Goldhem Group Limited v Tan Investment Pte Limited
[2011] NZCA 591
•28 November 2011
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA834/2010 [2011] NZCA 591 |
| BETWEEN GOLDHEM GROUP LIMITED |
| AND SANDEEP AGGARWAL |
| AND PALLAVI GUPTA |
| AND TAN INVESTMENT PTE LIMITED |
| Hearing: 11 October 2011 |
| Court: Chambers, Ronald Young and Andrews JJ |
| Counsel: M A Karam for Appellants |
| Judgment: 28 November 2011 at 3.30 pm |
JUDGMENT OF THE COURT
AThe appeal is allowed. The summary judgment entered in the High Court is set aside.
BThe proceedings are remitted to the High Court for trial.
CThe order for costs in the High Court is set aside.
D Costs in the High Court on the summary judgment application are reserved for later decision in that Court.
EThe respondent must pay the appellants’ costs for a standard appeal on a band A basis and usual disbursements.
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REASONS OF THE COURT
(Given by Ronald Young J)
Introduction
Goldhem Group Ltd, the first appellant, as the nominee of Mr Aggarwal and Mr Gupta, purchased the premises (from the respondent, Tan Investment Pte Limited) and the motel business of the Ascot Motel (from H2K Investments Limited) at 92 Great South Road, Auckland in July 2008. Tan Investment partially financed the purchase of the premises (a leasehold interest). There was, therefore, an agreement for sale and purchase of the land, an agreement for sale and purchase of the business and a loan agreement for the vendor finance. The second and third appellants, shareholders in the first appellant, guaranteed the loan. Mr Tan, a one third shareholder in both Tan Investment and H2K, negotiated the purchase on behalf of Tan Investment and H2K. Mr Aggarwal primarily represented the interests of the appellants in the negotiations with Mr Tan.
When Goldhem failed to make payments of principal and interest due under the loan agreement, the respondent obtained summary judgment against all three appellants for $771,801.88 together with interest at 13 per cent from 18 February 2010 to the date of judgment. The appellants claimed set‑off, alleging Mr Tan had made misrepresentations relating to the business and had breached the provisions of the Fair Trading Act 1986 (“FTA”) and the Credit Contracts and Consumer Finance Act 2003 (“CCCFA”). This was rejected by Associate Judge Christiansen.
The appellants submitted that the Associate Judge, in rejecting the set‑off claim:
(a)mis‑stated and misapplied the law relating to the onus of proof in summary judgment applications;
(b)erred in holding the appellants could not set‑off their cross claim arising from the alleged misrepresentation with respect to the sale of the business against Tan Investment’s claim under the loan;
(c)erred in concluding the alleged misrepresentations were inherently improbable.
During the course of the hearing before us we raised with the appellants the following possible impediments to its set‑off claim:
(a)The appellants had not provided any evidence at the summary judgment hearing which quantified their alleged loss arising from the misrepresentations.
(b)The appellants’ claims under the FTA and the CCCFA might be barred by the limitation provisions in those statutes.
As a result we allowed the appellants and respondent further time to file submissions dealing with these issues.
The parties’ factual assertions
The background to the purchase of the motel was described by the Associate Judge in this way:[1]
[17] The Ascot Motel is one of four motels, three of which are adjacent and the fourth was operated a short distance away in Great South Road, Epsom Auckland. The Ascot Motel occupied no. 92 and the Hansens Motel no. 96, Great South Road.
[18] In 2005 Ascot Star Ltd was incorporated. The owners of the respective motels became shareholders. It appears from the evidence that the ultimate purpose intended for Ascot Star Ltd was to amalgamate the businesses of all four motels, under the ownership and control of Ascot Star Ltd. Company accounts indicate that meanwhile the company provided management and associated resources for all four companies which independently maintained trading accounts with Ascot Star Ltd.
[19] The businesses of all four motels was promoted under the banner Ascot Star and a website was created and was owned by Ascot Star Ltd.
[20] By the time of the events with which the parties’ dispute occurred, just the Ascot Motel and Hansens Motel continued to operate under the Ascot Star banner. The shares were owned by the Tan interests and by Mr and Mrs Simons the proprietors of Hansens Motel. Until the premises and business sales of Goldhem, Mr and Mrs Simons had managed both the Ascot Motel and Hansens Motel. A significant number of motel bookings were routinely made online through links connected to the Ascot Star website.
[1]Tan Investment Pte Ltd v Goldhem Group Ltd HC Auckland CIV‑2010‑404‑1187, 12 November 2010.
Mr Aggarwal said that during the course of a number of meetings with Mr Tan prior to the contracts becoming unconditional, Mr Tan told him:
(a)that Tan Investment and H2K owned the Ascot Motel outright and had a 50 per cent shareholding in Hansens Motel with Mr and Mrs Simons;
(b)the occupancy rate of the Ascot Motel for the previous year was 68.9 per cent;
(c)to make a profit the occupancy rate of the motel needed to exceed 60 per cent;
(d)the purchasers would have the use of the Ascot name for the motel;
(e)the purchasers would have the exclusive use of the Ascot Star website. It was through this website that most of the bookings came for the Ascot Motel;
(f)all chattels on the Ascot Motel site were part of the purchase price;
(g)a database of all previous guests would be supplied to the purchasers;
(h)he would be at the motel for the first two weeks following settlement to help the purchaser settle in.
Mr Tan also provided the appellants with a budgeted cash flow summary for the coming 2008/2009 year.
During negotiations for the purchase Mr Aggarwal told Mr Tan that they had been unable to raise sufficient finance for the purchase. The appellants say Mr Tan offered them vendor finance to enable them to complete the purchase of the business.
After negotiations between the parties, the amount of the loan was settled at $650,000. The second and third appellants signed as guarantors of the loan. It was to be repaid in four instalments of $162,508 each on 31 January 2009, 30 April 2009, 31 July 2009 and 31 October 2009.
The total purchase price was ultimately settled at $1,500,000; $300,000 for the sale of the business, $1.2 million for the sale of the leasehold interest.
The second and third appellants who had signed the agreements nominated the first appellant as purchaser. On 30 October 2008 solicitors for Goldhem Group confirmed the various documents had been signed and on 31 October the transactions were settled.
The two agreements for sale and purchase were specifically interconnected, each dependent upon the other becoming unconditional.[2]
[2]Agreement for Sale and Purchase of Leasehold, cl 18.1, 18.2; Agreement for Sale and Purchase of Motel Business, cl 19.1, 19.2.
The appellants say that after settlement they discovered:
(a)all internet bookings for Ascot and Ascot Star or similar went to Hansens Motel;
(b)they did not have the exclusive, or indeed any, rights to the Ascot Star website;
(c)all internet and internet connections to the Ascot motel had been removed;
(d)a number of chattels at the motel had been removed or replaced with damaged items;
(e)Mr Tan did not provide the agreed post settlement assistance he promised;
(f)no database of previous guests was supplied;
(g)the occupancy rates and profitability of the business were significantly lower than Mr Tan had said.
Of these complaints the appellants claimed by far the most serious was the internet booking problem. Mr Aggarwal said they discovered after settlement that anyone using the Ascot Star Motel website, which had photos of the Ascot Motel at 92 Great South Road, would be referred to the Hansens Motel through a redirection on the Ascot Star email address.
Further, he said that a check of a number of motel booking internet sites which referred to or showed the Ascot Star Motel on the site either by name or photograph all ultimately referred the potential customer to Hansens Motel. As a result the motel’s occupancy rate dropped significantly, to near 30 per cent.
Mr Aggarwal said given that the business required a 60 per cent occupancy rate to break even, the first appellant suffered significant losses.
The appellants’ case at the summary judgment hearing was that they “were induced to enter the motel purchase transaction (including the loan agreement) by misrepresentations made by Mr Tan on behalf of the plaintiff [now respondent]”.[3]
[3] Notice of Opposition, para [2](b).
The appellant said these misrepresentations were misleading and deceptive conduct in terms of s 43 of the FTA, oppressive conduct by Mr Tan in terms of the CCCFA and misrepresentations entitling relief under the Contractual Remedies Act 1979.
The Associate Judge noted that as far as Tan Investment’s claim against the appellants was concerned, neither interest nor capital payments had been made under the loan.
The Judge rejected all of the alleged misrepresentations. With respect to the appellants’ claim relating to the use of the Ascot Star website and name he concluded that it was inherently improbable that Mr Tan would have represented that the appellant would have the exclusive use of the website and the name.
The Associate Judge rejected the appellants’ claim that all of the internet services and connections had been removed prior to settlement. He noted there was no obligation to provide these services in the agreement and in any event they could be easily replaced.[4]
[4] However, see cl 6.4.4 of the Agreement for Sale and Purchase of the Motel Business.
He concluded that the appellants’ contention that chattels had been removed or replaced with damaged or unusable items in the motel was inherently unreliable.
As to vendor assistance the Judge noted that Goldhem was free to make a claim for breach of the agreement in separate proceedings against H2K with whom the appellants had contracted relating to this aspect.
He said that it was inherently improbable that Mr Tan agreed to provide a database of all previous guests.
The Judge rejected the appellants’ contention that occupancy, profitability and cash flow were represented by Mr Tan as being at greater levels than experienced by Goldhem after taking possession.
In summary, therefore, the Judge did not find that any of the appellants’ misrepresentation claims were credible.
As to the equitable set‑off claim the Judge noted that the allegations concerning Mr Tan’s conduct related to the sale of the business and not the sale of the premises or the loan agreement.
The Associate Judge said:
[105] The allegations made by the defendants relate to the business agreement to which Tan was not a party. Mr Tan did not act as agent for Tan in respect of the alleged conduct and there is no basis for attributing his conduct to Tan.
[106] The defendants’ allegations give rise to a claim that can only be brought by way of counterclaim and not by way of set off.
[107] Unless the conduct of Mr Tan can be attributed to Tan any claim that the defendants have would be against H2K and not Tan. As, in my assessment, the defendants claim can only be brought by way of counterclaim, it is not a defence to a summary judgment application.
This appeal
After the exchange of the post‑hearing submissions from counsel it became clear there was only one aspect of the case in issue.
Tan Investment accepted that neither it nor H2K could rely on the limitations periods in the FTA and the CCCFA.
Tan Investment accepted that the Associate Judge was not entitled to dismiss the appellants’ claims of misrepresentations as inherently improbable. We agree. There was a clear factual dispute between the parties as to what, if any, representations were made by Mr Tan. This is an issue which should properly be left for trial.
That leaves the set-off point. The Associate Judge concluded, that given the business and leasehold interests were sold separately, that the business and premises were owned by different companies, and that the allegations of misrepresentation concerning Mr Tan related to the sale of the business (and not the sale of the premises or in relation to the loan agreement), that there was no basis for attributing Mr Tan’s conduct to the respondent.[5]
[5] At [105]. Reproduced at [29] of this judgment.
While the parties are not identical in this case there is a close interrelationship between the various claims. The agreements for sale and purchase of the leasehold interest and the business are expressed to be interrelated. Both the agreements contain express acknowledgements of the other contract, both note Tan Investment and H2K have the same directors and shareholders and both agreements are conditional on the other agreement becoming unconditional. The appellants say they would not have proceeded with the purchase of one without the other. The money lent by Tan Investment’s was lent to complete the purchase of the leasehold interest and this purchase was specifically conditional on the purchase of the business and the leasehold also becoming unconditional.
The appellants were not in a position to purchase the business without the assistance of Tan Investment. The three agreements, therefore, were closely interconnected. Each part depended on the other. None of the three contracts individually would have proceeded without the other two.
The respondent accepted there was a close relationship between the parties and the contracts and the existence of an equitable set‑off was arguable. We consider the respondent’s concession with respect to the availability of an equitable set‑off was properly made.
The respondent in its additional submissions accepted that the appellants had provided sufficient evidence at the summary judgment stage to put in issue whether the $300,000 paid by the appellant for the goodwill and chattels of the motel was properly payable in view of the alleged misrepresentations. They, therefore, suggested that summary judgment be entered for the amount of the original loan of $650,000 less the $300,000 relating to the goodwill and chattels of the business plus interest ($350,000 plus interest).
The appellants opposed that course. The appellants said that submission was predicated on the view that the only loss suffered by it was the loss of goodwill and the value of the chattels.
The appellants’ case is that the FTA and the CCCFA, provide broad remedies to a Court which could entitle the appellants to an order which would effectively return the parties to the position pre‑purchase. The contracts for the purchase of the business, the leasehold and the loan could be declared void ab initio.
In those circumstances the appellants argued that it would be wrong for this Court to limit the discretion of the trial judge under the FTA or the CCCFA by allowing the entry of summary judgment for any amount. The proposal by the respondent would limit the appellants’ remedy to a damages claim of no more than $300,000.
Section 43 of the FTA provides a wide range of potential remedies for misleading or deceiving conduct including a declaration a contract is void ab initio.[6] The appellants’ case is that they would not have entered into the contracts had they not been misled or deceived by the misrepresentations.
[6] Section 43(2)(a).
We accept that it is open to the appellants at trial to seek an order under s 43(2) declaring the contracts void ab initio. In those circumstances it would not be appropriate to enter judgment for any part of the respondent’s claim. To do so would be to inappropriately narrow the options available to the trial Judge.
A similar situation also applies to the CCCFA. Section 127 sets out the remedies open to a Court if it decides to reopen a credit contract, here the loan agreement. Subsection (1) entitles the Court, if it reopens a credit contract to make “any orders that it thinks necessary to remedy the matters that caused the Court to reopen the contract ...”.[7]
[7] Section 127(1).
The potential remedies are broad and could include the setting aside of the whole of the loan contract in this case. In those circumstances we are also satisfied that it would be wrong to remit only part of the claim to the High Court.
The potential remedies available to the appellants relate to all three contracts. The trial Judge should, therefore, have an unfettered discretion as to remedy in the event the appellants succeed on their claim or claims.
Summary
The respondent conceded and we agree that the appellants have an arguable set‑off arising from the alleged misrepresentations. We reject the respondent’s submission that we should enter judgment in its favour for part of the loan. The appellants seek remedies which could cancel some or all of the contracts entered into by the parties. To preserve the trial Judge’s wide discretion to consider such orders the whole of the judgment in the High Court must be set aside.
The appeal is, therefore, allowed. We set aside the summary judgment entered in the High Court.
We set aside the order for costs in the High Court. We reserve costs on the summary judgment application for the High Court to resolve after trial. We order costs in the appellants’ favour with respect to this appeal calculated as for a standard appeal on a band A basis and usual disbursements.
Solicitors:
Aaron Kashyap, Auckland for Appellant
Simpson Western, Auckland for Respondent
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