Kumar v Many Limited
[2024] NZHC 1164
•16 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-412-13
[2024] NZHC 1164
BETWEEN ROSHNI KUMAR
Plaintiff
AND
MANY LIMITED
Defendant
Hearing: 15 February 2024 Appearances:
PF Dalkie and S Bhanabhai for the Plaintiff MB Wigley for the Defendant
Judgment:
16 May 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 16 May 2024 at 12.30 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Dyer Whitechurch, Auckland
Wigley and Company, Wellington
KUMAR v MANY LIMITED [2024] NZHC 1164 [16 May 2024]
Introduction
[1]The plaintiff, Roshni Kumar, applies for summary judgment of her claim for
$337,021.20 allegedly owing pursuant to an agreement with the defendant, Many Ltd.
[2] The agreement was for Ms Kumar to sell 38 shares in FM105.3 Ltd and to assign a loan advance in the name of her late husband to Many Ltd (Agreement).
[3] Many Ltd paid the deposit and the first instalment of the purchase price1 but not the second instalment of $337,021.20. In April 2022, the 38 shares were registered in the name of Many Ltd. Despite demand being made, the balance of the purchase price remains unpaid.
[4] The correspondence on behalf of Many Ltd at the time and its written submissions focus on whether Many Ltd and its director and shareholder, Mr Khan, were aware of alleged accounting issues with FM105.3 Ltd when entering into the Agreement. At the hearing however Many Ltd relied more heavily on alleged breaches of warranties in the Agreement.
[5] In Chief Executive of the Department of Corrections v Fujitsu New Zealand Ltd (Fujitsu), Cooke J held that liability under a warranty is strict, with the claimant not having to prove reliance or loss.2 Breach is established simply by proving the statement is false. In that case, the knowledge or otherwise of Many Ltd or Mr Khan, would not be relevant to whether there was a breach of warranty or not.
[6] Many Ltd says it has a reasonably arguable defence to the summary judgment application on this basis relying on the warranties and indemnity in the Agreement.
[7] Ms Kumar submits in response that Fujitsu is distinguishable and the Agreement contained a right to cancel if Many Ltd’s name had not been entered in the company’s share register as the holder of the 38 shares by 28 January 2022. When share registration did not occur by that date but Many Ltd decided to continue with
1 Referred to in the Agreement at the “Purchase Consideration”.
2 Chief Executive of the Department of Corrections v Fujitsu New Zealand Ltd [2023] NZHC 3598 at [123] approved in Dixon v Takapuna Residence Development Ltd [2024] NZCA 129 at [21], n 18.
the Agreement in full knowledge of the alleged accounting issues with FM105.3 Ltd, Ms Kumar says Many Ltd waived its rights under the warranties.
[8]The issues for determination are therefore:
(a)Is it reasonably arguable that Ms Kumar breached any of the warranties?
(b)If so, does the decision to proceed despite the right to cancel in accordance with cl 5.3 clearly amount to an election so as to prevent reliance on any breach of warranty?
[9] I start by briefly summarising the principles applying to summary judgment before setting out the factual background and considering the issues.
Summary judgment principles
[10] Rule 12.2(1) of the High Court Rules 2016 provides that summary judgment may be granted where 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.”
[11] The principles governing summary judgment are well settled with the following summary from the leading authority, Krukziener v Hanover Finance Ltd:3
(a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, there is no real question to be tried.4
(b)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
3 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
4 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
no defence, the defendant will have to respond if the application is to be defeated.5
(c)The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. However, it need not uncritically accept 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.6
(d)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.7
Factual background
[12] Ms Kumar’s husband passed away on 22 December 2018. At the time of his death, Mr Kumar owned 38 ordinary shares in FM105.3 Ltd, a company which holds the right to operate a radio spectrum licence for the radio frequency 105.3.
[13] The 38 shares passed to Ms Kumar on 29 January 2021 following settlement of her late husband’s estate.
[14] The remaining shares in FM105.3 Ltd were held by James Ravenhall and David Gray. Mr Ravenhall was the sole director of FM105.3 Ltd following Mr Kumar’s death.
[15] The defendant, Many Ltd, was incorporated on 21 May 2019. Robert Khan is its sole director and shareholder. Mr Khan is also the sole director and shareholder of Radio Tarana (NZ) Ltd (Radio Tarana) which operates and uses the 105.3 frequency owned by FM105.3 Ltd to broadcast a radio station.
5 MacLean v Stewart (1997) 11 PRNZ 66 (CA).
6 Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341.
7 Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[16] On 19 August 2021, following Mr Kumar’s death, the solicitors for FM105.3 Ltd wrote to Mr Khan at Radio Tarana and asked for any documents recording the arrangements between FM105.3 Ltd and Radio Tarana. None appear to have been provided.
[17] On 24 September 2021, Mr Ravenhall emailed Ms Kumar and Mr Gray attaching an agenda for a shareholders’ meeting on 7 October 2021 together with his director’s report and other attachments relating to the agenda.
[18] On that same day, Ms Kumar’s partner, Anil Thapliyal, deposes in his affidavit in reply that he sent a copy of Mr Ravenhall’s email and its attachments to Mr Khan, referring to the copy of the email included in the email chain annexed to Mr Khan’s affidavit. Mr Khan’s evidence is that he did not receive this email.
[19] On or about 1 October 2021, Ms Kumar, as vendor, entered into the Agreement with Many Ltd as purchaser to sell the 38 ordinary shares she held in FM105.3 Ltd and to assign a loan advance by Mr Kumar as shareholder of FM105.3 Ltd (Loan Advance).
[20]The Agreement defines the purchase price as:
(a)$380,000.00 for the shares; and
(b)$294,042.39 for the Loan Advance debt.
[21] Clause 3.1 of the Agreement provides that once the Agreement is signed, Ms Kumar would sign and deliver up to Many Ltd’s solicitors to be held in escrow:
(a)a transfer of the 38 ordinary shares; and
(b)an agreement in a certain form granting Many Ltd as purchaser a specific security in the 38 ordinary shares and the Loan Advance debt; and
(c)a proxy form as shareholder of FM105.3 Ltd appointing Mr Khan as Ms Kumar’s proxy at shareholder meetings held after the date of the Agreement.
[22] Under cl 3.2 of the Agreement, upon performance of the vendor’s obligations in cl 3.1 Many Ltd is to:
(a)pay the deposit of $67,404.24 (10 per cent of the purchase price);
(b)deliver a share transfer to FM105.3 Ltd with a request to enter Many Ltd’s name on the company’s register as shareholder; and
(c)deliver a signed specific security agreement for the purposes of the Personal Property Securities Act 1999 to Ms Kumar to secure the balance of the purchase price to be paid for the shares and the Loan Advance debt.
[23] Clause 5.1 of the Agreement provides that the balance of the purchase price is to be paid by Many Ltd in two instalments:
(a)$269,616.95 on 15 October 2021 as 40 per cent of the purchase price; and
(b)the remaining balance of $337,021.20 on 22 November 2021.
[24] As referred to earlier, cl 5.3 of the Agreement provided for the cancellation of the Agreement at the election of either party if on 28 January 2022 the 38 ordinary shares had not been entered onto FM105.3 Ltd’s share register in Many Ltd’s name. It is common ground the shares were not so registered.
[25] Many Ltd paid the ten per cent deposit of $67,404.24 to Ms Kumar on 1 October 2021.
[26] Ms Kumar performed her obligations under cl 3.1 of the Agreement and delivered the required documents between 7 and 13 October 2021.
[27]Many Ltd paid the first instalment of $269,616.95 on 22 October 2021.
[28] On 29 October 2021, FM105.3 Ltd filed proceedings against Ms Kumar, as executor of the estate of Mr Kumar and in her personal capacity, and against Mr Khan, Radio Tarana and Many Ltd.8 The amended claim filed on 25 May 2022 pleaded three causes of action:
(a)First, against Radio Tarana for quantum meruit or mesne profits for the use of the 105.3 radio frequency claiming $598,637.68 plus a one per cent share of Radio Tarana’s gross revenue.
(b)Second, against Ms Kumar, as executor and in her personal capacity, and Many Ltd for repayment of net loans to Mr Kumar of $859,505 plus interest; and
(c)Third, against all defendants pleading that the Loan Advance debt is not due or that FM105.3 Ltd is entitled to set off the advance against its claim against Mr Kumar of $854,5059 seeking orders:
(i)for an accounting by the first to fifth defendants to FM105.3 Ltd for their benefits from FM105.3 Ltd;
(ii)declaring that FM105.3 Ltd was entitled to a set off;
(iii)that Ms Kumar render accounts as to administration of Mr Kumar’s estate to the Court and to FM105.3 Ltd; and
(iv)cancellation of FM105.3 Ltd’s shares held by Many Ltd on account of the sums due by the defendants.
[29] Mr Khan’s evidence is that the proceedings were not notified and served until well into 2022. However, from the correspondence discussed below, both Ms Kumar and Many Ltd appear to have been aware that there was a dispute between FM105.3
8 Proceeding number: CIV-2022-404-21.
9 It appears this figure ought to be $859,505, although nothing turns on this figure in this judgment.
Ltd, Mr Ravenhall and Mr Gray, the Kumars, Mr Khan, Many Ltd and Radio Tarana from as early as November 2021.
[30] Paul Dalkie, counsel for Ms Kumar, sent an email on 22 November 2021 to Michael Wigley, counsel for Many Ltd and Mr Khan, and to Ivan Vodanovich, counsel for FM105.3 Ltd and Mr Ravenhall. The email said there had been discussion between the parties about resolving the matters in dispute and that Mr Wigley had relayed the substance of a proposal to him. Mr Dalkie sets out the proposal as he understands it, (apparently from the perspective of his client (Ms Kumar)) as follows:
(a)Many Ltd will acquire the shares from Ms Kumar under the existing and current Agreement between them;
(b)the third tranche payment under the Agreement (counting the deposit as the first) would not now be paid until mid-April 2022;
(c)the final payment will be paid short by $50,000 from the amount specified in the Agreement;
(d)the other two shareholders in FM105.3 Ltd, Mr Ravenhall and Mr Gray, will make no claims against the estate of Mr Kumar or Ms Kumar; and
(e)no issues or claims arise from the recent discussions of the transactions that flowed in and out of FM105.3 Ltd’s account where Mr Khan and/or his interests and Mr Kumar and/or his interests were involved.
[31] At the end of the email, Mr Dalkie asks if everyone agrees to that, noting that it will be “recorded in a deed of agreement of some kind.”
[32] Mr Wigley responded that same day saying that draft settlement agreements had been prepared and were with Mr Khan for review. Mr Wigley explains they are in the form of: a settlement agreement; a sale and purchase agreement between FM105.3 Ltd, Mr Ravenhall and Mr Gray; and a variation of the existing agreement between Many Ltd and Ms Kumar. The email finishes by saying “the objective here is to settle everything once and for all with no come back (eg Many against
[Mr Ravenhall] and [Mr Gray] and FM105.3, [Mr Ravenhall] and [Mr Gray] against [Ms Kumar] and estate)”.
[33] On 16 January 2022, Many Ltd issued summary judgment proceedings against FM105.3 Ltd and Mr Ravenhall following their refusal to register the 38 shares to Many Ltd in FM105.3 Ltd’s share register and give notice to the Companies Office.
[34] Ultimately, on 8 April 2022 the 38 ordinary shares in FM105.3 Ltd were registered in the name of Many Ltd. The shares remain registered in the name of Many Ltd.
[35] By this time the balance of the purchase price had still not been paid. Demand was made by Mr Dalkie on behalf of Ms Kumar on 18 May 2022 by email to Mr Wigley saying:
It appears that the share transfer from [Ms Kumar] to [Many Ltd] was registered on 8 April 2022 … Copy of the Company Extract attached. Can you have your client now attend to the payment of the balance of the purchase price ($337,021.20) to our client.
[36]On 10 September 2022, two agreements were entered into:
(a)a settlement deed between FM105.3 Ltd, Many Ltd, Mr Ravenhall, Mr Gray, Radio Tarana and Mr Khan; and
(b)an agreement for Many Ltd to purchase the shares in FM105.3 Ltd held by Mr Ravenhall and Mr Gray.
[37] As a result of the above, the proceedings brought by FM105.3 Ltd were discontinued against all parties including Ms Kumar. Ms Kumar was not however a party to the settlement deed and no separate agreement or written variation to the Agreement is in evidence. Nor is there any correspondence between Mr Dalkie and Mr Wigley in evidence from this time until Mr Wigley’s response on 4 November 2022 to Ms Kumar’s demand for payment of the balance of the purchase price. In this email Mr Wigley said that the resolution of the proceedings by FM105.3 Ltd was on the basis of his clients incurring substantial additional loss and costs due to the multiple
problems with FM105.3 Ltd that his clients, Many Ltd and Mr Khan, were not aware of when agreeing to buy the shares and take over the Loan Advance debt. Mr Wigley says that Mr Khan did not receive the 24 September 2021 email from Mr Thapliyal to Mr Khan until 11 October 2021 and that if his clients had known about the problems they would not have proceeded as they did when entering the Agreement on 1 October.
[38] On 18 November 2022, Ms Kumar’s solicitors responded to Mr Wigley saying that the shares had been transferred to Many Ltd on 8 April 2022 and that at that point the balance of the purchase price, $337,021.20, fell due for payment. The letter asserts that the required disclosure was made; and proposes that payment of the balance occurs in three tranches if Many Ltd is not able to pay the full amount immediately. The letter concludes by saying that if they have not heard back by Friday, 25 November 2022, they have instructions to file summary judgment proceedings.
[39] On 29 November 2022, Mr Wigley responded again saying Mr Khan was not aware of the multiple problems including “false accounts” and the large current account sums owed by Mr Kumar. Mr Wigley repeated that if Many Ltd and Mr Khan had known of the problems, Many Ltd would not have entered into the Agreement and that “[k]nowing of UDC and Diner events some time before that agreement is well short of knowing of the multiple problems”. Mr Wigley confirmed he would accept service of the proceedings and that a counterclaim was inevitable.
[40] On 24 February 2023, Ms Kumar filed this application for summary judgment together with an affidavit in support seeking payment of the balance due under the Agreement plus interest and costs. A further affidavit was filed on 26 April 2023, confirming that Many Ltd had been registered as the owner of the shares previously held by Mr Ravenhall and Mr Gray, so that Many Ltd was the sole shareholder of FM105.3 Ltd. The 26 April affidavit also confirmed that Mr Khan was appointed as the sole director of FM105.3 Ltd on 21 February 2023.
[41] Many Ltd filed a notice of opposition on 15 May 2023 together with an affidavit of Mr Khan and a statement of defence and counterclaim.
[42] The statement of defence includes an affirmative defence relying on the vendor’s warranties (cl 6.2), the obligation to disclose (cl 6.3), and the vendor’s indemnity (cl 6.4) in the Agreement.
[43] Many Ltd’s pleading includes that at all material times after Mr Kumar died in December 2018, Ms Kumar managed and controlled his accounting business, Professional Accounting Services Ltd (PAS).
[44] The statement of defence further pleads that Ms Kumar was informed of the following matters on 21 September 2021, as they were contained in a director’s report for FM105.3 Ltd’s shareholders:
(a)that the accounting information for FM105.3 Ltd provided by PAS was “very limited” and an incomplete record;
(b)that the new accountant for FM105.3 Ltd could not make “head nor tail” of the accounts and was unable to provide Mr Ravenhall with anything more than a draft set which is incorrect;
(c)PAS had compiled numerous financial accounts prepared for each year and it was not possible to ascertain which one was the true and correct record;
(d)there were multiple transactions which were unable to be identified such as:
(i)large payments received from UDC, referenced “Radio Tarana” totalling $847,850.21 over several years;
(ii)large deposits from a Diners Club account totalling
$2,179,274.14 over several years;
(iii)significant transactions deducted from the FM105.3 Ltd bank account with only “transfer” as a reference, indicating
movement of monies to another bank account not held by FM105.3 Ltd;
(iv)$54,465.46 deducted by Mr Kumar from ATMs around the country and overseas;
(v)$69,642.12 spent at public bars around New Zealand and overseas; and
(vi)cheques written where the cheque book had not been provided and information cannot be obtained as to these cheques.
[45] The statement of defence continues that the accounts need to be examined to make sense of the above transactions and fully understand where the money has been debited and credited in order to prepare a set of financial accounts that are true, accurate and suitable for signing, disbursements of possible asset sales, tax obligations and eventual windup.
[46] The defence then pleads that Mr Ravenhall as director is engaging KPMG on behalf of FM105.3 Ltd to gain clarity on the previous accounts and enable them to prepare the financials for the subsequent years. This pleading is difficult to understand as Mr Khan was the sole director of FM105.3 Ltd at the time the statement of defence was filed, and the settlement deed had been entered into the September prior.
[47] The statement of defence continues that Ms Kumar had further adverse information about the affairs of FM105.3 Ltd and the role of Mr Kumar prior to entering into the Agreement on 1 October 2021. This pleading is particularised with reference to FM105.3 Ltd’s 25 September 2019 shareholders’ meeting in which FM105.3 Ltd’s bank statements were produced to Ms Kumar in her roles as executrix, wife to Mr Kumar, and as manager and director of PAS (which held accounting and other information about FM105.3 Ltd). The particulars go so far as to say that Ms Kumar was aware that the formal accounts were not reconcilable with the prime records and that the loans to the company were substantially misstated so that it could be alleged that Mr Kumar’s estate was substantially indebted to FM105.3 Ltd. The
pleading refers to a previous or alternative understanding represented in a letter from FM105.3 Ltd to Ms Kumar’s lawyers dated 7 October 2021 and accounting information about FM105.3 Ltd provided to the company by PAS.
[48] In addition, the particulars state that Ms Kumar was aware that tax returns had not been filed and that where filed the returns were incorrect.
[49]Ms Kumar has not filed a statement of reply or defence to the counterclaim.
Does Ms Kumar’s failure to file a statement of reply to the statement of defence result in those pleadings being admitted?
[50] Counsel for Many Ltd submits that because Ms Kumar has not filed a statement of reply or defence to the counterclaim Ms Kumar must be deemed to have admitted the matters pleaded.
[51] I do not accept that in the context of a summary judgment application, a failure to file a statement of reply or defence to a counterclaim necessarily means that the matters pleaded must be taken as admitted.
[52] Rule 12.10 of the High Court Rules provides that a party “may” file a statement of defence where a summary judgment application has been brought under r 12.3 but it is not required.
[53] Counsel for Ms Kumar appeared to have treated the statement of defence as a draft. There is no evidence before the Court as to how the statement of defence was served on Ms Kumar and whether it ought to have been clear that it had been filed.
[54] In any event, given the purpose of summary judgment is to provide a shortcut to judgment, bypassing the usual steps in proceedings, it seems inconsistent to require parties to take those steps in any event.
[55] I therefore do not treat any of the matters pleaded in the statement of defence and counterclaim as admitted simply as a result of not filing a statement of reply or defence.
Is it reasonably arguable that Ms Kumar breached the warranties?
[56] Counsel for Many Ltd emphasises that warranties are different from other contractual terms such as in relation to representations. Mr Wigley relies on Chief Executive of the Department of Corrections v Fujitsu New Zealand Ltd (Fujitsu) where Cooke J emphasised that claims for breach of contractual warranty involve important features that distinguish them from claims for misrepresentation and for misleading and deceptive conduct under the Fair Trading Act 1986 and held:10
The essential purpose of contractual warranties is risk allocation. Commercial contracts involve commercial risks associated with the promises that each of the parties are making to each other. Warranties are a technique which contractually shifts a risk, or alters the nature of the risk as part of the contractual bargain.
[57]Cooke J went on to say:11
The further key feature of a claim for breach of warranty arises from strict liability. Unlike claims for misrepresentation there is no need to establish reliance before liability arises.12 The overall position is summarised by John Cartwright in Misrepresentation, Mistake and Non-disclosure in the following way:13
Breach of contractual promise as to the truth of the statement
Where the defendant has given in the contract a warranty that his statement was true, the breach of contract is established by simply showing that the statement was false. Similarly, if the defendant gave a warranty that a statement will remain true during the performance of the contract, the breach is established by showing that the statement has become false. The claimant need not show that the defendant was fraudulent or negligent in making the statement, nor will the defendant be able to use evidence of his innocence to avoid liability. Nor, in order to establish breach of contract, is it necessary for the claimant to show that he relied on the statement and suffered loss. It is sufficient to show that the statement was a term of the contract and was broken. The obligation which the defendant has undertaken in the contract is strict; his liability flows from simple non-performance (that is, from his breach of promise that the statement was true).
10 Fujitsu, above n 2, at [120] – [121].
11 At [123].
12 Turner v Anquetil [1953] NZLR 952 at 957.
13 John Cartwright Misrepresentation, Mistake and Non-disclosure (5th ed, Sweet & Maxwell, London, 2019) at [8–23] (footnotes excluded).
[58] One of the warranties relied on by Many Ltd in their statement of defence, cl 6.2(f), states:
(f) To the best of the Vendor’s knowledge and belief, there are no lawsuits, claims, proceedings, investigations or adverse events that may occur, be threatened, brought, asserted or commenced against the Vendor in relation to the Sale Shares and Loan Advance or the Company in relation to the Business in any way.
[59] “Business” is defined in the Agreement as the holding of a radio spectrum licence.
[60] The warranty in cl 6.2(f) is therefore very broad, extending to “investigations or adverse events”, neither of which are defined, that “may occur against Ms Kumar” in relation to the shares or Loan Advance or against FM105.3 Ltd in relation to the holding of the radio spectrum licence. The warranty is only to the extent of Ms Kumar’s knowledge and belief — as opposed to several of the other warranties which are unqualified.
[61] Importantly the opening paragraph of cl 6.2 states that all of the warranties shall be deemed to be repeated on the settlement date with reference to the facts then existing. The Agreement defines the settlement date as the date the purchaser has received evidence satisfactory to the purchaser of registration of the share transfer on the Company share register.
[62] It is reasonably arguable that the matters referred to in Mr Ravenhall’s 21 September 2021 director’s report are matters that could be described as investigations or adverse events that Ms Kumar would have been aware of both at the time she entered into the Agreement, and at the time the shares were registered. This provides a reasonably arguable defence based on a breach of this warranty at the time of entering into the Agreement at least (although perhaps not on settlement date depending on Ms Kumar’s understanding of the terms of settlement between Mr Khan and his associated entities and FM105.3 Ltd and Messrs Ravenhall and Gray).
[63] Counsel for Ms Kumar submits the Fujitsu decision can be distinguished because the warranty in issue in that case is categoric and is not qualified at all.
[64] I do not accept that Fujitsu can be distinguished on that basis. Cooke J’s discussion of one of the warranties given in that case, that the Quintiq solution would “seamlessly integrate” with the existing SAP payroll systems, demonstrates this.
[65] After referring to the fact that by the time of execution of the contracts in Fujitsu it had become apparent that integration with the SAP systems was significantly more complex than initially expected, and that it could no longer be seen as seamless or easy, Cooke J held:14
But Fujistu nevertheless warranted that integration with SAP was easily achievable in the way represented, that that position had not changed in an adverse way since the RFP response, and that this continued to be true. The risk that integration was not as easy as the parties had initially thought was accordingly a risk taken by Fujitsu. I agree that it is odd that a party would be warranting something it knows may not be true but that is the contractual bargain that Fujitsu struck.
[66] In this case, in the statement of defence and in the written submissions there was significant focus on the knowledge of Mr Khan at the time he entered into the Agreement. It is difficult to accept Mr Khan’s evidence that he did not receive the email on 24 September 2021 when there is a copy of the email sent included in the annexures to his own affidavits and from his involvement in the background. Furthermore, his evidence that he did not become aware of the issues until 11 October 2021 seems undermined by the fact that his lawyer was discussing the issues in written correspondence on 7 October 2021.
[67] But the fact that Many Ltd may also have been aware of ‘potential investigations or adverse events,’ does not affect whether Ms Kumar breached the warranty in cl 6.2(f). As Cooke J held in Fujitsu liability under a warranty is strict, with the claimant not having to prove reliance or loss.15 Breach is established simply by proving the statement is false.
[68] The interpretation of this warranty is not necessarily straightforward. However, in terms of the summary judgment application it is reasonably arguable that Many Ltd has a defence based on the cl 6.2(f) warranty, assuming that the decision to
14 Fujitsu, above n 2, at [153].
15 At [123].
elect to proceed despite the right to cancel in cl 5.3 does not affect this warranty as discussed in the next section.
[69] I do not need to consider the remaining warranties because an arguable breach of this one warranty is a sufficient basis for declining the summary judgment application. This is because the 21 September 2021 director’s report says that instead of the Loan Advance debt being owed to Mr Kumar, there is instead approximately
$850,000 owed to FM105.3 Ltd and the Agreement includes a broad indemnity in respect of “any loss, claim, damage, expense, liability or proceeding” suffered or incurred as a direct result of any breach of warranty.
[70] I note that by the settlement date some of the alleged accounting issues may have been resolved as there is a letter in evidence from the solicitors for FM105.3 Ltd and Mr Ravenhall to Many Ltd’s solicitors dated 1 July 2022 including a draft balance sheet showing the Loan Advance debt due by FM105.3 Ltd to Many Ltd for its full amount of $294,042.39. Furthermore, the FM105.3 Ltd share value is calculated based on the equity remaining after deducting the full value of what is referred to as the “P Kumar Loan/MANY Ltd Loan”. The calculation of the price of Mr Ravenhall and Mr Gray’s shares for the purposes of settlement therefore appears to treat the Loan Advance debt as owing in its full amount.
[71] In addition to this, there is a 10 January 2022 letter from Mr Wigley to FM105.3 Ltd’s lawyers setting out why the original claim of $859,505 apparently owing by Mr Kumar was incorrect.
[72] Furthermore, in Mr Kahn’s affidavit filed in support of the summary judgment application brought by Many Ltd against FM105.3 Ltd, Mr Khan gives evidence that there is no debt of “$847,850” owing as the UDC funds paid into the account were all or nearly all paid out to Radio Tarana as part of the same transaction.
[73] The actual position is therefore not straightforward. And this is before considering whether a variation to the Agreement was agreed to as referred to in Mr Dalkie’s November 2021 email. Clause 9.2 of the Agreement provides that no
amendment is binding unless it is in writing and signed by the parties but whether this is determinative is a matter for full consideration in the substantive proceeding.
[74] As far as this summary judgment application is concerned however, there is a reasonably arguable defence based on the warranty in cl 6.2(f) of the Agreement, if the decision to elect to proceed despite cl 5.3 does not prevent reliance on any such breach.
Does the decision to proceed despite the right to cancel in accordance with cl 5.3 clearly amount to an election so as to prevent reliance on any breach of warranty?
[75] Ms Kumar submits that as Many Ltd did not cancel pursuant to cl 5.3 of the Agreement when the shares had not been registered by 28 January 2022, Many Ltd has affirmed the Agreement and is no longer able to rely on any breaches of warranty.
[76] The doctrine of election provides a right at common law for an innocent party not to be obliged to cancel in respect of a breach by the other party, however serious or fundamental that breach might be. The doctrine prevents a guilty party from unilaterally terminating a contract by breaking it.
[77] The authors of Burrows, Finn and Todd on the Law of Contract in New Zealand, confirm that this common law position is preserved by the Contract and Commercial Law Act 2017 (the CCLA).16 They explain by referring first to ss 36 and 37 of the CCLA which provide that a party may cancel a contract in respect of the types of breach outlined in those sections, but not that the contract is automatically cancelled by those breaches. In discussing what amounts to an affirmation, the authors refer to s 38 of the CCLA which provides:
A party is not entitled to cancel the contract if, with full knowledge of the repudiation, misrepresentation, or breach, the party has affirmed the contract.
[78]The authors explain:17
The effect of this section is that an affirmation of the contract is final, and the affirming party cannot subsequently change his or her mind and cancel in
16 Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, Lexis Nexis, Wellington, 2022) at [18.3].
17 At [18.3.2].
respect of that breach. This reproduces the earlier law. Affirmation had its origins in equity and “rests on the underlying notion that an aggrieved person must elect between fundamentally inconsistent rights”. This means that it is vital to know whether a party’s conduct amounts to affirmation. A party affirms, if, with full knowledge of the facts, he or she makes it clear by words or acts, or even by silence, that he or she refuses to accept the breach as a discharge of the contract. Randerson J has said [in Jansen v Whangamata Homes Limited18]:
It must be shown that the electing party made a firm and settled choice and does not intend to go back on it. Putting it another way, the electing party must be shown to have committed irrevocably to one of two inconsistent courses of action.
Conduct which is more equivocal and less decisive than this will not amount to affirmation, and the court may be inclined to hold that the innocent party is still keeping his or her options open.
Affirmation requires an unequivocal choice. This is determined by an objective assessment of the party’s actions, and may be imputed “irrespective of actual intention or subsequent rationalisation”.
(footnotes from text omitted)
[79] Ms Kumar submits that because Many Ltd elected to proceed with the Agreement in circumstances where it had a right to cancel, Many Ltd can no longer rely on any breach of warranty. The factors that Ms Kumar points to in support of this are:
(a)Many Ltd did not reserve its position at all on any alleged claim for damages. It proceeded to have FM105.3 Ltd register its shares and did so at a time when the balance had not been paid. Many Ltd did not alert Ms Kumar at any stage that it would not pay the balance due because of an alleged claim for damages from a breach of warranty.
(b)Many Ltd knew all of the facts about FM105.3 Ltd prior to the time of the Agreement because Mr Khan had the 24 September email with the attachments. Even if that is not the case, Mr Khan did by the time he paid the deposit — which he paid without comment. He then went on to affirm the Agreement by conduct when he instructed his lawyers to
18 Jansen v Whangamata Homes Limited HC Hamilton CIV-2023-419-1511, 29 November 2004. Although differing in the conclusion on the facts, the Court of Appeal did not disagree with Randerson J’s statements of principle: [2006] 2 NZLR 300 (CA).
draw up documents to sue FM105.3 Ltd when the shares were not registered in Many Ltd’s name.
(c)Even after that, Many Ltd then purchased all of the remaining shares in FM 105.3 Ltd.
(d)In addition, by saying nothing to Ms Kumar, Many Ltd’s conduct through Mr Khan meant Ms Kumar lost her right under cl 5.3 to cancel the Agreement, and to sell the shares elsewhere for the same price. Ms Kumar considers that this failure to inform her that Many Ltd was reserving its rights on damages for a claim deprived her of the right to cancel the Agreement.
[80] I consider that it is reasonably arguable that the decision to proceed with the Agreement and require registration of the shares is not an affirmation of the Agreement that prevents Many Ltd from relying on any breach of warranty or the indemnity.
[81] As the discussion above from Burrows, Finn and Todd makes clear, affirmation requires an unequivocal choice. For the doctrine of election to assist Ms Kumar, the decision to proceed would have to be inconsistent with the warranties continuing after Many Ltd brought proceedings requiring FM105.3 Ltd to register the share transfer.
[82] But that step may not be inconsistent with the warranties continuing. The warranties themselves are deemed to be repeated on the settlement date. As set out above, the settlement date is defined as the date the purchaser has received evidence satisfactory to the purchaser of registration of the share transfer on the company share register. The warranties appear therefore to be intended to continue because they are deemed to be made again on settlement date. This date occurred after Many Ltd had filed proceedings against FM105.3 Ltd to enforce the registration of the share transfer.
[83] As Cooke J held in Fujitsu, it is odd that a party would be warranting something it knows may not be true, but that may be the contractual bargain that has been struck.19
19 Fujitsu, above n 2, at [153].
[84] Therefore, even if Many Ltd knew of or suspected breaches of warranty, this may not affect whether they remain in effect.
[85] In these circumstances, I consider that that the doctrine of election does not clearly prevent Many Ltd relying on any breach of warranty so Many Ltd continues to have a reasonably arguable defence based on a possible breach of the warranty in cl 6.2(f).
Result
[86]The application for summary judgment by Ms Kumar is declined.
Costs
[87] Costs are reserved until determination of the substantive proceedings in accordance with the usual position as set out in NZI Bank v Philpott.20
Associate Judge Sussock
20 NZI Bank v Philpott [1990] 2 NZLR 403 (CA).
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