Directus South East Asia Limited v CNG International Limited
[2023] NZHC 1161
•16 May 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1286
[2023] NZHC 1161
BETWEEN DIRECTUS SOUTH EAST ASIA LIMITED
Plaintiff
AND
CNG INTERNATIONAL LIMITED
First Defendant
CHARLES JARED GEDDES BEATTIE
Second Defendant
Hearing: 14 March 2023 Appearances:
C R Andrews/M C Staines for the Plaintiff
Kenneth Sun for the First Defendant and Second Defendants
Judgment:
16 May 2023
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Application for summary judgment]
This judgment was delivered by me on 16 May 2023 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
McVeagh Fleming (C R Andrews/M C Staines), Auckland, for the Plaintiff
Capstone Law Limited (K Sun), Auckland, for the First and Second Defendants
DIRECTUS SOUTH EAST ASIA LIMITED v CNG INTERNATIONAL LIMITED [2023] NZHC 1161 [16 May 2023]
TABLE OF CONTENTS
Paragraph
Introduction [1]
Background [2]
DSEAL’s application for summary judgment [5]
Affidavit of Anthony Charles Beattie dated 26 July 2022 [7]
Defendants’ opposition [15]
Affidavit of Charles Jared Geddes Beattie dated 17 November 2022 [16] Reply affidavit of Anthony Charles Beattie dated 13 December 2022 [25] Second affidavit of Charles Jared Geddes Beattie dated 7 March 2023 [34]
Legal principles [37]
Analysis [40]
Full and final settlement [42]
Conclusion in respect of full and final settlement [52]
Mitigation of loss [54]
Conclusion in respect of mitigation of loss [64]
Dispute resolution clause [65]
Conclusion in respect of dispute resolution clause [73]
The quantum of the underlying debt has not been determined [75]
Conclusion in relation to quantum of the underlying debt has not been determined[83]
Unconscionable conduct [85] Conclusion in respect of unconscionable conduct
[91]
CNG and Charles hare arguable counterclaims
[94]
Conclusion in respect of restraint of deed
[100]
Result
[102]
Orders
[103]
Introduction
[1] Directus South East Asia Limited (DSEAL) seeks summary judgment against CNG International Limited (CNG) and Mr Charles Beattie (Charles).1
Background
[2] Mr Anthony Beattie (Anthony), the sole shareholder and director of DSEAL, and his son, Charles, had personal and business-related disputes in 2020. In resolution of them in May 2020, Anthony offered to sell DSEAL’s business of supplying and distributing fruit and vegetable ingredients to Southeast Asian companies in the beverage and canned food industries to Charles. This was to be an early inheritance in satisfaction of any present or future claims Charles may have against him or his late wife and their estates and trusts. Charles accepted and a written sale and purchase agreement was executed on 5 August 2020 (the sale agreement). Charles nominated his Hong Kong based company, CNG, as purchaser and settlement was effected on 18 December 2022.
[3] Prior to settlement, DSEAL had a contract with Directus USA Inc (DUSA) to supply to DSEAL products to on-sell. At settlement, DSEAL owed DUSA USD 688,977.37. The ultimate liability as to who owes this debt is disputed. DSEAL say CNG assumed liability for the debt and Charles guaranteed CNG’s performance of that obligation. CNG did in fact pay some of the debt leaving a balance of USD 227,365.67 remaining (the debt). DSEAL twice demanded that CNG and Charles pay the balance, but upon their refusal, DSEAL paid the balance to avoid legal actions by DUSA.
[4] DSEAL now claim they are entitled to be indemnified by the defendants in respect of the debt paid, costs in the sum of NZD 14,848.79 incurred prior to this proceeding, interest on these sums and costs in respect of this proceeding.
1 For convenience and clarity, and meaning no disrespect, given the commonality of names, I will generally refer to each family member by their given name.
DSEAL’s application for summary judgment
[5]DSEAL seeks orders:2
(a) Judgment in the sum of USD $227,365.67;
(b) Judgment in the sum of NZD $14,848.79;
(c) Interest on the aforesaid sums pursuant to section 10 of the Interest on Money Claims Act 2016 calculated from the date of the Statement of Claim to the date of judgment;
(d) Costs in respect of this proceeding, from date of commencement, on an indemnity basis pursuant to the Plaintiff's contractual entitlement, to be quantified at the hearing of this application.
(e) Interest on any judgment granted in favour of the Plaintiff, pursuant to section 10 of the Interest on Money Claims Act 2016 calculated from the date of judgment to the date of payment.
[6]The grounds on which the orders are sought are:3
2.1. The Defendants have no defence to the Plaintiff’s claim in this proceeding, in that:
(a)By an agreement for sale and purchase of a business dated 5 May 2020 ("the Sale Agreement"), the Plaintiff sold its supply and distribution business to the First Defendant;
(b)On 18 December 2020 ("the Settlement Date"), the First Defendant acquired the assets of the Plaintiff's business, which expressly included the business contracts, and the trade creditors and trade debtors as at the Settlement Date.
(c)Prior to the Settlement Date, the Plaintiff had a business contract with Directus USA Inc ("DUSA") in terms of which DUSA supplied products to the Plaintiff to on-sell to customers of the business.
(d)As at the Settlement Date, DUSA was a trade creditor of the business.
(e)The First Defendant failed to settle the entire debt owed to DUSA, leaving a balance owing to DUSA of USD $227,365.67.
(f)The Plaintiff has paid to DUSA the sum of USD $227,365.67 to settle the outstanding debt.
(g)Under the Sale Agreement, the First Defendant and the Second Defendant agreed to indemnify the Plaintiff against all costs, losses, claims, liabilities, proceedings, damages and expenses incurred and
2 Notice of interlocutory application by plaintiff for order for summary judgment dated 26 July 2022 at [1].
3 At [2].
any loss or damage suffered by the Plaintiff arising by reason of, or in connection with, the First Defendant's non-performance after the settlement date of any obligations under any of the business contracts;
(h)Accordingly, the Plaintiff is entitled to be indemnified by the First and Second Defendants for the loss it has suffered.
Affidavit of Anthony Charles Beattie dated 26 July 2022
[7] Anthony, the sole shareholder and director of DSEAL, has made an affidavit in support of DSEAL’s application for summary judgment.4 He deposes that he incorporated DSEAL in 1998 and owned and operated it until 2020. He further deposes that he agreed to transfer Charles DSEAL’s business of supplying and distributing fruit and vegetable ingredients to Southeast Asian companies in the beverage and canned food industries (the Business). Charles was the Business’ general manager at the relevant times.
[8] Regarding the Business’ sale, Anthony deposes that he commissioned a valuation (the valuation) of the Business which noted that there was a net negative position between the trade debtors and creditors of NZD 157,000. He confirms that on about 5 August 2020 he entered, on DSEAL’s behalf, into the sale agreement with Charles. Anthony says the agreement confirmed that:
(a)DSEAL would sell the Business to Charles and/or his nominee;
(b)Charles and/or his nominee would acquire the Business’ assets, expressly defined to include defined Business contracts and the trade creditors and debtors as identified in the valuation as at the settlement date, whether or not invoiced, due, or payable before that date;
(c)Charles and/or his nominee would assume all DSEAL’s obligations under the defined business contracts and in respect of trade debtors and creditors;
4 Affidavit of Anthony Charles Beattie in support of plaintiff's interlocutory application for summary judgment dated 26 July 2022.
(d)the quantum of the trade debtors less trade creditors at the settlement date would not exceed the deficit of the valuation (NZD 157,000);
(e)the parties would, as soon as possible following settlement, in good faith jointly calculate the quantum of trade debtors and creditors, and if no agreement could be reached within 20 working days, then either party could require the matter be referred to an independent expert for determination;
(f)Charles and/or his nominee as purchaser and Charles in his personal capacity as guarantor, would indemnify DSEAL against all costs, losses, claims, liabilities, proceedings, damages and expenses incurred and any loss or damage suffered by DSEAL arising by reason of, or in connection with, the purchaser's non-performance after the settlement date of any obligations under any of the business contracts.
[9] Anthony asserts that CNG and Charles were legally represented in the sale and that Charles nominated CNG as the purchaser on about 30 September 2020. The settlement then occurred on 18 December 2020.
[10] Regarding the deficit upon settlement, Anthony says that DSEAL’s financial controller sent Charles an email of trade debtors and creditors at the date of settlement. The deficit was between the agreed range at NZD 156,401.20 and included DUSA as a trade creditor. As the general manager of the Business, Charles was aware at the time of DSEAL’s verbal supply contract with DUSA and of the orders DSEAL placed between the date of the sale agreement and the settlement date. Anthony deposes that DUSA was owed USD 688,977.37 as at settlement for products supplied between August and December 2020.
[11] Anthony says that at no stage after settlement did DSEAL receive any notification from CNG that it disputed the deficit amount, or the debt owed to DUSA. In fact, following settlement CNG settled some of DUSA’s later November and December invoices, paying USD 461,635.19 and leaving outstanding USD 277,365.67 (from the earlier invoices). He notes his surprise at this non-payment
as CNG had obtained the benefit of the amounts collected from those who had subsequently purchased DUSA’s products from the Business.
[12] DSEAL’s lawyers, on Anthony’s instruction, demanded payment to which Charles responded that he could not pay at the moment due to cash flow issues. That email conversation ended with Charles saying he was talking with DUSA. In April 2022, Anthony knew Charles was in New Zealand and emailed him proposing mediation, to which Charles never responded.
[13] Subsequently, on about 30 May 2022, DUSA make a demand for the debt on DSEAL, CNG and Charles. DSEAL sent a demand to CNG and Charles invoking the indemnity under the sale agreement. CNG and Charles responded that they did not accept the quantum owed to DUSA was agreed prior to settlement and that CNG was reviewing the DUSA account and the deficit defined in the sale agreement. Anthony deposes that this was the first time CNG disputed DUSA’s invoice or the deficit. DSEAL again demanded the amount be paid to DUSA by 20 June 2022 invoking the indemnity clause. DSEAL’s position was that CNG could not dispute the deficit as the 20 working days had elapsed and CNG had already received the benefit of monies collected from the on-sale of DUSA’s products. CNG still failed to pay.
[14] To avoid legal action by DUSA against DSEAL, DSEAL paid the outstanding debt of NZD 227,365.67 and then commenced these proceedings. DSEAL has spent NZD 14,848.79 in legal fees prior to the proceeding and seeks summary judgment against CNG and Charles.
Defendants’ opposition
[15] Both CNG and Mr Charles Beattie oppose the application on the following grounds:5
Background
(a) Mr Anthony Beattie (Anthony) is the sole director and sole shareholder of the plaintiff.
5 Notice of opposition by the defendants to the plaintiff’s interlocutory application for summary judgment dated 26 July 2022 (dated 11 November 2022) at [1]–[3].
(b) The plaintiff used to carry on business as a supplier and distributor of fruit and vegetable ingredients to companies in and around the Southeast Asia region, primarily in the beverage and canned food industries (Business).
(c) Mr Charles Beattie (Charles) is the second defendant and the director of the first defendant.
(d) Anthony is Charles’ father.
(e) Anthony and Charles were involved various business and personal disputes with respect to the family’s estate.
(f) On 18 December 2020, Anthony and Charles entered into a settlement deed (Settlement Deed) under which:
(i) Anthony gifted the plaintiff’s Business to Charles; and
(ii)in exchange, Charles agreed to relinquish all of his entitlements in the family’s estate (including Charles’ removal as a beneficiary from Anthony’s family trusts); and
(iii)the parties agreed to the full and final settlement of all disputes between the parties (including all disputes between Charles and the plaintiff).
Sale and purchase of the plaintiff’s Business
(g) On 5 May 2020, the plaintiff and Charles entered into a sale and purchase agreement under which the plaintiff sold the Business to Charles for NZD$935,000 (SPA).
(h) In accordance with the terms of the Settlement Deed, the purchase price under the SPA was waived (i.e. the Business was gifted to Charles).
(i) Charles nominated the first defendant as the nominal purchaser under the SPA.
(j) Settlement of the gifting of the Business to the first defendant took place on 18 December 2020.
Claim by DUSA
(k) Directus USA Inc (DUSA) is a company owned and controlled by Anthony.
(l) To avoid doubt:
(i) DUSA is not a party to the Settlement Deed or the SPA; and
(ii)CNG and Charles do not have a contract with DUSA.
(m) DUSA, a trade creditor of the Business, alleges that the first defendant owes DUSA USD$227,365.67 (Amount).
(n) The plaintiff claims that it has paid the Amount on behalf of the first defendant and is seeking to be indemnified by the defendants.
(o) The relationship between DUSA and the plaintiff is not at an arm’s length.
First defence — full and final settlement
(p) Clause 34.3 of the SPA states that:
…the vendor and purchaser agree that the settlement of this Agreement shall fully and finally settle all disputes between Charles and Directus Asia Limited, and Charles and the vendor respectively.
(q) The plaintiff is the vendor under the SPA.
(r) The SPA was settled on 18 December 2020.
(s) Accordingly, all disputes between the plaintiff and Charles (and the first defendant as the nominated purchaser under the SPA) are fully and finally settled.
(t) Therefore, the plaintiff is barred from issuing this proceeding because all disputes between the plaintiff and the defendants (including this current dispute) are fully and finally settled.
(u) The intention of the Settlement Deed and the SPA is to settle all disputes between the plaintiff and the defendants by:
(i) Charles agreeing to give up all of his entitlements in the family’s estate; and
(ii)the plaintiff agreeing to gift its Business to Charles,
(v) The plaintiff is now seeking more than NZD$450,000 from the defendants, which is in breach of the Settlement Deed.
(w) Charles never agreed to give up his entitlement in the family’s estate whilst remaining liable to pay an additional NZD$450,000 (or more) to the plaintiff.
(x) The terms of the SPA cannot be interpreted without considering the terms of Settlement Deed. Judgment cannot be entered solely based on the terms of the SPA.
(y) Discovery is necessary to ascertain evidence surrounding the parties’ negotiations with respect to the Settlement Deed and SPA.
Second defence — no mitigation of loss by DSEAL
(z) DSEAL claims that it has paid the Amount on behalf of CNG to DUSA on 19 July 2022.
(aa)CNG did not authorise DSEAL to pay the Amount to DUSA. (bb) DUSA did not commence proceedings against DSEAL.
(cc)After DSEAL gifted the Business to CNG (and Charles), DSEAL became a shell company with no assets. Therefore, DSEAL should have entered liquidation to defeat any proceedings by DUSA.
(dd) Therefore, DSEAL did not mitigate its loss by:
(i) challenging the Amount demanded by DUSA;
(ii)refusing to pay the Amount to DUSA; or
(iii)entering into liquidation to avoid the payment of the Amount to DUSA.
Third defence — dispute resolution process
(ee)Clause 31.1 of the SPA states that:
(i) the parties must attend at least one meeting to attempt to resolve the dispute by negotiation in good faith;
(ii)if the dispute cannot be resolved at the meeting, then the parties must refer the dispute to a jointly appointed mediator;
(iii)if the parties are unable to agree on the appointment of a mediator, then a mediator must be appointed by the Resolution Institute New Zealand Inc; and
(iv)the parties are not permitted to issue proceedings unless the dispute resolution process has been followed.
(ff) The parties have not attended at least one meeting to resolve the dispute by negotiation.
(gg) Further, no mediator has been appointed in accordance with the mechanism set out in clause 31.1 of the SPA.
(hh) Therefore, the plaintiff is barred from issuing this proceeding pursuant to clause 31.1 of the SPA.
Fourth defence — valuation process
(ii) Clause 22.2 of the SPA states that:
The quantum of the Trade Debtors less the quantum of the Trade Creditors as at the settlement date (“Deficit”) shall not exceed a deficit of NZD157,000 (consistent with the Valuation).
(jj) The defendants assert that the Deficit is much greater than NZD$157,000. (kk) Further, the defendants assert that the value of products received from
DUSA does not match the corresponding value of the Amount. (ll) Clause 22.7 of the SPA further states that:
If the parties are unable to agree on the Deficit within 20 Working days of settlement, then either party may require that the matter be referred to a third party independent expert for determination, who will act as an expert and not as an arbitrator and whose decision will be final and binding on the parties (save in the event of manifest error). The independent expert must be appointed by both parties, and if they cannot agree on such
appointment within a further period of 7 Working Days after a party originally required the referral to be made, then the independent expert shall be appointed by the President for the time being of the New Zealand Law Society. The costs of the independent expert are to be borne by the parties equally.
(mm) Pursuant to the mechanism set out in clause 22.7, the defendants wish to refer the valuation of the Deficit to a third party independent expert.
(nn) The parties have not yet agreed on the selection and appointment of the independent expert.
(oo) Since the Deficit valuation mechanism set out in clause 22.7 has not been completed, the plaintiff is unable to assert that the defendants are liable to pay any Trade Creditors (because the quantum is still under dispute).
(pp) Trial is required:
(i) to discover evidence surrounding the value of products supplied by DUSA with respect to the Amount; and
(ii)for an expert witness to determine the final valuation of the Deficit.
Fifth defence — Unconscionable conduct
(qq) Section 7 of the Fair Trading Act 1986 (FTA) provides that the plaintiff must not, in trade, engage in conduct that is unconscionable.
(rr) Section 8(1) of the FTA provides the Court may have regard to 1 or more of the following when assessing whether the plaintiff’s conduct was unconscionable:
(i) the relative bargaining power of the person engaging in the conduct (the trader) and any person (whether or not an identified individual) who is disadvantaged, or likely to be disadvantaged, by the conduct (an affected person):
(ii)the extent to which the trader and an affected person acted in good faith:
(iii)whether, taking account of the particular characteristics and circumstances of an affected person, the affected person or the affected person’s representative was reasonably able to protect the affected person’s interests:
(iv)whether an affected person was able to understand any documents provided by the trader:
(v)whether the trader subjected an affected person to unfair pressure or tactics or otherwise unduly influenced an affected person:
(vi)whether the trader unreasonably failed to disclose to an affected person—
(aa) any intended conduct of the trader that might adversely affect the affected person’s interests:
(bb) any risk to the affected person’s interests arising from the trader’s intended conduct, if the trader should have foreseen that the risk would not be apparent to the affected person:
(vii)if there is a contract to which the conduct relates, anything listed in subsection (2):
(viii)any other circumstance that the court considers relevant.
(ss) Section 8(2) of the FTA provides if the conduct involves a contract, the court may also have regard to:
(i) the relative bargaining power of the person engaging in the conduct (the trader) and any person (whether or not an identified individual) who is disadvantaged, or likely to be disadvantaged, by the conduct (an affected person):
(ii)the circumstances in which the contract was entered into, including—
(aa) any inducement to enter into it:
(bb) the extent to which the affected person had an effective opportunity to negotiate the terms:
(iii)whether the affected person obtained independent legal advice, or other independent professional advice, about the contract before entering into it:
(iv)the terms of the contract:
(v)the form of the contract, including, in the case of a written contract, whether its terms are transparent:
(vi)whether the terms of the contract allow the affected person to be reasonably able to meet their obligations under it:
(vii)whether the affected person’s obligations under the contract are reasonably necessary for the protection of the trader’s legitimate interests:
(viii)the conduct of the trader and affected person in complying with the terms of the contract:
(ix)the length of time the affected person has to remedy any breach:
(x)whether any action by the trader in relation to enforcement of the contract was lawful:
(xi)any other conduct of the trader or affected person, after the contract was entered into, in connection with their relationship.
(tt) In general, the defendants assert that the plaintiff’s conduct in seeking an additional NZD450,000 (or more) from the defendants is unconscionable because:
(i) Charles agreed to relinquish all of his entitlements in the family’s estate in exchange for receiving the Business as a gift from the plaintiff;
(ii)it is contrary to the parties intentions for the plaintiff to now seek approximately half a million NZD from Charles; and
(iii)if Charles is required to pay approximately half a million NZD to the plaintiff, then it would be grossly unjust for Charles to relinquish his entitlement in the family’s estate.
(uu) In particular, the plaintiff’s conduct is unconscionable because:
(i) the plaintiff has not acted in good faith to allege Charles is required to pay approximately half a million NZD in addition to relinquishing his share in the family’s estate;
(ii)the defendant was under unfair pressure when the Settlement Deed and the SPA was entered into;
(iii)when the Settlement Deed was entered into, the plaintiff did not disclose its intention to attempt to seek approximately half a million NZD from Charles after settlement (which is contrary to Charles’ intention when he agreed to relinquish his entitlement in the family’s estate);
(iv)the terms of the SPA are not transparent because it did not expressly state that Charles may be liable to pay an additional half a million NZD to the plaintiff; and
(v)DUSA is not a party to the Settlement Deed or the SPA. Since the relationship between the plaintiff and DUSA is not at an arm’s length, it is unjust and unlawful for the plaintiff to issue proceedings under the SPA against the defendant on behalf of DUSA.
(vv) In summary, it is arguable that the plaintiff has acted unconscionably in breach of s 7 of the FTA. Accordingly, the SPA can be voided pursuant to s 43 of the FTA.
Defendants have arguable defences
(ww) It is well established that summary judgments are only granted if the plaintiff satisfies the Court that the defendants have no defence to the plaintiff’s cause of action set out in the statement of claim.
(xx) As set out in paragraphs 3(p) - 3(vv), the defendants have five arguable defences to the applicant’s cause of action.
(yy) Therefore, an order by way of summary judgment must not be granted because there are real questions to be tried.
Affidavit of Charles Jared Geddes Beattie dated 17 November 2022
[16] Charles, the sole shareholder and director of CNG, has made an affidavit in support of both defendants’ opposition to summary judgment.6
[17] Charles acknowledged that Anthony and he entered into a settlement deed on 18 December 2020 under which:
(a)Anthony gifted the Business to him;
(b)in exchange for him agreeing to relinquish all his entitlement in the family’s estate, which included his removal as a beneficiary of Anthony’s family trusts; and
(c)He and Anthony agreed to the full and final settlement of all disputes between them, including disputes between DSEAL and Charles.
[18] Charles acknowledges the valuation, that he entered into a written sale and purchase agreement on 5 May 2020, nominated CNG as the nominal purchaser, and entered into the settlement deed on 18 December 2020, which waived the purchase price of the sale agreement. He asserts that this means the Business was gifted to CNG.
[19] Regarding the DUSA debt, he notes that DUSA is not a party to the sale agreement nor settlement deed and that he and CNG do not have a contract with DUSA. He accepts that DSEAL claims the value of the products invoiced for between August and December 2020, but claims CNG’s stocktake made him realise the products received from DUSA did not match the invoice values.
[20] Charles acknowledges the demands from DUSA and DSEAL of 30 May 2022, 3 June 2022 and 17 June 2022. He discovered these proceedings were issued on 5 July 2022 and deposes that from 5 September 2022 to 31 October 2022 CNG and
6 Affidavit of Charles Jared Geddes Beattie dated 17 November 2022 (re-sworn 23 March 2023).
DSEAL have attempted to resolve the dispute out of court, but have been unable to reach agreement.
[21] Regarding mitigation of loss by DSEAL, Charles deposes he was unaware DSEAL was intending to pay DUSA and that DUSA never commenced proceedings against DSEAL. He further deposes that post sale DSEAL became a shell company and could have entered liquidation to avoid paying the debt. DSEAL could have mitigated its loss by refusing to pay, challenging the amount, or entering liquidation.
[22] Regarding full and final settlement, Charles deposes that it was his understanding that the settlement deed and sale agreement meant he gave up all his entitlement in the family estate, DSEAL agreed to gift the Business to him and all disputes between him, CNG and DSEAL were fully and finally settled in accordance with cl 34.3 of the sale agreement. He asserts that he never agreed to give up his entitlement in the family’s estate while remaining liable for at least NZD 450,000 and he was never told by DSEAL about this liability.
[23] Regarding dispute resolution, Charles points to cl 31.1 of the sale agreement, which requires that parties must at least attend one meeting to attempt to resolve the dispute by negotiation otherwise the dispute must be referred to mediation. He deposes that he, DSEAL and CNG have not attended at least one meeting nor has a mediator been appointed.
[24] Regarding valuation, Charles notes that despite the valuation CNG has not in fact received the full Business’ trade debtors amount of NZD 1,405,455.45 nor all the products set out in the invoices from DUSA. He deposes that the deficit between debtors and creditors is much larger than the NZD 157,000 maximum under the sale agreement. He notes that the sale agreement at cl 22.7 involves a dispute process by referral to independent expert for this deficit. As no independent expert has been selected nor appointed, he determines that the deficit is inconclusive and that he wishes to exercise this right under cl 22.7.
Reply affidavit of Anthony Charles Beattie dated 13 December 2022
[25] Anthony has made an affidavit in reply to Charles’ affidavit.7 He deposes that there was no dispute over CNG and Charles’ purchase of DSEAL’s Business, but there was a dispute over Charles’ misconduct while general manager of DSEAL’s Business and the family estate, which led ultimately to the settlement deed being entered into.
[26] Regarding the Business being gifted and the purchase price being waived, Anthony disputes this. He deposes that the settlement deed at cl 2 and the sale agreement at cl 26.1 records that the Business was transferred for consideration which Charles provided by relinquishing any claim to Anthony or his late wife’s estates.
[27] Regarding full and final settlement, Anthony deposes that the settlement deed was a full and final settlement of the previous disputes mentioned above, but this current dispute, which arose post-settlement, has arisen as a result of CNG and Charles’ election not to perform their obligations under the sale agreement.
[28] Regarding CNG’s relationship with DUSA, Anthony disputes that CNG and DUSA do not have a contract. He annexes a contract from 18 December 2020 between CNG and DUSA under which CNG and Charles continue to place orders for products from DUSA.
[29] Regarding the demands, Anthony makes clear that DUSA’s demand was issued to DSEAL, CNG and Charles personally and that DSEAL’s demand was made to Charles personally alongside CNG.
[30] Regarding Charles being unaware DSEAL intended to pay DUSA, Anthony points to a letter by Charles’ lawyer dated 13 June 2022 in which they sought confirmation that DSEAL had paid DUSA or of when such payment would otherwise be made.
7 Affidavit of Anthony Charles Beattie in reply to affidavit of Charles Jared Geddes Beattie dated 17 November 2022 (dated 13 December 2022).
[31] Regarding DSEAL becoming a shell company after sale of the Business, Anthony deposes that DSEAL still operates and has a current project with some pineapple processors regarding an Italian peeling system.
[32] Regarding dispute resolution, Anthony deposes that the only reason CNG and Charles have not attended at least one meeting with DSEAL to resolve the dispute by negotiation was Charles’ avoidance. He points to two emails from April 2022 in which Anthony sought to attend mediation with Charles and even proposed a mediator and some dates, to which Charles did not respond. Anthony’s lawyers also pointed this out to Charles in the 3 June 2022 demand sent to him. Anthony says that the first time Charles has suggested mediation is in his opposition affidavit, which is almost two years after the dispute arose and well after DSEAL commenced proceedings.
[33] Regarding valuation, Anthony points to the plain text 20 working day requirement in cl 22.7 of the sale agreement. This time period had well elapsed by the time 18 months later when Charles first raised a dispute over the deficit. Anthony again notes that Charles was legally represented throughout the transaction and was also the general manager of the Business leading up to the sale transaction and settlement date.
Second affidavit of Charles Jared Geddes Beattie dated 7 March 2023
[34] Charles has made a brief further affidavit with two points in support of his opposition.8
[35] First, he acknowledges and attached the supply agreement between DUSA and CNG dated 18 December 2020, and which Anthony raised in his reply affidavit.
[36] Second, he deposes that DSEAL, CNG and Anthony are parties to a deed of covenant in restraint of trade and non-solicitation dated 18 December 2020 (the restraint deed). Charles deposes that on 7 February 2023 the defendants sent a without prejudiced settlement offer to DSEAL, which was not accepted. Based on the content of that offer, Charles alleged that on about 16 February 2023 Anthony
8 Second affidavit of Charles Jared Geddes Beattie dated 7 March 2023 (re-sworn 23 March 2023).
instructed DUSA to contact Taiwan Green Nation Corp and Green Nation International LLC (together Green Nation), who are major CNG customers. Charles alleges that DUSA was attempting to solicit Green Nation’s business by supplying and invoicing them directly. He deposes that this is the first step to removing CNG as the middleman and that DSEAL and Anthony’s actions could cause irreparable damage to the commercial relationship between CNG and Green Nation. He concludes that Anthony and DSEAL breached the restraints deed by instructing DUSA to solicit CNG’s customers. He attaches a lawyer’s letter in support of the affidavit.
Legal principles
[37]Rule 12.2(1) of the High Court Rules 2016 provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[38] The relevant principles governing a summary judgment application are well established:9
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart. The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent or is inherently improbable: Eng Mee Yong v Letchumanan. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel.
9 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26] (citations omitted).
[39]The wording of r 12.2 “may give judgment” indicates a residual discretion.
Having regard to the various authorities, the position appears to be as follows:10
(a)The discretion implied by the use of the word “may” is to be restrictively applied. In a great majority of cases, once the court is satisfied the defendant has no defence, there is no room for the exercise of discretion.
(b)The residual discretion may be invoked to avoid oppression or injustice to the defendant where:
(i)The proceeding involves the actions or possible liability of a third party which is not before the court;
(ii)The proceedings are such that the opportunity should be given to allow discovery or other interlocutory applications to be concluded;
(iii)The circumstances of the case disclose very unusual features, the presence of which leads the court to conclude that the entry of summary judgment would be oppressive or unjust; or
(iv)The combination of complex issues of fact and law justify the dismissal of the application for summary judgment, either as a matter of discretion or because the court cannot be satisfied that the defendant has no defence.
(c)Even where the court is not satisfied that a defence has been made out, in exceptional circumstances the application may be adjourned to allow for other processes to be followed.
Analysis
[40] CNG and Charles have advanced six defences to DSEAL’s application for summary judgment:
(a)There was a full and final settlement between the parties which precludes DSEAL from bringing this claim against CNG and Charles;
(b)DSEAL did not mitigate its loss in respect of the debt;
(c)DSEAL is barred from bringing this claim by reason of a dispute resolution clause contained in the sale agreement;
10 Andrew Beck and others (eds) McGechan on Procedure (online ed, Thomson Reuters) at [HR12.2.11].
(d)The deficit between the value of the trade debtors and the value of the trade creditors of the Business, as provided for in the sale agreement, is disputed by CNG and is yet to be determined;
(e)DSEAL has engaged in conduct that is unconscionable;
(f)CNG and Charles have a counterclaim against DSEAL and Anthony for breach of a restraint deed.
[41] The approach taken in this judgment is to consider each of the six defences put forward by CNG and Charles in turn, to determine if any of the defences justify declining DSEAL’s application for summary judgment.
Full and final settlement
[42] Mr Kenneth Sun, for CNG and Charles, refers to cl 26.1 of the sale agreement which states that:
26.1 The purchase price is the fair value of the Business (as determined by independent valuation) and is to be credited as fully paid by the Purchaser on the Settlement Date in consideration of Charles agreeing to full and final settlement of all claims between him and the vendor, Directus Asia Limited, and for the entry into and performance by Charles of the settlement deed referred to in clause 21.4(a).
[43] Mr Sun submits that as the sale agreement was settled on 18 December 2020, under cl 26.1 full and final settlement took place on the settlement date. Accordingly, all disputes between DSEAL and Charles (and CNG as nominated purchaser under the sale agreement) are fully and finally settled. He submits DSEAL is barred from issuing this proceeding because all disputes between DSEAL, and CNG and Charles (including this current dispute) are fully and finally settled.
[44] Mr Sun submits the intention of the settlement deed and the sale agreement is to settle all disputes between DSEAL, and CNG and Charles by:
(a)Charles agreeing to give up all his entitlements in the family’s estate; and
(b)DSEAL agreeing to “gift” the Business to Charles (that is, Charles does not need to pay the NZD 935,000 purchase price in the sale agreement).
[45] Mr Sun submits that DSEAL is now seeking more than NZD 450,000 from CNG and Charles, which is in breach of the settlement deed, and Charles would never have agreed to give up his entitlement in the family’s estate whilst remaining liable to pay an additional NZD 450,000 to DSEAL.
[46] As to the point that CNG is not a party to the sale agreement, Mr Sun submits that it was always the parties’ intention that Charles would nominate CNG to settle the purchase and it is therefore disingenuous for DSEAL to claim that CNG is not a party to the sale agreement and it is trying to re-litigate a settled matter.
[47]Mr Sun submits therefore a trial is required to:
(a)obtain discovery to establish the background matrix of facts to determine the parties’ intention when entering into the sale agreement and the settlement deed;
(b)determine whether the parties had intended to include CNG as a party to the full and final settlement of the dispute.
Accordingly, Mr Sun argues that CNG and Charles have a credible arguable defence that all disputes between the parties have been fully and finally settled.
[48] Mr Andrews for DSEAL, on the other hand, submits that CNG is not a party to the sale agreement and accordingly the sale agreement does not provide for any full and final settlement of any dispute between DSEAL and CNG.
[49] Mr Andrews points to the settlement deed entered into on 18 December 2020, under which Charles and Mr and Mrs Beattie agreed:
(a)in settlement of the disputes that had arisen between them, Mr and Mrs Beattie would procure DSEAL’s entry into the sale agreement and
Charles would perform, or procure performance by his nominee, of the obligations under the sale agreement;
(b)as consideration for a settlement of the sale under the sale agreement, Charles agreed to relinquish any claim to the property or estates of Mr and Mrs Beattie or their trust.
[50] As for the sale agreement, Mr Andrews submits that as CNG is not a party to the settlement deed, it is therefore not captured by the full and final settlement provisions of the settlement deed.
[51] Mr Andrews further submits that in any event the interpretation of the provisions of the sale agreement and the settlement deed put forward by CNG and Charles is inconsistent with the terms of the sale agreement, for instance:
(a)the dispute resolution clause in the sale agreement would be entirely redundant if there was full and final settlement of all possible disputes between the parties including those arising from the sale agreement itself;
(b)there would be no purpose to the indemnity clause in the sale agreement, which expressly contemplates and covers losses arising from claims or proceedings for CNG’s non-performance of the business contracts;
(c)if CNG and Charles’ interpretation of the relevant provisions was adopted then, in effect either contracting party would have been entitled to breach the sale agreement in perpetuity without the other party ever being entitled to sue for that breach, and that interpretation is illogical, circular and commercially unsound.
Conclusion in respect of full and final settlement
[52] In my view, the argument that DSEAL’s claim against CNG and Charles is prevented by the full and final settlement clauses in the sale agreement and the
settlement deed is not sustainable and does not provide a basis for a defence to DSEAL’s application for summary judgment. In my view, Mr Andrew’s submissions as to the effect of the full and final settlement clauses in the sale agreement and settlement deed are correct in that these clauses cannot apply to disputes that arise under the terms of the sale agreement itself. He is correct in his contention that if that were the case it would be a commercially unsound outcome if any disputes as to implementation of the terms of the sale agreement were covered by the full and final settlement clause and could not be dealt with.
[53] As to the point that Mr Andrews makes that CNG is not a party to the sale agreement or the settlement deed, I do not place much weight on this argument. In my view Mr Sun’s contention that the parties always contemplated that Charles would nominate his company as purchaser under the sale agreement, and therefore CNG is impliedly bound by, and entitled to the benefit of, the terms of the sale agreement is the stronger argument.
Mitigation of loss
[54] Mr Sun submits that DUSA and CNG are parties to a supply agreement dated 18 December 2020 (the supply agreement). He submits therefore that if DUSA had a dispute with CNG, then DUSA should have issued proceedings under the supply agreement against CNG.
[55] Mr Sun submits that CNG did not authorise DSEAL to settle the debt with DUSA on 19 July 2022, and that DUSA did not commence proceedings against DSEAL. He submits, therefore, that DSEAL did not mitigate its loss by challenging or refusing to pay the debt or entering into liquidation to avoid payment of the debt. He submits that after DSEAL transferred the Business to CNG, DSEAL became a shell company with no assets and no revenue. Accordingly, if DUSA sought payment from DSEAL, the director of DSEAL could argue it would be in breach of his duty to act in the best interests of DSEAL by continuing to trade, despite not having any revenue to pay the debt and accordingly DSEAL should have entered into liquidation to defeat any proceedings by DUSA.
[56]Mr Sun therefore submits that a trial is required to:
(a)obtain discovery to determine whether DSEAL was a shell company with no revenue;
(b)determine whether it was in the best interests of DSEAL to liquidate when faced with a claim from DUSA;
(c)whether DSEAL had adequately mitigated its losses by choosing to pay DUSA (without DUSA taking any enforcement action) and to litigate on its behalf.
[57] Mr Sun, in his written submissions, also raised a further defence under cl 27.1(g)(ii) of the sale agreement, in that DSEAL had warranted that the contracts between DSEAL and DUSA are at arm’s length, but the fact that DSEAL was helping DUSA with its claim against CNG and Charles proves that their relationship is not at arm’s length and accordingly there is an arguable defence that DSEAL has breached its warranty. However, this defence was abandoned by Mr Sun at the hearing as the sale agreement contains a 12 month limitation on the ability of CNG/Charles to bring claims for breach of warranty and the 12 months had long since expired. Therefore, a warranty claim was not possible and could not be used as a potential ground for defence.
[58] Mr Andrews, on the other hand, submits that DSEAL sues on an express indemnity of the sale agreement and the contractual obligation imposed by cl 25.4 of the sale agreement is explicit in that it is an undertaking by CNG and Charles to indemnify DSEAL against all costs, losses, claims, liabilities, proceedings, damages and expenses (Losses) suffered by DSEAL arising by reason of or in connection with CNG’s non-performance after the settlement date of any obligations under the business contracts. He submits the obligation is unqualified and is not expressed to be conditional on proof of loss arising to DSEAL or acceptance of loss by CNG and Charles. He submits that on an ordinary reading of the clause, DSEAL’s right of action accrued as soon as any Losses were incurred by DSEAL or arose in relation to CNG’s non-performance under the sale agreement, and this is so whether or not the debt was
enforceable by DUSA against DSEAL. Mr Andrews relies on a passage from Laws of New Zealand.11
[59] Mr Andrews submits that DSEAL was entitled to invoke the indemnity as soon as liability for the debt arose, whether or not it had settled the debt,12 and was not required by the sale agreement or in law to obtain authorisation from CNG or Charles to pay the debt.
[60] As to the allegation DSEAL or its director should have purposely avoided its creditors and thereby acted contrary to the Companies Act 1993, Mr Andrews submits this is not a sustainable argument as DSEAL continues to trade and is not a shell company with no assets as alleged by CNG and Charles. Mr Andrews submits that even if DSEAL did not have any assets, it is well settled that, unless the terms of the contract require otherwise, an indemnifier can be called on to pay where the indemnitee has no assets against which a third party could enforce its judgment or claim. In this respect, Mr Andrews relies on the decision in Beecher v Mills.13
[61] Mr Andrews submits that to the extent that any duty rested on DSEAL to mitigate its loss or any loss to CNG and Charles, DSEAL did so by paying the debt. He submits that CNG and Charles have, up until this proceeding, had an expectation that DSEAL or its shareholder should make the payment to DUSA for the debt and points to the following as evidence of this:
(a)on 19 March 2021, Charles told Anthony to “use your other money” […] to pay back DUSA;
(b)in a letter dated 13 June 2022, CNG and Charles’ lawyers requested confirmation from DSEAL’s lawyers as to whether DSEAL had paid the debt and, if not, when payment would be made. That position is inconsistent with the position now advanced for CNG and Charles.
11 A Forbes and S Lennon Laws of New Zealand Guarantees and Indemnities at [256].
12 Mr Andrews relies on the passage from Laws of New Zealand, above n 11.
13 Beecher v Mills [1993] MCLR 19 (CA) at 24 and 25.
[62] Mr Andrews further submits that by the date the debt had been paid to DUSA (some two years after the debt arose) interest had not been levied on the debt, nor had proceedings been instituted by DUSA. He submits that had DSEAL waited further and allowed the debt to remain unpaid, it ran the risk of incurring interest and legal costs (as threatened by DUSA) which would ultimately be passed on to CNG and Charles in accordance with the indemnity. Accordingly, even if DSEAL was obliged to mitigate its loss, it did so by paying the debt to DUSA.
[63] Mr Andrews submits the alleged defence relating to failure by DSEAL to mitigate the loss is not arguable.
Conclusion in respect of mitigation of loss
[64] In my view, CNG and Charles’ argument that DSEAL failed to mitigate its loss does not provide an arguable defence to the application for summary judgment. The reasons for this are:
(a)I accept Mr Andrews’ submission that the express terms of the indemnity allowed DSEAL to call on CNG and Charles for payment as soon as CNG failed to perform its obligation under the business contracts to pay the debt to DUSA. That is the nature of the unconditional indemnity contained in the sale agreement and the liability of the indemnifier arises as soon as a claim or loss covered by the indemnity is incurred by the indemnitee.
(b)I also accept Mr Andrews’ submission that if there was any obligation to mitigate imposed on DSEAL, it did so by paying the debt before interest accrued and further proceedings were issued by DUSA to recover the debt. The evidence also suggests that CNG and Charles at least impliedly acknowledged payment was being made by DSEAL to DUSA of the debt without protest.
Dispute resolution clause
[65]Mr Sun submits cl 31.1 of the sale agreement states that:
(a)the parties must attend at least one meeting to attempt to resolve the dispute by negotiation and in good faith;
(b)if the dispute cannot be resolved at the meeting, then the parties must refer the dispute to a jointly appointed mediator;
(c)if the parties are unable to agree on the appointment of a mediator, then a mediator must be appointed by the Resolution Institute of New Zealand Inc; and
(d)the parties are not permitted to issue proceedings unless the dispute resolution process has been followed.
[66] Mr Sun submits that the parties have not attended at least one meeting to resolve the dispute by negotiation, no mediator has been appointed in accordance with the mechanism set out in cl 31.1 (and in particular, no mediator has been appointed by the Resolution Institute of New Zealand Inc). Mr Sun submits that cl 31.1 clearly states that the parties are prohibited from issuing proceedings.
[67] Mr Andrews, on the other hand, submits that essentially CNG and Charles are relying on the Court’s powers pursuant to r 15.1 of the High Court Rules 2016, or its inherent jurisdiction, to stay or dismiss the proceeding as an abuse of process. Mr Andrews refers to Waterco (NZ) Ltd v Simpson where Associate Judge Faire summarised the matters that provided a basis for the Court’s determination of what might justify a stay based on abuse of process.14 Mr Andrews sets out those factors at
[39] of his submissions, and then submits that CNG and Charles bear a heavy onus of proving the alleged abuse of process and have not discharged that onus.
[68] Mr Andrews submits that DSEAL had attempted to undertake mediation and CNG and Charles ignored that request and therefore the effect of cl 31.1 is spent. He points to the following attempts by DSEAL to arrange mediation:
14 Waterco (NZ) Ltd v Simpson [2012] NZHC 2361 at [43].
(a)prior to filing the proceeding, various pieces of correspondence were exchanged in terms of which DSEAL called upon CNG and Charles to discuss and make good the debt;
(b)Anthony wrote to Charles on two separate occasions (25 April and 29 April 2022) proposing a meeting and mediation, and in the latter of two emails Anthony specifically referred to the contractual requirement to attend mediation. He referred to the debt and proposed a particular mediator and possible dates for mediation. These requests were ignored by CNG and Charles;
(c)a further mention of proposed mediation was made in DSEAL’s lawyer’s letter of demand to the defendants, dated 3 June 2022 — this again was ignored by CNG and Charles;
(d)the first time CNG and Charles indicated a willingness to attend a mediation meeting was in their opposition documents filed in this proceeding. It was open to CNG and Charles to take up DSEAL’s offer to mediate, or offer their own mediation, before the proceedings were filed, but they have not done so and it is now too late for mediation.
[69] Mr Andrews submits there have been prolonged and extensive attempts at mediation over a period of years and CNG and Charles have repeatedly ignored mediation requests, and this weighs against the exercise of the Court’s discretion to stay the proceedings pending the parties undertaking a mediation.
[70] Mr Andrews submits arguably, CNG and Charles have submitted to the jurisdiction of the Court by filing a notice of opposition and supporting affidavits addressing the merits of DSEAL’s claim, which also weighs against the exercise of the Court’s discretion to stay the proceedings.
[71] As a further argument, Mr Andrews submits CNG and Charles have waived their entitlement to rely on cl 31.1 or are estopped from doing so, for the following reasons:
(a)after fair warning, DSEAL filed this proceeding relying on CNG and Charles’ inaction in relation to the dispute. DSEAL has incurred considerable cost and time in doing so;
(b)when faced with DSEAL’s request to follow the contractual dispute resolution process, and the subsequent warning of summary judgment proceedings, CNG and Charles would be expected to have taken active steps to exercise the contractual rights under cl 31.1. Their inaction in the face of such an expectation precede, and indeed caused, DSEAL to depart from the terms of the sale agreement inasmuch as DSEAL then moved beyond the sequence of contractual dispute resolution steps, and has incurred considerable cost in doing so;
(i)justice therefore demands that CNG and Charles not be entitled to resile from that position;
(ii)there was plainly a dispute between the parties when CNG refused to pay the debt and that was the time for CNG and Charles to invoke cl 31.1 if they held a bona fide intention to rely on the clause.
[72] Mr Andrews submits that the third defence put forward by CNG and Charles is inarguable.
Conclusion in respect of the dispute resolution clause
[73] I am of the view that CNG and Charles can no longer rely on the dispute resolution clause and cl 31.1 of the sale agreement as a basis to stay DSEAL’s summary judgment application. I accept Mr Andrews’ submissions that by refusing to engage in respect of the mediation process when requested on a number of occasions to do so by DSEAL, and DSEAL having then altered its position in reliance on that conduct, CNG and Charles have either waived or are estopped from seeking to engage in mediation as a basis to stay the proceedings.
[74] Accordingly, I am of the view that the third defence raised by CNG and Charles is not an arguable defence to the application for summary judgment.
The quantum of the underlying debt has not been determined
[75]Mr Sun submits that cl 22.2 of the sale agreement states that:
The quantum of the Trade Debtors less the quantum of the Trade Creditors as at the settlement date (“Deficit”) shall not exceed a Deficit of NZD157,000 (consistent with the Valuation).
Mr Sun submits that CNG and Charles assert that the Deficit is much greater than NZD 157,000 and the value of products received from DUSA do not match the corresponding value of debt.
[76]Mr Sun refers to cl 22.7 of the sale agreement which states that:
22.7 If the parties are unable to agree on the Deficit within 20 Working Days of settlement, then either party may require that the matter be referred to a third party independent expert for determination, who will act as an expert and not as an arbitrator and whose decision will be final and binding on the parties (save in the event of manifest error). The independent expert must be appointed by both parties, and if they cannot agree on such appointment within a further period of 7 Working Days after a party originally required the referral to be made, then the independent expert shall be appointed by the President for the time being of the New Zealand Law Society. The costs of the independent expert are to be borne by the parties equally.
[77] Mr Sun submits that CNG and Charles, pursuant to the mechanism set out cl 22.7 of the sale agreement, wish to refer the valuation of the Deficit to a third party or independent expert. He submits as the parties have not yet agreed on the selection of an independent expert, and the Deficit valuation mechanism in cl 22.7 has not been completed, DSEAL is unable to assert that CNG and Charles are liable to pay any trade creditors (because the quantum is still under dispute) and cl 22.7 does not prevent CNG and Charles from referring the matter to an independent expert now.
[78] Dealing with DSEAL’s assertion that CNG and Charles have impliedly agreed the Deficit, Mr Sun submits that if DSEAL is attempting to rely on implied terms then CNG and Charles should be given the opportunity to be heard at trial regarding
whether or not the implied terms existed and it can be argued that CNG’s refusal to pay the debt means that the Deficit is disputed.
[79]Mr Sun submits therefore a trial is required:
(a)for an expert witness to determine the valuation of the Deficits;
(b)to determine whether or not CNG and Charles have impliedly accepted the Deficit.
[80] Mr Andrews, on the other hand, submits that CNG and Charles are barred by the operation of the terms of the sale agreement from engaging in the valuation process provided for in cl 22.7 of the sale agreement, or alternatively they are estopped from doing so. He submits this is the case for the following reasons:
(a)cl 22.5 of the sale agreement required the parties to calculate and determine the Deficit as soon as possible after settlement and cl 22.7 then prescribed the mechanism available to the parties if they were unable to agree the Deficit within 20 working days of the settlement date. The parties were not unable to agree the Deficit within that period.
(b)the parties reached an implied agreement in respect of the Deficit for the following reasons:
(i)Charles was the general manager of DSEAL’s Business up until the settlement date, and accordingly Charles would have been aware of the orders DUSA was placing with DSEAL up until settlement;
(ii)CNG and Charles accept that DUSA was a trade creditor of the Business as at the settlement date (although they deny this in their statement of defence);
(iii)when DSEAL sent its spreadsheet of calculations in relation to the Deficit to CNG and Charles on 21 December 2021, CNG and Charles did not challenge those calculations. CNG then paid some of DUSA’s invoices after settlement, as recorded on DSEAL’s spreadsheet — at settlement DUSA was owed the sum of USD 688,977.37 in respect of 12 invoices issued to DSEAL under its business contract following the parties’ entry into the sale agreement. CNG settled four of DUSA’s invoices and, in particular, the latest invoices, leaving a balance owing in respect of eight invoices in the amount of the debt;
(iv)when DSEAL first made demand on CNG and Charles to pay the debt in March 2021, CNG’s position was that they did not have available funds or credit at that point to settle the debt. They did not dispute the Deficit and it was only in their lawyer’s letter dated 13 June 2022 (18 months after the settlement date) that CNG and Charles questioned the quantum of the Deficit for the first time. CNG and Charles still did not invoke cl 22.7 of the sale agreement.
[81] Mr Andrews also deals with two points CNG and Charles have raised in relation to the Deficit and trade creditors as follows:
(a)as to the allegation by CNG and Charles that they did not receive the amount owed to the Business by trade creditors in full, Mr Andrews submits this is irrelevant and there is no express or implied warranty in the sale agreement that trade debts would be recoverable, and there is no evidence before the Court of any steps taken by CNG to recover the trade debts;
(b)as to the allegation by CNG that it did not receive all of the products set out in DUSA’s invoices, Mr Andrews submits that there is no evidence before the Court as to this contention and accordingly it should not be given any weight.
[82] Mr Andrews therefore submits that the dispute relating to the Deficit is unsustainable and not a ground for denying summary judgment.
Conclusion in respect of the quantum of the underlying debt has not been determined
[83] In my view, CNG and Charles do not have a credible case that the Deficit has not been valued and accordingly the debt is not payable. As submitted by Mr Andrews, the provisions of cl 22.7 are expended without the valuation process being invoked. In addition, the conduct of CNG and Charles in failing to take issue with the valuation of the Deficit until some 18 months after settlement, their conduct in paying some of the DUSA invoices; and indications that the balance of the DUSA invoices were not being paid because of cashflow difficulties, not because the Deficit was disputed, indicates a waiver by CNG and Charles of any right they had to challenge a valuation of the Deficit.
[84] Accordingly, I am of the view that the argument that the Deficit has not been quantified is not sustainable as a defence to the application for summary judgment.
Unconscionable conduct
[85] It is submitted on behalf of CNG and Charles that DSEAL has engaged in conduct in trade that is unconscionable, in contravention of s 7 of the Fair Trading Act 1986 (the FTA), taking into account considerations prescribed in s 8 of the FTA. CNG and Charles allege that the sale agreement can be voided pursuant to s 43 of the FTA.
[86] Mr Sun submits that CNG and Charles assert that DSEAL’s conduct in seeking an additional NZD 450,000 from CNG and Charles is unconscionable because:
(a)Charles agreed to relinquish all of his entitlements in the family’s estate in exchange for receiving the Business as a gift from DSEAL;
(b)it is contrary to the parties’ intentions for DSEAL to now seek approximately half a million New Zealand dollars from Charles;
(c)if Charles is required to pay approximately half a million New Zealand dollars to DSEAL, then it would be grossly unjust for Charles to relinquish his entitlement in the family’s estate.
[87] Mr Sun submits, that in particular, DSEAL’s conduct is unconscionable because:
(a)DSEAL has not acted in good faith to allege Charles is required to pay approximately half a million New Zealand dollars in addition to his relinquishing his share in the family’s estate;
(b)Charles was under unfair pressure when the settlement deed and sale agreement were entered into;
(c)when the settlement deed was entered into, DSEAL did not disclose its intention to attempt to seek approximately half a million dollars from Charles after settlement (which is contrary to Charles’ intention when he agreed to relinquish his entitlement in the family’s estate);
(d)the terms of the sale agreement are not transparent because it did not expressly state that Charles may be liable to pay the additional half a million New Zealand dollars to DSEAL;
(e)DUSA is not a party to the settlement deed or the sale agreement and since the relationship between DSEAL and DUSA is not at arm’s length, it is unjust and unlawful for DSEAL to issue proceedings under the sale agreement against Charles on behalf of DUSA; and
(f)the existence of the indemnity clause protecting only DSEAL proves that the parties did not have comparable bargaining power and CNG and Charles were disadvantaged.
[88]Mr Andrews refutes these allegations on the following basis:
(a)the debt is not additional to what is expressly agreed under the sale agreement, and the debt was factored into the Deficit and DSEAL is seeking to invoke an express contractual right under the sale agreement to recover an amount it paid to DUSA which CNG was liable to pay in the first instance. Accordingly, there was nothing unconscionable in DSEAL’s conduct in this respect;
(b)there is no evidence that DSEAL has not acted in good faith. DSEAL has given CNG and Charles a significant amount of time to remedy the breach of the sale agreement before bringing the application;
(c)there is no evidence that CNG and Charles were under unfair pressure when entering into the sale agreement and settlement deed. CNG and Charles were legally represented during the sale process, which is a factor the Court may have regard to under s 8 of the FTA;
(d)the sale agreement quite clearly sets out the remedies available to the parties in the event of non-performance by either or one of the parties. The parties included the indemnity in the sale agreement for the express purpose of guaranteeing CNG’s performance of the business contracts and indemnifying DSEAL in the event of CNG’s failure to perform. There is no reason why DSEAL should not be entitled to rely on its contractual entitlement;
(e)DSEAL does not bring its claim on behalf of DUSA, but rather on behalf of itself in respect of its express contractual indemnity. It is irrelevant that DSEAL and DUSA are related entities, they are not subsidiaries with one another and they are separate entities incorporated in different jurisdictions.
[89] Mr Andrews submits that it is not unconscionable for DSEAL to insist on strict performance of the sale agreement, and there is no allegation that Charles was incapacitated, under some impairment or particularly vulnerable when he entered into the sale agreement or the settlement deed. Mr Andrews submits that Charles did not
have unequal bargaining power in the negotiation of those agreements, and that he acted deliberately and with an informed awareness of all considerations relevant to the appropriateness of the bargain.
[90]Accordingly, Mr Andrews submits this defence is not arguable.
Conclusion in respect of unconscionable conduct
[91] I am of the view that CNG and Charles’ argument that DSEAL has acted in an unconscionable manner is not sustainable. There is nothing unconscionable in DSEAL’s conduct in enforcing its contractual rights under the sale agreement. CNG and Charles’ argument that DSEAL/Anthony are attempting to somehow extract a further NZD 450,000 from CNG and Charles above the bargain set out in the settlement deed is unsustainable. The payment of the trade creditors calculated in accordance with the provisions dealing with the Deficit in the sale agreement was clearly part and parcel of the bargain Charles agreed to.
[92] There is no evidence before the Court that Charles was under any undue or unfair pressure when entering into the settlement deed or the sale agreement, or that he was in a weak bargaining position or in some other way vulnerable.
[93] Accordingly, I am of the view that the argument that there has been unconscionable conduct on the part of DSEAL is not sustainable, and is not a ground to decline the application for summary judgment.
CNG and Charles have arguable counterclaims
[94] Mr Sun refers to the fact that DSEAL, CNG and Anthony are parties to a deed of covenant in restraint of trade and non-solicitation dated 18 December 2020 (the restraint deed). Under the restraint deed, DSEAL and Anthony agreed not to solicit any of CNG’s customers in Asia, including Taiwan, for a period of five years.
[95] Mr Sun submits that in February 2023, Anthony instructed DUSA to contact Taiwan and Green Nation Corp and Green National International LLC (together Green Nation) who are a major customer of CNG. He submits DUSA was attempting
to solicit Green Nation’s business by supplying an invoice to Green Nation directly and therefore Anthony breached the restraint deed by instructing DUSA to solicit CNG’s customer.
[96] As to DSEAL’s claim that it has not breached the restraint deed because DSEAL itself did not contact Green Nation, Mr Sun submits that DSEAL disclosed the content of a “without prejudice” letter to Anthony and therefore DSEAL has arguably breached cl 30 of the sale agreement by disclosing the confidential information to Anthony (and DUSA in turn).
[97] Mr Sun submits CNG and Charles intend to file a counterclaim against Anthony and DSEAL for breach of the restraint deed, and seek damages and equitable set-off. He therefore submits a trial is required:
(a)for CNG and Charles to file a counterclaim against Anthony, DSEAL and DUSA (as Anthony’s associated entity);
(b)to determine the quantum of damage suffered by CNG and Charles due to the breach of the restraint deed;
(c)to determine the quantity of equitable set-off against damages awarded to DSEAL (if any).
[98] Mr Andrews submits that the alleged counterclaims by CNG and Charles did not amount to a defence to DSEAL’s application for summary judgment. Mr Andrews submits this is for the following reasons:
(a)The asserted counterclaim does not of itself constitute an arguable defence to DSEAL’s claim preventing DSEAL from establishing the required threshold standard that CNG and Charles have no defence to the claim.15 Mr Andrews submits that once the Court is satisfied that DSEAL in this case has an available contract in indemnity, that DSEAL’s sustained losses or costs covered by that indemnity due to
15 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 187 per Casey J.
CNG and Charles’ non-performance of its obligations in the business contracts, and its losses have been sufficiently quantified, then the basis for summary judgment on liability and quantum against CNG and Charles is made out.
(b)The counterclaims are expressed in speculative terms — “could cause irreparable damage” — is unquantified and entirely inchoate, and therefore forms no defence to DSEAL’s entirely quantified and established monetary claim against CNG and Charles. CNG and Charles have not yet shown they have all the elements of an arguable counterclaim, much less one that exceeds the amount of DSEAL’s claim in this summary judgment application. If CNG and Charles are subsequently able to establish the existence of some identified and quantified loss, the fact that summary judgment has been entered on this application will not constitute any legal impediment to CNG and Charles pursuing such counterclaims as it may transpired they have.
(c)As to CNG and Charles’ allegations that they have available equitable set-offs, it cannot be said to be unconscionable, in terms of the principles set out in the judgment of Grant v NZMC Ltd,16 for CNG and Charles to be required to later assemble evidence that they may have put together an, as yet, unascertained claim for potential loss that they allege arises from events occurring long after CNG and Charles became liable to pay DSEAL under the indemnity.
[99] Mr Andrews also refers to DSEAL’s lawyer’s letter of 23 February 2023, which raised the following points of opposition to CNG and Charles’ counterclaims:
(a)DSEAL, although a party to the restraint deed, is a distinct legal entity from DUSA and Anthony, and it is therefore not arguable that it was a party to any alleged efforts to compete in the discussions which DUSA and Anthony had on behalf of DUSA with Chinese customers in Asia,
16 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA).
seeking direct invoicing arrangement with them in relation to suppliers already arranged by CNG.
(b)CNG and Charles therefore are not in a position to assert claims of set- offs against DSEAL — those are not claimable against the same parties and in the same respective rights and interests.
(c)CNG and Charles cannot and do not point to any arguable established losses or damages caused by DSEAL available to be set up as a counterclaim or set-off against DSEAL’s claim.
(d)In relation to CNG and Charles’ submission that DSEAL disclosed the contents of a “without prejudice” letter from CNG and Charles to Anthony and DUSA in breach of the sale and purchase agreement, there cannot have been any disclosure authorised or unauthorised as Anthony is the sole director and sole controlling mind and authority of DSEAL and is also the principal of DUSA. Clearly in these circumstances disclosure is not possible.
Conclusion in respect of the restraint deed
[100] I am of the view that any potential counterclaim by CNG and Charles for breach of the restraint deed by DSEAL and Anthony cannot be used as a defence to the summary judgment application. I accept Mr Andrews’ submissions at [97] that the unquantified claim cannot constitute a sufficient equitable set-off to amount to a defence to this summary judgment application.
[101] Accordingly, I am of the view that this argument is not sustainable as a defence to the application for summary judgment.
Result
[102] As a result of the conclusions I have reached at [52], [53], [64], [73], [74], [83], [84], [91]–[93], [100] and [101], I am of the view that DSEAL’s application for summary judgment should be granted.
Orders
[103]I make the following orders:
(a)Judgment is given in favour of DSEAL in the sum of USD 227,365.67.
(b)Judgment is given in favour of DSEAL in the sum of NZD 14,848.79.
(c)DSEAL is entitled to interest on the sum set out at [103] (a) and (b), pursuant to s 10 of the Interest on Money Claims Act 2016, calculated from the date of the statement of claim to the date of this judgment.
(d)DSEAL is entitled to interest on the amounts set out at [103] (a) and (b), pursuant to s 10 of the Interest on Money Claims Act 2016, calculated from the date of judgment to the date of payment.
(e)Counsel are directed to endeavour to agree costs within 20 working days of the date of this judgment. If costs are not agreed, then counsel for DSEAL shall file a memorandum as to costs (not exceeding five pages), within 5 working days of expiry of the 20 working day period, and counsel for CNG and Charles shall file a memorandum in reply (not exceeding five pages) within 5 working days of receipt of counsel for DSEAL’s memorandum. Costs will then be determined on the papers.
…………………………….. Associate Judge Taylor
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