Patel v Dunbar

[2021] NZHC 1687

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2020-485-20

[2021] NZHC 1687

BETWEEN

JIGNESH PATEL and SOHINI PATEL

First Plaintiffs/first counterclaim defendants

INDIAGO LIMITED
Second Plaintiff/second counterclaim defendant

AND

SALLY-ANNE DUNBAR

First Defendant/first counterclaim plaintiff

IMMIGRATION CENTRE LIMITED

Second Defendant/second counterclaim plaintiff

Hearing:	27 May 2021
Appearances:	D Livingston for plaintiffs/counterclaim defendants J D Haig for defendants/counterclaim plaintiffs
Judgment:	7 July 2021

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

Introduction and background

[1]    On 28 April 2019 Indiago Ltd, then called Immigration Centre Ltd, and Jignesh and Sohini Patel, on the one hand, and Sally-Anne Dunbar (in two capacities

— as both purchaser and guarantor), on the other hand, entered into an agreement whereby Indiago Ltd and Mr and Mrs Patel agreed to sell, and Ms Dunbar agreed that she or her nominee would purchase the company’s immigration consultancy business, and that she would guarantee the obligations of any nominated purchaser. The original Immigration  Centre  Ltd  subsequently  changed  its  name  to  Indiago  Ltd,  and

PATEL v DUNBAR [2021] NZHC 1687 [7 July 2021]

Ms Dunbar incorporated a new company known as Immigration Centre Ltd and nominated that company as the purchaser of the business.

[2]    The agreement for sale and purchase followed a marketing campaign by the Patel interests and a due diligence exercise by the Dunbar interests during the second half of 2018 and the first half of 2019, both parties being assisted by professional advisers throughout. After the execution of the original agreement, aspects of the same were renegotiated.

[3]Some important terms of the final agreement were as follows:

(a)The sale and purchase price was $1.5 m. The business had very little in the way of fixed assets so that the $1.5 m price was virtually entirely made up of good will, based on a warranted turnover for the FYE     31 March 2018 of $1,332,758. The price was payable in three tranches;

$150,000 by way of a deposit on execution of the agreement; $850,000 on settlement; and $500,000 on 16 December 2019;

(b)To support the value placed on the goodwill of the business, the Patels agree to restraints of trade to operate worldwide for a period of three years;

(c)Mr and Mrs Patel both agreed to continue working in the business during a “period of assistance” of 20 working days to ensure a smooth transition, and Mr Patel also agreed to accept employment or engagement from the conclusion of  the  transition  period  as  National Sales Manager, either as employee or contractor.

[4]    On execution and settlement of the agreement the deposit and second tranche of the sale and purchase price were paid.

[5]Following settlement things did not go well.

[6]    In their affidavit evidence Mr Patel and Ms Dunbar describe how they say matters unfolded.

[7]    It is unnecessary to attempt a comprehensive summary of all of this, but here are some key points:

(a)The relationship between Mr Patel and Ms Dunbar was not an especially productive one. Mr Patel did not approve of the direction in which Ms Dunbar wished to take the business and did not enjoy the transition period or relish the notion of remaining involved after the conclusion of that period. Ms Dunbar for her part says that she received no cooperation from Mr Patel during the transition period;

(b)In any event, the relationship between the new business and Mr Patel came to an end on 22 August 2019;

(c)From the date of settlement the business turnover plummeted, and never reached the turnover level at which it was operating prior to the sale, or anything like it. Mr Patel and Ms Dunbar have diametrically opposed views as  to  why  this  was  so.  Mr Patel  attributes  it  to  Ms Dunbar’s management and Ms Dunbar puts it down to Mr Patel’s lack of cooperation with the handover of the business;

(d)On 14 November 2019 the Dunbar interests purported to cancel the sale and purchase agreement for breach. The alleged breaches of contract are many and varied, but the central one was the alleged failure — effectively by Mr Patel — to hand over everything that comprised the goodwill of the business;

(e)Unsurprisingly, 16 December 2019 came and went, and the third tranche of the sale and purchase price was not paid;

(f)On 22 January 2020 the Patel interests commenced this proceeding. Their claim was and is for the payment of the third tranche of the sale and purchase price. On 28 February 2020 the Dunbar interest entered a statement of defence and counterclaim. In their counterclaim they

claim damages for breach of contract — essentially the sale and purchase price together with interest and costs;

(g)Between the first case management conference in August 2020 and November 2020 the parties provided standard discovery. Neither party accepts that the other has provided adequate discovery.

[8]    Before the Court for determination are interlocutory applications by both the Patel interests and the Dunbar interests.

Applications

[9]    The application by the Patel interests is primarily for further discovery and seeks:

(a)All Documents relating to the Immigration Centre Limited’s (ICL) contact with current, past and potential clients (Clients) from 1 May 2019 to 31 December 2019 (the relevant period), including:

a.     Reports from ICL’s InfusionSoft software for the relevant period relating to:

i.The number of current working files recorded for each month;

ii.The number of current working files recorded for each month;

iii.All records of communication between ICL and current, potential, or past clients;

iv.the methods of communication between ICL and Clients;

b.     All relevant correspondence (such as potential ICL client enquiries and ICL client correspondence) with ICL via the ICL Facebook page for the period May 2019 to December 2019; and

c.     All data from the Facebook “insights” page that relates to interest in ICL or the popularity of ICL (such as growth through “likes” and followers, posts made, responses to posts etc.) for the period May 2019 to December 2019;

(ii)Calls logs for staff mobile phone numbers and all phone lines at ICL between   1 May 2019 and 31 December 2019;

(iii)Any enquiries by potential clients to the email domain “@immigrationcentre.co.nz” (or any other email domain used for contacting clients) between 1 May 2019 to December 2019;

(iv)The number of emails sent between Clients and the email domain “@immigrationcentre.co.nz” (or any other email domain used for contacting clients) between 1 May 2019 to December 2019;

(v)All wage and employment records (such as PAYE records, payslips, or IRD Payday filing/employer monthly schedules) for the period May 2019 to December 2019; and

(vi)Documents relating to the damages claimed by the counterclaim plaintiffs including:

i.     Documents relating to losses claimed;

ii.    Any changes to the structure and/or operation of ICL between 1 May 2019 and the present.

[10]The application by the Dunbar interests seeks the following:

(a)Particulars of email accounts and addresses (whether personal or work accounts or addresses) which were used by Mr and Mrs Patel or anyone else on behalf of the second defendant at any time in relation to the affairs of the business;

(b)An order for the forensic examination of the email addresses and mobile phones from 1 January 2019;

(c)Further discovery of bank statements of members of Mr and Mrs Patel’s family to which funds from the sale of the business were paid.

The Patel application

[11]   In large measure, whatever scope there may have been for differences between the parties in connection with this application has been diffused by the response of the Dunbar interests. The entitlement of the Patel interests to the further discovery sought by them and outlined earlier is not accepted. Nevertheless, the Dunbar interests have responsibly indicated that they will discover all documentation in their possession or power within the categories sought.

[12]   Mr Haig has provided a table that sets out the response, category by category, and this is reproduced as a schedule to this judgment. In my judgment, the most useful orders or directions that the Court can make at this stage are to require the Dunbar interests to provide further discovery in the terms indicated in the attached schedule and reserve leave to the Patel interests to apply further, if, following further discovery, any issues remain.

The Dunbar application

[13]Essentially, the Dunbar interests’ application concerns two matters.

[14]   First, the Dunbar interests seek discovery of the bank account statements of Mr and Mrs Patel’s minor children.

[15]   As far as I can see the basis for this application is that a proportion of the sale and purchase proceeds, having first been credited by the Dunbar interests to an account held by Mr and Mrs Patel or their company, were subsequently transferred, presumably at Mr and Mrs Patel’s behest, to an account in their (minor) son’s name, and it is said that this shows a propensity on the part of Patel interests “to hide funds”.

[16]   In my view, it shows nothing of the sort. Even if it did do, it is difficult to see how that is relevant at this stage of the proceeding. It is not as though the Dunbar interests have a judgment on their counterclaim and are looking to follow funds and establish a proprietary interest in funds held in Mr and Mrs Patel’s son’s account.

[17]   I am unpersuaded that there is any realistic prospect of the bank statements of Mr and Mrs Patel’s children’s bank accounts containing any information relevant to any issue in this proceeding.

[18]   The second aspect of the application involves both a request for information and further discovery. It concerns email addresses and mobile phone numbers used in the course of the Patel interests’ business both before and after the settlement of the sale and purchase transaction.

[19]   On the evidence, it is clear that much of the business conducted by the enterprise was done by Mr and Mrs Patel and employees of the business by email and telephone. It would be surprising were it otherwise.

[20]   Given the nature of the dispute between the parties as captured in the counterclaim — involving as it does allegations of misrepresentation and breach of contract — I accept the submission advanced on behalf of the Dunbar interests that there is a realistic prospect that an interrogation of those email addresses and mobile telephone numbers will reveal evidence supporting the contentions of one side or the other.

[21]   On behalf of the Patel interests Mr Livingston submits that the application relating to the email addresses and mobile telephone numbers used in the business is “fundamentally misconceived and overboard”. It appears to me that if a significant issue between the parties is whether the Patel interests misrepresented the position or breached the terms of the contract by not facilitating the transfer of the addresses and numbers or, for example, consciously ensured that the Dunbar interests did not receive all that they had bargained for, as is alleged, then information contained on the devices referred to as to the conduct of the business is likely to be relevant and discoverable.

[22]   Both parties accept the Court has jurisdiction under rr 8.19 and 9.34 of the High Court Rules to make the orders sought and I propose to do so.

Conclusion

[23]In relation to the application by the plaintiff/counterclaim defendant parties:

(a)the Dunbar interests are to provide further discovery in the terms indicated in the attached schedule within 20 working days of the date of this judgment;

(b)leave is reserved to the Patel interests to apply further, if, following further discovery by the Dunbar interests as ordered in (a) above, there remain issues relating to such discovery.

[24]In relation to the application by the defendant/counterclaim plaintiff parties:

(a)the application concerning the discovery of the bank account records of Mr and Mrs Patel’s minor children is dismissed;

(b)within 20 working days of the date of this judgment the Patel interests are to file and serve a supplementary affidavit identifying comprehensively all email accounts or addresses and all mobile telephone numbers used by the business formerly owned, governed and managed by Mr and Mrs Patel and the company now known as Indiago Ltd in the course of its business from 1 January 2019;

(c)pursuant to r 9.34 of the High Court Rules, I order that the Patel interests permit and facilitate a forensic computer specialist nominated by the Dunbar interests to inspect those email accounts or addresses and mobile phone numbers for electronic documentation relevant to the issues between the parties to this proceeding;

(d)following that exercise, the Dunbar interests are to file and serve affidavit evidence including a comprehensive list of all material extracted from those email accounts or addresses and mobile telephone numbers;

(e)pending further order of the Court, all such information is to be treated as confidential and, so far as the Dunbar interests are concerned, to be viewed only by the Dunbar interests’ solicitors and counsel engaged in

this proceeding and expert witnesses that the Dunbar interests’ solicitors anticipate calling to give evidence in this proceeding.

[25] Following the hearing on 27 May 2021 counsel filed and served memoranda concerning the terms of the orders being sought (by the Dunbar interests). As will be apparent I have felt able to deal with this matter without addressing the particular issues raised by counsel in those memoranda. However, out of an abundance of caution, I reserve leave to all parties to come back to the Court by memorandum in connection with the terms and implementation of the order s in [24].

[26]Costs are reserved.

Associate Judge Johnston

Solicitors:

Livingston & Livingston, Wellington for plaintiffs/counterclaim defendants Mcalister Mazengarb, Wellington for defendants/counterclaim plaintiffs

SCHEDULE

Para [39] ref	Docs sought	Defendant’s response
(a)(i)	Reports from InfusionSoft.
(a)(i)A	The number of current working files recorded for each month.	These will be discovered in the format of ICL’s General Manager’s monthly reports
(a)(i)B	The number of new clients and contacts added each month.	The number of new clients is information disclosed in the GM’s monthly reports. The defendant is reviewing whether new contact information can be extracted from InfusionSoft.
(a)(i)C	All records of communication between ICL and current, potential, or past clients.	Emails to and from the inquiries email address will be discovered. It is understood there are approximately 14558 incoming and 5764 outgoing emails in this category.
(a)(i)D	The methods of communication between ICL and clients.	This information is known to the plaintiffs and is not a request for documents.
(b)	All relevant correspondence with ICL via the ICL Facebook page.	Further inquiries are being made as to what information can be obtained from ICL’s Facebook account.
(c)	All data from the ICL Facebook “insights” page.	Ditto above.
(d)	Call logs for staff mobile phone numbers and all phone lines at ICL.	Staff mobile numbers were not used to conduct ICL business from settlement. Call information can be discovered for ICL’s other numbers.
(e)	Any inquiries by potential clients the email domain @immigrationcentre.co.nz.	The emails to the [email protected] address are addressed at (a)(i)C above. Further inquiries as to whether individual email addressees can be provided are ongoing.
(f)	The number of emails sent between clients and the email domain @immigrationcentre.co.nz	Ditto above.
(g)	All wage and employment records.	The total sums paid to employees and consultants have already been discovered (in ICL’s profit and loss statements). There is no justification to go further. All staff employment contracts have been discovered.
(h)(i)	Documents relating to losses claimed.	These have been discovered however, documents addressing consequential losses will be discovered in the defendant’s supplementary discovery list.
(h)(ii)	Any changes to the structure and/or operation of ICL between 1 May 2019 and the present.	This question/category is overly broad and undefined. As noted in submissions for the defendant, the relevant and discoverable documents from the sale of the ICL business early this year will be discovered in accordance with the defendant’s continuing discovery obligations.