It Live Limited v Pole
[2018] NZHC 567
•28 March 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-1863 [2018] NZHC 567
BETWEEN IT LIVE LIMITED
Plaintiff
AND
ROBERT WILLIAM POLE
First Defendant
CINDY POLE
Second Defendant
Hearing: 20 February 2018 Appearances:
G R Burgess for the Plaintiff
S R J Hamilton for the Defendants
Judgment:
28 March 2018
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 28 March 2018 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules.
…………………………………
Deputy Registrar
Solicitors:
Clendons (G Burgess), Auckland, for the Plaintiff
Quay Law (Ian Mellet), Remuera, Auckland, for the defendants
Copy for:
Simon R J Hamilton, Auckland, for the defendants
IT LIVE LIMITED v ROBERT WILLIAM POLE [2018] NZHC 567 [28 March 2018]
[1] IT Live Ltd sues Mr and Mrs Pole under a loan agreement of 12 May 2016. Under the agreement, IT Live Ltd lent them $120,000 repayable upon demand at any time after 1 April 2017 on 10 working days’ notice. There are other more complex repayment provisions. In simple terms, the agreement contemplated that the Poles would sell shares in an Australian company, Wangle Technologies Ltd. The proceeds of sale would be applied first to pay IT Live Ltd’s legal costs, the next $120,000 to repay the loan, the balance of the sale proceeds would be split 50/50 between IT Live Ltd and the Poles up to $360,000, and the Poles would take any remaining sale proceeds.
[2] IT Live Ltd’s case is that Mr Pole sold the shares on 16 June 2017 for AUD$320,000 with AUD$170,000 to be paid on 1 July 2017, and the remaining AUD$150,000 by instalments on 1 August, 1 September, 1 October and 1 November 2017. The Poles did not account to IT Live Ltd for the payment of AUD$170,000 that they received. When IT Live Ltd found out, it required the Australian purchaser to pay the balance of the purchase price to it. The purchaser has so far paid AUD$135,000, leaving AUD$15,000 outstanding. IT Live Ltd sues the Poles for the loan, interest on the loan at 12.5 per cent per annum, its legal costs for preparing the loan agreement, and 50 per cent of the remaining Wangle Technologies Ltd share sale proceeds, plus indemnity costs. There is a second cause of action for breach of trust. IT Live Ltd has applied for summary judgment on the first cause of action in contract.
[3] For the greater part of this proceeding, Mr Pole has undertaken the defence himself. Mrs Pole has played a minimal part. Recently, Mr Hamilton has been instructed. At earlier stages Mr Pole advanced these grounds to oppose summary judgment:
[a]The lawyer for IT Live Ltd misrepresented the terms of the agreement by not highlighting certain features of the agreement;
[b]Mr Sadie, the director of IT Live Ltd, gave a misleading and inadequate explanation of the terms of the loan agreement;
[c]In June 2017 IT Live Ltd agreed to a variation of the loan agreement under which only the principal was to be repaid;
[d]Mr Pole and Mr Sadie, the director of IT Live Ltd, made a settlement agreement on 27 July 2017 and IT Live Ltd no longer has a claim against them.
Mr Hamilton withdrew the first two grounds in his written submissions and the third during the hearing after taking instructions.
[4]In Krukziener v Hanover Finance Ltd, the Court of Appeal summarised the
principles applied by the courts on plaintiffs’ applications for summary judgment:1
[26] … 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: … 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. …
Background
[5] Mr Sadie and the Poles are from South Africa and have a background in the IT industry. They already knew each other. The Poles, trustees of their family trust, The Nirvana Trust, held shares in an IT company, NexGen Networks Ltd. An Australian company, VTX Holdings Ltd (later re-named Wangle Technologies Ltd), agreed to acquire all the shares in NexGen Networks Ltd. The final terms of contract are set out in a “terms sheet” signed on 27 October 2015. Mr Pole and a Mr Gitmans (as B-class shareholders) were given a put option under which they could require Wangle Technologies Ltd to acquire the B-class shares, with the B-class shareholders to be allocated shares in Wangle Technologies Ltd. The option could be exercised in a 12-month period between 27 October 2016 and 26 October 2017. The option had to be for all the B-class shares. There was a 12-month restriction on trading in Wangle
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].
Technologies Ltd shares which expired on 19 February 2017. On the exercise of the put option, the trustees of the Nirvana Trust were entitled to receive 31,500,000 shares in Wangle Technologies Ltd plus 13,500,000 “performance shares”.
[6] In 2016, the Poles were in financial difficulties. Mr Pole approached Mr Sadie for working capital on the basis that any loan could be repaid out of any sale of Wangle shares after exercise of the put option. Negotiations led to the loan agreement of 12 May 2016, drawn by IT Live Ltd’s lawyers. The amount lent was $120,000. The loan was repayable upon demand from 1 April 2017 onwards. 10 working days’ notice was to be given, but could be accelerated upon default (breach of any term of the agreement or insolvency on the part of the borrower). The loan was interest-free but if a default was not remedied within seven days default interest was payable.
[7]Clause 2.5 says:
2.5 Repayment
In consideration for the Lender making the Loan available to the Borrower on the terms of this Loan Agreement, the Borrower agrees to repay the Loan together with additional sums as follows:
Unless otherwise agreed by the Lender:
(a)The Borrower shall take all necessary steps to exercise the Put Option and acquire 45,000,000 shares in Wangle Technologies Ltd (including 13,500,000 performance shares) at the earliest opportunity following 27 October 2016;
(b)The Borrower shall take all necessary steps as may be required to enable the shares it holds in Wangle Technologies Ltd (following exercise of the Put Option) to be sold on the ASX at the earliest opportunity following 19 February 2017 (and in no circumstances later than 31 March 2017), except for performance shares where the performance criteria had not been satisfied by that date in which case the performance shares shall be sold at the earliest opportunity following achievement of the performance criteria;
(c)the proceeds of sale of the Borrower’s 45,000,000 shares in Wangle Technologies Ltd (“Sale Proceeds”) shall be divided and paid to the parties in the following amounts and priority.
(d)
the Borrower shall:
Priority
Payment to Lender
Payment to Borrower
1.
Repayment of Lender’s legal costs and expenses
(to be notified by the Lender to the Borrower in writing prior to 19 February 2017)
nil
2.
$120,000 (Repayment of Loan advance)
nil
3.
50% of the remaining Sale Proceeds, up to a maximum of $360,000 (Return on Investment)
50% of remaining Sale Proceeds, up to a maximum of
$360,000.
4.
nil
All remaining Sale Proceeds
(i) inform and direct ASX, Wangle Technologies Ltd, the Borrowers’ share broker and any other relevant persons and entities to pay the Sale Proceeds to the Trust Account for Clendons Lawyers (solicitors for the Lender) using the details in Schedule 1);
(ii) Provide immediate written notice to the Lender when the Sale Proceeds are available;
(ii) If the Sale Proceeds are nonetheless paid to the Borrower, hold the Sale Proceeds on trust for the Lender from receipt and immediately transfer the Sale Proceeds to Clendons’ trust account.
(e)The Lender shall instruct Clendons to transfer the Sale Proceeds to the parties in the manner required by this Agreement.
The Lender may, at its discretion, agree that only part of the Borrower’s 45,000,000 shares in Wangle Technologies Ltd be sold, in which case the remaining (unsold) shares in Wangle Technologies Ltd will be held by the Borrower:
IOn trust for the Lender and on the terms and conditions of this Agreement pending a decision by the Lender to sell the remaining shares or part of them, if any part of the monies owing by the Borrower under this agreement remain unpaid; or
IIAt the Borrower’s sole discretion, if all monies payable to the Lender under this agreement have already been paid.
[8] Clause 5 of the loan agreement provided for payment of solicitor-client costs under a general indemnity clause.
[9]Clause 7 of the agreement sets out covenants by the borrowers, including to:
(a)Take no steps (including signing or approving any documents, and corresponding with Wangle Technologies Limited, NexGen Networks Limited or any other persons or entities in relation to the Borrower’s shareholding in NexGen Networks Ltd, the Put Option, the Terms Sheet, or shares in Wangle Technologies Limited) without the prior written approval of the Lender;
…
(d)promptly give written notice to the Lender of any Default Event and of any other event which with the giving of notice and/or lapse of time or otherwise would constitute a Default Event;
…
[10] Under clause 8 the borrower appointed the lender as its attorney to do anything the borrower was required to do under the agreement. There was a costs indemnity clause in favour of IT Live Ltd.
[11] IT Live Ltd paid the Poles the $120,000 in May 2016. At some stage after 27 October 2016, the Poles exercised the put option and became owners of Wangle shares.
[12] On 16 June 2017, Mr Pole made a written agreement with a Mr Keaton Wallace of Western Australia for the sale and purchase of 40,500,500 Wangle shares. Mr Wallace agreed to pay AUD$320,000 as follows: AUD$170,000 on 1 July 2017, AUD$30,000 on 1 August 2017, AUD$30,000 on 1 September 2017, AUD$30,000 on 1 October 2017 and AUD$60,000 on 1 November 2017.
[13] Mr Pole did not, however, pay the money to Clendons, the lawyers for IT Live Ltd, as required under cl 2.5 of the loan agreement. He did not provide an immediate written notice to IT Live Ltd that the sale proceeds were available. Mr Pole has spent the A$170,000 and has not paid any of it to IT Live Ltd. It is not seriously disputed that the Poles breached the covenants in clause 7 (a) and (d) in selling the Wangle
shares to Mr Wallace without IT Live Ltd’s approval, in not giving written notice that they had sold the shares without approval and in receiving the proceeds directly themselves without accounting for them under the agreement.
[14] Mr Sadie says that he learned about the sale in early July 2017, but not from Mr Pole. Mr Pole provided him with a copy of the share sale agreement on 10 July 2017. On 31 July 2017, Mr Pole emailed Mr Wallace requiring him to pay the remaining payments of AUD$150,000 to Clendons as required by the agreement. On 11 August 2017, IT Live Ltd began this proceeding by applying for a summary judgment and a freezing order.
[15] On 18 August 2017 Wylie J put a freezing order on the bank account of the Nirvana Trust with Kiwibank. The order required the Poles to give an affidavit accounting for payments, transfers and other transactions involving the proceeds of sale of the Wangle Technologies Ltd shares, and to provide statements of account for the Kiwibank account for the Nirvana Trust. The Poles were dilatory in complying with these requirements.
[16] Banking records show that Mr Wallace made these payments under the agreement of June 2017 for the purchase of the Poles’ shares in Wangle Technologies Ltd:
[a]On 6 July 2017 he paid NZ$166,313.05 representing approximately AUD$160,000. That was paid into a bank account of the Poles.
[b]He made the remaining payments, totalling NZ$144,020.49, to the trust account of Clendons:
19 September 2017 $26,692.97 16 October 2017
$26,743.00
16 November 2017
$26,862.50
18 December 2017
$37,248.70
24 January 2018 $26,483.32
All up, Mr Wallace’s payments come to NZ$310,334.34.
[17] The calculation to find a judgment sum requires a deduction from those payments for the legal fees charged by Clendons for preparing the agreement,
$7,580.00 exclusive of GST. After a deduction for the principal amount of the loan,
$120,000, the balance is to be divided equally between the parties. IT Live Ltd is to be paid the legal fees, the principal amount advanced, its half share of the balance and interest. Counsel agreed that if I ordered judgment, any questions of interest would be dealt with by memoranda. To start with there was no agreement on the amount of any judgment to be given, after taking into account the payments into Clendons’ trust account. IT Live Ltd proposed NZ$82,334.92 before interest and costs, Mr Hamilton proposed NZ$66,738.13 before interest and costs. The difference was resolved by Mr Burgess for IT Live Ltd pragmatically accepting Mr Hamilton’s figure.
[18]That leaves the settlement defence for decision.
The settlement defence
[19] The Poles say that they settled this matter in a meeting between Mr Sadie and Mr Pole on 27 July 2017.
[20] First, to set the scene. Earlier in July, Mr Sadie and the lawyers for IT Live Ltd had found that Mr Pole had agreed to sell his shares to Mr Wallace in Western Australia, and that Mr Wallace had paid part of the purchase price already without notifying IT Live Ltd or seeking its consent to the transaction. On 18 July 2017, the lawyers for IT Live Ltd wrote to a lawyer acting for the Poles, contending for IT Live Ltd that the Poles had deliberately breached the loan agreement and had misappropriated $170,000.00, and noting other breaches. On 20 July 2017, the lawyers wrote to Mr Wallace invoking IT Live Ltd’s power of attorney under the loan agreement to direct that payments were to be made to their trust account. On 28 July 2017, the lawyers for IT Live Ltd wrote to Westpac NZ Ltd purporting to exercise the power of attorney under the loan agreement, and giving instructions to Westpac to transfer funds they believed may have been received from the sale of the Wangle
Technology Ltd shares. The letter was ineffective, but the fact that it was sent is relevant. On 31 July 2017, Mr Pole emailed Mr Wallace also directing that all payments were to be made to the trust account of the lawyers for IT Live Ltd.
[21] On 1 August 2017, there was a telephone conversation between Mr Sadie and Mr Pole which Mr Pole recorded. Here is most of what he put in evidence:
MrPole: Darby hi. Yeah man I’ve been thinking a lot about this overnight, you know, I’ve wanted to go through everything and it all ties up, but Darby after what you did on Friday man, you know, you’ve lost my trust, you know, we’re supposed to be working down the…I took a move…
MrSadie: Just before you carry on, Rob, do you understand you are busy having a $225,000 argument with me?
Mr Pole: What are you talking about?
MrSadie: If you **** me around I am telling you now, I will screw you over.
Mr Pole: Well, you really decide to do that …
Mr Sadie:There is no, there is no … you do not understand, you do not have a leg to stand on. The only choice you have is to work with me. If you want to play hard-ball…
Mr Pole: I’m not playing hard-ball.
Mr Sadie: That’s what … that is what got us here.
Mr Pole: I’m not playing hard-ball. I’m trying to resolve this.
MrSadie: Against all advice, against all advice, I’m trying to sort this out with you and I’m getting the ******* run-around.
Mr Pole: You’re not getting any run around.
MrSadie: I’ve been, I’ve been in defensive mode but you’re pushing my buttons.
MrPole: Look I’m not trying to upset you. I’m trying to get to a resolution here and that’s why I instructed.
MrSadie: Okay listen Rob, listen, there’s nothing to talk about. You have a very nice day.
That conversation is notable for Mr Sadie’s anger, the absence of any recognition by him that he had any settlement with Mr Pole, and Mr Pole’s statement that he was still trying to get a resolution.
[22]On 11 August 2017 IT Live Ltd began this proceeding.
[23] Now for the meeting of 27 July 20017. Mr Pole recorded it. Counsel explained that, as a matter of practice, Mr Pole recorded conversations, because he had suffered a stroke and had some cognitive disability. Recording conversations gave him a reliable account to which he could refer. I was advised that the meeting on 27 July took approximately an hour. Mr Pole’s evidence includes part of what Mr Sadie said in the 50th minute of the meeting:
So now it’s just a matter of getting to the best place we can get. If you have spent 170 … I need some sort of proof of that. Then we’re left with the money that Keaton was supposed to pay, if those two things tie up then that will be the end of it.
Mr Burgess for IT Live Ltd accepted that it was arguable that at trial the Poles would prove that Mr Sadie said those words. There is a difficulty in assessing what Mr Sadie said, because Mr Pole has not provided a record of all the conversation. The extract is fragmentary.
[24] The parties agree that the meeting was held on a without prejudice basis. IT Live Ltd did not object to the evidence being admitted. Clearly when a party contends that without prejudice negotiations resulted in an agreement settling the dispute, evidence can be adduced to prove the agreement.2
[25] Under the Poles’ case, the extract meant that, if Mr Sadie was satisfied that the funds had genuinely been spent, and the balance could be recovered from Mr Wallace, the matter would be at an end. For present purposes, that is an arguable interpretation. It is, however, not enough to raise an arguable defence. For a settlement there must be an agreement between the parties. Mr Pole does not give any evidence that he agreed with what Mr Sadie said. If the statements made by Mr Sadie are to be an offer, there needs to be an acceptance. There is no evidence suggesting that there was any.
[26] Further, without a deed, consideration is required for any agreement. If IT Live Ltd were to give up any legal claims against the Poles, they were required to give some consideration. It may be arguable for the Poles that Mr Sadie’s statement, “I
2 Evidence Act 2006, s 57(3)(b).
need some sort of proof of that”, required Mr Pole to provide documents and information as to what he did with the $170,000. But there is no evidence that Mr Pole went about providing the proof that Mr Sadie required. There is no other basis for finding consideration.
[27] Later, after the proceedings were issued, Mr Pole did give information. But that was a response to the proceedings. He did not regard himself as under any other obligation to do so. In paragraph 3 of his affidavit of 8 September 2007, he said:
We would have complied with the court order had we felt it justified, however since we were going to proceed with this application to discharge the order, we felt the Court would allow us a hearing to explain this better. … However, we also feel since it was obtained invalidly we should not be required to show how the funds which were ours were spent. Once the entire affidavit and material have been read it will be clear why I still believe post legal advice that the funds were ours and that IT Live have no right to know how they were spent.
That position is inconsistent with recognising that under a settlement Mr Pole was required to provide any information to IT Live Ltd. If there was an agreement, Mr Pole repudiated it.
[28] Similarly, the conduct of IT Live Ltd was consistent with not having entered into any settlement agreement with Mr Pole. The telephone conversation of 1 August 2017 shows Mr Pole’s attempts to resolve matters, which is inconsistent with the position now advanced – that the matter had already been resolved.
[29] Overall, the settlement defence is not seriously arguable. The part of the conversation on 27 July 2017 in evidence is fragmentary. Essentials for an agreement, acceptance and consideration, are missing. The parties’ conduct both before and after the meeting is consistent with their not having entered into any binding settlement. If there were an agreement, Mr Pole repudiated it when he denied that he was required to account to IT Live Ltd for what he did with the first payment by Mr Wallace.
Outcome
[30] IT Live Ltd has shown that the Poles do not have an arguable defence to the allegations in the first cause of action. While there is agreement as to the amount of the claim, interest and costs have still to be fixed. I make these orders:
[a]IT Live Ltd recovers judgment against the Poles for $66,738.13;
[b]Counsel are to file memoranda and evidence as to interest and costs, which I shall decide on the papers, unless I see the need for a hearing;
[c]Leave is reserved to apply further, if further directions are required.
……………………………….
Associate Judge R M Bell
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