done on 2.3 and work done on 2.5, nor to independently verify the costs incurred. To the extent any affiliate transactions were undertaken, or Cayman was making any commitments, these were all subject to prior review and approval by Everest. That process would have ensured Everest was informed of the expenditures, agreed to the allocations, and was on board with the payments. It would have also ensured that to the extent debt financing was not available all payments were funded on a pro rata basis, which itself would have helped validate the expenditures. This is what the agreements provide. None of this happened, and we now find ourselves dealing with a series of related party transactions that cannot, easily, be placed on an arms-length basis.

Given these factors, our only option is to stick with what’s provided for in our agreements. In the event of a sale, the proceeds will need to be distributed as provided in the agreements. Payments or allocations to CW [Craig Wireless] can be made only to the extent the payments / affiliated transactions are properly submitted for approval, and have been approved, by Everest as required. I don’t see an alternative. If the point here is to seek approval for a

$2 million allocation to CW for the Telecom deal, Everest cannot approve that allocation for the reasons mentioned above.

…

As you navigate through these affiliated / related party transactions, I would suggest that you counsel CW to be mindful not only of its contractual obligations but also of its fiduciary obligations as a partner in Cayman and, in the case of Boyd, a member of the company’s board of directors. These require a certain level of loyalty, care and transparency.

I’m happy to discuss when you have time. Best regards,

Peter

(Emphasis added)

[212]   Mr Deliso sent this email to Mr Birkland three days before Spark signed the NSA. The email suggests that Everest, perhaps reluctantly, was prepared to allow  Mr Craig and his companies to take the lead in ensuring that Cayman was able to meet its implementation obligations. However, it was not prepared to reimburse them for any costs incurred in doing so unless Mr Craig obtained Everest’s prior consent. Everest was also concerned to ensure that Cayman’s activities were separated to the extent possible from those of Craig Wireless and Woosh. More importantly, however, nothing in any of the emails from Mr Deliso suggested that Everest was prepared to allow Mr Craig to enter into any arrangement that involved the 2.5 spectrum.

[213]   It is not clear when Everest first became aware that Mr Craig had committed Cayman to the obligations imposed by the NSA. The first indication that Everest was unhappy with the arrangement Mr Craig had reached with Spark came in the following email that Mr Deliso sent to Mr Birkland on 8 December 2015:

Gary,

Unfortunately, I am not in a position to speak with you at the moment. The agreement that Boyd unilaterally entered into on behalf of Cayman, esp., as it relates to providing a 20% interest in the proceeds of any sale and a blanket right of first refusal, is a serious matter that Everest is still in the process of reviewing and deciding on next steps.

There is no question that Boyd did not, under any circumstances, have the right, power or authority to make these commitments. Moreover, given Craig’s insolvency (a matter admitted in its press release), Boyd is not even a director of the Cayman entity under our agreements and under Cayman’s articles of association as filed in the Cayman Islands. We’ve raised the insolvency issue in the past, and received no meaningful response.

…

I’m afraid this has led us to a serious juncture. Everest has already engaged counsel in New Zealand to advise on the matter, including possible correspondence with Spark. It has also engaged litigation counsel to pursue this matter in the US and Canada. The matter is, to a large extent, out of my hands at the moment while Everest’s litigation counsel prepares a response and takes action to enforce Everest’s rights.

I will let you know when I am liberty to speak, and will contact you at that time.

(Emphasis added)

[214]   The position may have been different if Mr Craig had negotiated the payment of a monetary fee to Spark as consideration for assisting Cayman to become compliant. In that event Everest may have been bound by the fact that it had left it to Mr Craig to ensure Cayman achieved compliance. Everest could also have required Craig Wireless to bear the cost of any such fee because Mr Craig failed to obtain Everest’s prior consent to the payment of the fee.

[215]   However, through the shareholders agreement and the articles of association Cayman’s shareholders and directors had agreed not to deal with the 2.5 spectrum without the consent of all parties. Everest’s representatives never suggested to Mr Craig that he was authorised to depart from this agreement in order to achieve compliance for the 2.5 spectrum. This means Everest did not clothe Mr Craig with the ability to claim that he had the authority to bind Cayman to arrangements of the type contained in the NSA. As a result, Mr Craig did not have apparent or ostensible authority to enter into the NSA on Cayman’s behalf. It follows that Spark is not able to enforce the terms of the NSA against Cayman.

[216]Spark’s first counterclaim fails as a result.

Quantum meruit

[217]   In the alternative, Spark seeks an award of compensation on a quantum meruit basis for the efforts that it made in establishing Cayman’s capability and then hosting its transmission services between 30 November 2015 and July 2016.

[218]In Morning Star (St Lukes Garden Apartments) Ltd v Canam Construction Ltd

the Court of Appeal observed:41

It is sufficient to say that there is general agreement that a plaintiff will be able to establish a quantum meruit claim where the defendant asks the plaintiff to provide certain services, or freely accepts services provided by the plaintiff, in circumstances where the defendant knows (or ought to know) that the plaintiff expects to be reimbursed for those services, irrespective of whether there is an actual benefit to the defendant.

41     Morning Star (St Lukes Garden Apartments Ltd v Canam Construction Ltd CA 90/05, 8 August 2006 at [50].

[219]   In the present case Mr Craig asked Spark to assist Cayman to become compliant in circumstances where he was fully aware Spark would be seeking some form of reward for its services. Mr Deliso also confirmed he would have been happy to pay a reasonable fee for Spark’s services. Spark then performed those services and continued to host Cayman’s transmission services for a further six months. In those circumstances I am satisfied that Spark  has  made  out  its  claim  based  on  quantum meruit.

Result

[220]Cayman’s claims against Spark are dismissed.

[221]   Spark’s counterclaim based on breach of contract is also dismissed. However, I enter judgment in Spark’s favour for liability on the cause of action based on quantum meruit. If the parties cannot reach agreement there will need to be a further hearing to determine the amount of the compensation Cayman is to pay Spark for its services. They should file a joint memorandum no later than 31 March 2024 to update the Court as to whether a further hearing will be required.

Costs

[222]   Spark has clearly been the successful party overall. It is therefore entitled to an award of costs in its favour. If the parties cannot reach agreement on costs they are to file and serve concise memoranda and I will determine costs on the papers.

Lang J