Saha v Reardon
[2015] NZHC 638
•1 April 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2013-404-005129 [2015] NZHC 638
IN THE MATTER of SAHA INTERNATIONAL
PARTNERSHIP
BETWEEN
GOVIND PRASAD SAHA Plaintiff and First Counterclaim Defendants
AND
TIMOTHY PETER REARDON
First Defendant and Second Counterclaim
DefendantNEIL ANTONY LOWNE FROST
Second Defendant and Third Counterclaim
DefendantLUKE BRAMWELL HOUGHTON Third Defendant and Counterclaim Plaintiff
JONATHAN ROBERT MacDONALD MYERS
Fourth Defendant and Fourth
Counterclaim DefendantRICHARD HUGH MORISON
Fifth Defendant and Fifth Counterclaim
DefendantTIMOTHY GERARD ARBUCKLE Sixth Defendant and Counterclaim Plaintiff
MICHAEL ANTHONY PEAD Seventh Defendant and Sixth Counterclaim Defendant
VISWA PHANI KUMAR PADISETTI Eighth Defendant and Seventh Counteclaim Defendant
SAHA v REARDON [2015] NZHC 638 [1 April 2015]
Hearing: 4-5 March 2015 Counsel:
G J Harley and P W G Ahern for Plaintiffs and First
Counterclaim Defendants
J D Haig for First Defendant and Second Counterclaim
Defendant
P R W Chisnall for Second Defendant and Third Counterclaim
Defendant
S A Barker and P J Niven for Third and Sixth Defendants and
First and Second Counterclaim Plaintiffs
No appearance for Fourth Defendant
D K Evans for Fifth and Seventh Defendants and Fifth and
Sixth Counterclaim Defendants
D P MacKenzie for Eighth Defendant and Seventh
Counterclaim DefendantJudgment:
1 April 2015
JUDGMENT OF COLLINS J
Introduction
[1] This judgment explains why I am dismissing applications for summary judgment brought by some of the defendants and cross-claimants and an application to strike out the plaintiffs’ claim for interest.
[2] I have concluded the applications cannot be granted because they depend upon unresolved facts and because there are real questions to be tried. In addition, I have concluded the strike-out application is not appropriate at this juncture.
Context
[3] The first named plaintiff Saha International Partnership (Saha Partnership) was established in 2001. It was engaged in providing management and financial consultancy services in New Zealand, Australia, Namibia and South Africa. It is in the process of being wound up.
[4] The second named plaintiff (Dr Saha) was the founding partner and chief executive of Saha Partnership.
[5] The defendants were at all material times partners in Saha Partnership. The second defendant, Mr Frost and Dr Saha are the only remaining partners of Saha Partnership. Apart from Mr Frost, all defendants retired from Saha Partnership between 28 October 2010 and 1 December 2010. Dr Saha is primarily responsible for conducting the affairs of Saha Partnership in its winding up phase.
[6] Significant disputes have arisen between the plaintiffs and most of the defendants about the state of accounts of Saha Partnership for the financial years ending 31 March 2009 and 2010 and what, if any money the defendants owe Saha Partnership. That part of the dispute between the parties led to the plaintiffs commencing proceedings seeking declarations confirming the validity of the accounts for Saha Partnership for the financial years ending 31 March 2009 and
2010. The plaintiffs also sought orders requiring the defendants to settle any deficit in their net current/capital accounts in Saha Partnership. The plaintiffs have sought interest at the rate of 15 per cent per annum on the amounts the defendants owe the Saha Partnership.
[7] The third defendant (Mr Houghton) and sixth defendant (Mr Arbuckle) responded with a 118 page statement of defence and counterclaim. Very briefly, the counterclaim seeks:
(1)orders reopening Saha Partnership accounts for the financial years ending 31 March 2007, 2008 and 2009 because they contain material errors, were based upon misrepresentations and were not prepared in accordance with the deed of Saha Partnership;
(2)declarations that a set of “settlement principles” said to have been agreed to by most of the parties in December 2010 to facilitate the winding up of Saha Partnership are binding on those parties;
(3)judgment against Dr Saha for his alleged negligence in carrying out his duties as foundation partner and chief executive officer of Saha Partnership;
(4)judgment against Dr Saha for breaching his fiduciary duty to act in good faith towards his partners;
(5)judgment against Dr Saha for breaching his fiduciary duty to be honest with his partners;
(6)judgment against Dr Saha for breaching his fiduciary duty to make all material disclosures to his partners;
(7)judgment against Dr Saha for negligence, breach of contract and breach of fiduciary duty in relation to the retirement of a former partner, Mr Thompson, who has since died; and
(8)judgment against Dr Saha for breach of contract in relation to the way he allegedly allocated income to himself for the financial years ending 31 March 2008 and 2009.
[8] The parties have indicated that if this dispute proceeds to trial approximately six weeks hearing time will be required.
[9] Mr Houghton and Mr Arbuckle have sought summary judgment in relation to five aspects of their counterclaim. They have also applied to strike out the plaintiffs’ claim for interest. The summary judgment/strike-out application initiated by Mr Houghton and Mr Arbuckle is supported by the fourth defendant (Mr Myers) and the eighth defendant (Mr Padisetti).
[10] The first defendant (Mr Reardon) and the second defendant (Mr Frost) do not seek summary judgment. They have, however, filed counterclaims and set-off claims. The fifth defendant (Mr Morison) and the seventh defendant (Mr Pead) also do not seek summary judgment and generally align themselves with the plaintiffs’ opposition to summary judgment and strike-out.
[11] The applications for summary judgment seek:
(1)Orders that the accounts for Saha Partnership for the financial years ending 31 March 2007 and 2008 be reopened and that accounts for the financial years ending 31 March 2009 and 2010 be finalised.
(2) Declarations as to the meaning of two clauses in the deed of Saha
Partnership, the details of which I explain in paragraphs [47] to [58].
(3)Judgment against Dr Saha in relation to his alleged breaches of his fiduciary duty to disclose material financial information to his partners.
(4)Judgment against Dr Saha relating to his actions concerning the retirement of Mr Thompson from the Saha Partnership.
(5)Judgment as to liability only and an order for specific performance in relation to Dr Saha’s obligations in relation to a contract called “Kudu ASP”.
[12] The application to strike out the plaintiffs’ claim for interest is based on
Mr Houghton and Mr Arbuckle’s belief that the plaintiffs have no right to interest.
[13] The complexity of the application for summary judgment and strike-out can be gleaned from the fact that it is supported by a 60-page submission, a 31-page chronology and a 24-page supplementary submission.
Summary judgment principles
[14] The primary issue in a summary judgment application is whether the applicant can establish there is “no defence to the claim”. The threshold for establishing “no defence to a claim” for summary judgment has been expressed in
various ways. The most commonly cited statement of the law is that the applicant
must establish there is “no real question to be tried”.1
[15] The Court will not normally resolve material conflicts of evidence or engage in an assessment of the credibility of deponents.2
[16] When assessing a summary judgment application the Court need not accept evidence if it lacks credibility. This might arise, for example, where the evidence conflicts with undisputed documentary evidence, or is inconsistent with other statements made by the same deponent, or is inherently improbable.3 The Court is entitled to take a robust and realistic approach where the facts justify that course of action.4
[17] Difficult legal questions can be addressed in summary judgment applications:5
…[I]f the facts are adequately ascertained and the Court can be confident that the issue clearly turns on pure questions of law or interpretation, there may be no point in insisting on a trial. The Court should then be prepared to determine, on adequate argument, even difficult legal questions...
[18] Disputes over contractual interpretation may be amendable to summary judgment where the facts are not disputed or where resolution of any factual dispute is not material to the interpretation of the contract.6
[19] In clear and appropriate cases claims based on breach of fiduciary duty may also be the subject of summary judgment.7
[20] The application to strike out the plaintiffs claim for interest faces an even higher hurdle. The pleading which is sought to be struck out must be clearly
1 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
2 Krukziener v Hanover Finance [2008] NZCA 187, [2010] NZAR 307 at [26].
3 Krukziener v Hanover Finance, above n 2, at [26]; Eng Mee Yong v Letchumanan [1980] AC
331 (PC) at 341.
4 Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).
5 International Ore and Fertilizer Corporation v East Coast Fertiliser Co Ltd [1987] 1 NZLR 9 (CA) at 16.
6 Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 28 April 2003 at [29].
7 Mount v Hannay [2014] NZCA 600 at [108].
untenable. The strike out jurisdiction is to be exercised sparingly and only in clear cases.8
First claim for summary judgment
[21] Mr Houghton and Mr Arbuckle seek orders that the accounts for Saha Partnership for the financial years ending 31 March 2007 and 2008 be reopened. They also seek orders that the accounts for Saha Partnership for the financial years ending 31 March 2009 and 2010 be settled. Mr Houghton and Mr Arbuckle say that the accounts for the financial years ending 31 March 2009 and 2010 have been prepared but not settled as the parties have disputed the accuracy of the draft accounts since they were presented to the defendants.
[22] The claim for summary judgment to reopen the accounts for the Saha Partnership for the financial years ending 31 March 2007 and 2008 is made in the context of Saha Partnership having expanded considerably during 2006 and 2007. During that period Saha Partnership increased from four to 10 partners. The operating costs of Saha Partnership rose from $5.505 million in 2006 to $18.150 million in 2010. There was during this period however, a dramatic decline in the profitability of Saha Partnership.
[23] There are factual issues about the exact magnitude of the decline in the profitability of Saha Partnership for the years 2007 to 2010 (inclusive) and the reasons for the decline in the partnership’s fortunes. What is not disputed is that in the financial years ending 31 March 2007 to 2010 the profits of Saha Partnership fell well short of partner drawings during those years. One set of calculations, contained in Mr Arbuckle’s affidavit of 12 September 2014 explains that the forecasted profits
for Saha Partnership differed from actual profits in the following way:
8 Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA); Couch v Attorney-General
[2008] NZSC 45, [2008] 3 NZLR 725 at [33].
Financial Year Forecast Date
Forecast Profit
Reported Profit
2008
October 2007
$6,096,910
$1,414,901
2009
March 2009
$6,273,643
($560,393)
2010
December 2009
$6,118,112
($2,405,495)
2010
March 2010
$3,667,305
($2,405,495)
[24] Under the terms of the deed of the Saha Partnership, Dr Saha had responsibility for determining the profit share for each of the partners. It is alleged Dr Saha allocated profit shares to partners in excess of the profits for Saha Partnership for each financial year ending 31 March 2006 to 2009. Mr Houghton and Mr Arbuckle have made many allegations of impropriety by Dr Saha. For present purposes I will distil their claims in relation to the first claim for summary judgment into three broad categories.
[25] First, Mr Houghton and Mr Arbuckle say that in 2007 Dr Saha did not consolidate into the accounts of Saha Partnership losses made by the South African division of the business or record expenses of $181,575 incurred by the South African division of Saha Partnership. It is said these omissions inflated the stated profit of Saha Partnership by $613,575 in the financial year ending 31 March 2007. Nevertheless, this sum was included in the amounts allocated to partners for that financial year. This in effect created what the parties refer to as an “income backlog”, namely the allocation of profit in one financial year from profits which were still to be earned in the following year.
[26] Second, in 2008 Dr Saha decided not to use any of the profits from the financial year ending 31 March 2008 to repay the existing “income backlog” for the financial year ending 31 March 2007. It is also alleged Dr Saha decided not to consolidate into the Saha Partnership accounts losses from the South African branch
of the business in 2008. It is said in fact Dr Saha allocated in the 2008 financial year at least $2,269,000 of anticipated profit from the 2009 financial year. Mr Houghton and Mr Arbuckle say these acts increased the “income backlog” as at 31 March 2008 to at least $2,882,575.
[27] Third, in December 2009 Dr Saha altered the treatment of interest on capital in the draft accounts for Saha Partnership in an attempt to inflate the profit of Saha Partnership by $1.56 million for the financial year ending 31 March 2009. Mr Houghton and Mr Arbuckle also say Dr Saha excluded taxes payable in South Africa from expenses thereby inflating the profit of Saha Partnership by a further
$150,531 and that he allocated to partners in 2008 at least $866,317 from anticipated profits from the 2009 financial year. Mr Houghton and Mr Arbuckle also say Dr Saha did not use any of the profit from the 2009 financial year to clear the “income backlog” from 2008 and earlier years.
[28] Mr Houghton and Mr Arbuckle say Dr Saha failed to disclose to the partners the matters I have summarised in paragraphs [25] to [27], and that he deliberately concealed from the partners the true financial position of Saha Partnership. They say that as a result of Dr Saha’s actions the shortfall in the Saha Partnership had blown out to $8,202,121.37 by 26 April 2010. Mr Shirtliff, a partner in the Sydney office of Deloitte, has provided evidence which shows Mr Arbuckle’s current account was in deficit to the sum of $1,439,361 by 31 March 2010 while Mr Houghton’s current account was in deficit to the sum of $1,164,095 by the same date.
[29] Mr Houghton and Mr Arbuckle say that the draft accounts for Saha Partnership for the financial years ending 31 March 2007 and 2008 must be reopened and the accounts redone so that the true financial position of Saha Partnership in those years can be determined by the partners.
[30] Mr Houghton and Mr Arbuckle also seek orders that the accounts for Saha Partnership for the financial years ending 31 March 2009 and 2010 be redone. They rely on Mr Shirtliff’s evidence who says the draft accounts for Saha Partnership for the financial years ending 31 March 2009 and 2010 have not been
prepared in accordance with generally accepted accounting principles (GAAP).9 In any event, Mr Houghton and Mr Arbuckle point out that if the accounts for Saha Partnership for the financial years ending 31 March 2007 and 2008 are reopened there will be adjustments that will impact on the draft accounts for the financial years ending 31 March 2009 and 2010.
[31] Settled partnership accounts cannot be reopened unless the accounts are the product of fraud or mistake.10
[32] The general law governing the reopening of accounts was summarised by
Lord Lindley in the following way:11
…[N]o account will be binding on any partner who may have been induced to sign it by false and fraudulent representations, or in ignorance of material circumstances dishonourably concealed from him by his co-partners…
[33] The plaintiffs accept there are some accounting errors in the accounts of Saha Partnership for the financial years ending 31 March 2007 and 2008 in relation to the draft accounts for the financial year ending 31 March 2009.
[34] Dr Harley, senior counsel for the plaintiffs, submitted it was not necessary or appropriate to order a reopening of the accounts for the 2007 and 2008 financial years as the acknowledged errors could be addressed through correcting those accounts without the parties having to engage in the obviously expensive and potentially time consuming task of re-taking the accounts for the financial years ending 31 March 2007 and 2008.
[35] Of more fundamental concern to the plaintiffs is the basis upon which Mr Houghton and Mr Arbuckle claim Dr Saha misled his fellow partners and breached his fiduciary duty to them in relation to the way the accounts for the financial years ending 31 March 2007 and 2008 were settled and for the way in
which the accounts for the financial year ending 31 March 2009 have been drafted.
9 For present purposes GAAP comprises the New Zealand International Accounting Standards which came into force on 1 January 2007.
10 Roger Banks Lindley & Banks on Partnership (19th ed, Sweet & Maxwell Ltd, London, 2010) at
[23-111].
11 At [10-75].
[36] Dr Harley submitted that all of the claims for summary judgment are “strewn with evidential and factual conflicts between the parties” and that issues of credibility are “front and centre” of Mr Houghton’s and Mr Arbuckle’s allegations which underpin their claims for summary judgment.
[37] It is not necessary for present purposes for me to dwell on the factual claims and counterclaims. The following three examples illustrate why I have concluded the first application for summary judgment is inappropriate.
[38] First, in his affidavit of 12 September 2014 Mr Arbuckle says he did not appreciate he was receiving advances against the next year’s profits for the financial years ending 31 March 2006, 2007 and 2008. Mr Arbuckle, who is a chartered accountant, says he believed the profit allocations he received from future years and profits was income. For example, Mr Arbuckle says he did not appreciate the
$600,000 allocated to him for the financial year ending 31 March 2009 was not in fact income but drawings received in anticipation of future profits being made by Saha Partnership.12
[39] Dr Harley drew attention to Mr Arbuckle’s current account statements for the years ending 31 March 2006, 2007, 2008 and 2009. Dr Harley submitted those statements clearly showed the profit allocation as to Mr Arbuckle during those years included allocations in respect of future profits being made. For example, Dr Harley drew attention to Mr Arbuckle’s current account statement for the year ending
31 March 2008, which Dr Harley said clearly recorded Mr Arbuckle received
$554,000 as a “profit advance” from the 2009 financial year.
[40] I do not have to resolve the fundamental factual dispute about Mr Arbuckle’s true understanding of the way profit had been allocated to him and what the state of his current account was. Suffice to say there is a fundamental factual dispute on this important issue which will need to be resolved at trial.
[41] Second, Mr Houghton and Mr Arbuckle allege that at a partners’ meeting
held on 20 March 2009 Dr Saha represented to partners that Saha Partnership was
12 Affidavit of T G Arbuckle, 12 September 2014 at [6.9]-[6.28].
anticipating a profit of $8,093,381 before interest on capital for the financial year ending 31 March 2009. They say this projection of income included implied representations that:13
(1) Dr Saha had a reasonable basis for making the projection; and
(2)the projected profit after interest on capital would be the amount of profit that would be available for distribution to partners for the financial year ending 31 March 2009.
[42] The representations said to have been made on 20 March 2009 by Dr Saha to the partners about the profit projections form the basis of many of the allegations that Dr Saha misled his fellow partners about the true state of the financial affairs of Saha Partnership. In so doing, it is claimed Dr Saha breached various fiduciary obligations he owed his fellow partners.
[43] Dr Saha maintains he made no representations in March 2009 of the kind alleged by Mr Houghton and Mr Arbuckle.
[44] Third, Mr Houghton and Mr Arbuckle also say Dr Saha misled the partners about the true state of affairs of Saha Partnership at a meeting held on 19 March
2010 and that he should have appreciated that at that time Saha Partnership was in serious financial difficulty.
[45] On the other hand, Dr Saha maintains that the greatest impact on the profitability of Saha Partnership was the dramatic change between the projected profit on 20 March 2010 and the actual profit which did not emerge for another six months. By that time it was apparent Saha Partnership’s profit for the financial year ending 31 March 2010 was going to be approximately $4 million less than had been projected on 20 March 2010.
[46] Dr Saha says a lot of the reasons for the inaccuracies in the profit projections made on 20 March 2010 were attributable to business unit leaders not providing
13 Amended Statement of Defence and Counterclaim by Third and Sixth Defendants, 29 August
2014 at [126]-[127].
accurate information about work in progress write-offs and debtors. The business unit leaders included three partners of Saha Partnership who Dr Saha says failed to provide accurate information about the true state of Saha Partnership’s accounts at the time partners met on 20 March 2010. Those business unit leaders included Mr Houghton, Mr Frost and Mr Padisetti, whom Dr Saha says had a duty to ensure the information that was being relied upon by him on 20 March 2010 was accurate.
[47] Mr Houghton, Mr Frost and Mr Padisetti deny any responsibility for the significant overstatement of Saha Partnership’s projected profits for the financial year ending 31 March 2010.
[48] If this matter progresses to trial there will need to be a very careful analysis of what the parties were told in March 2009 and 2010 about the projected profits for Saha Partnership in those financial years. There will need to be a thorough examination of the basis upon which those representations were made and who, if anyone, knew or ought to have known those projections were wrong. It is not appropriate in a summary judgment context to try and resolve these fundamental factual disputes.
Second claim for summary judgment
[49] The second claim for summary judgment seeks declarations as to the interpretation of key provisions in the deed of the Saha Partnership.
[50] The clauses in question are:
4.4 Liability of Partners: In the event of any liabilities arising from the Business of the Partnership, the liability will be shared between the Partners in the ratios specified in Schedule 9 at the time the circumstances occur that give rise to the liability …
4.5 Distribution of Capital Proceeds: In the event of any capital proceeds of the Partnership arising from the sale and/or divestment of any business activities of the Partnership, the Company … or in the event of a restructuring of the Partnership (to be agreed by Special Resolution), the proceeds from such restructuring … will be paid or allocated (as appropriate) in accordance with the following two components…
7.1 Performance Based: It is agreed that the remuneration of Partners will be determined on a performance basis, although each Partner
will have a pre-agreed base remuneration PROVIDED THAT such base remuneration is not guaranteed and is dependent on the financial performance of the Business. Such remuneration shall be determined in accordance with the guidelines described in Schedule
1.
7.2 Determining Remuneration: The Foundation Partner will have the sole responsibility and discretion for determining the level of remuneration of the Partners in accordance with the guidelines described in Schedule 1.
20.1 The Partners may by Special Resolution resolve to wind up the
Partnership. The process for such winding up shall be:
(a) The liquidation of any assets of the Partnership; (b) Satisfaction of any debts of the Partnership;
(c) The distribution of the net assets or net liabilities (as the case may be) to or from the Partners in proportion to each Partners respective shareholding in the Company.
[51] Mr Houghton and Mr Arbuckle’s second claim for summary judgment is
based on two fundamental concerns.
[52] First, they say Dr Saha has purported to allocate losses as if they were remuneration under cl 7 of the Saha Partnership deed, including for the years following winding-up of the partnership. They say cl 7 is directed solely at remuneration and can have no application after wind-up when losses have to be allocated.
[53] Second, Mr Houghton and Mr Arbuckle say Dr Saha has purported to allocate capital proceeds from the liquidation of assets under cl 4.5 as if the business was being sold or restructured rather than being wound-up.
[54] Under normal circumstances I would have little hesitation in providing declarations as to the meaning of the relevant clauses in the partnership deed. There is, however, a fundamental reason why I do not consider it appropriate to do so at this juncture. That reason relates to the terms of agreement reached by some of the partners in relation to the winding-up of Saha Partnership.
[55] On 21 and 22 November 2010, the partners engaged in a mediation to try and resolve outstanding issues in relation to the winding-up of Saha Partnership. That
mediation resulted in a set of 14 “settlement principles” that were agreed to by six of the partners.
[56] Settlement principle 5 states:
The net balance of Messrs Tim Arbuckle, Luke Houghton, Kumar Padisetti and Neil Frost shall be deemed zero (regardless of being positive or negative) as at 31 March 2010 and they shall not have a right to appeal … on their current accounts issues up to 31 March 2010.
[57] Dr Saha’s case is that Mr Arbuckle, Mr Houghton and Mr Frost agreed that their current accounts would be treated as zero as at 31 March 2010. He believes this agreement was negotiated on the clear understanding that certain debtors and work in progress would be factored into the accounts for Saha Partnership for the year ending 31 March 2011. Dr Saha explains this approach was subsequently challenged by Mr Arbuckle and Mr Houghton, who thought the debtors and work in progress had to be factored into the accounts for the financial year ending 31 March
2010. Professional accounting advice confirmed the correctness of the approach argued for by Mr Arbuckle and Mr Houghton. It is Dr Saha’s case that this change in circumstance impacts on settlement principle 5. Dr Saha’s case is that it is inconceivable that having negotiated a deal based on the sums in question being written off in the financial year 2011 accounts, the partners whose accounts would be zero rated would somehow avoid any sharing of those losses when they are included in the 2010 accounts.
[58] Dr Harley submitted that the factual dispute as to what was actually agreed to in settlement principle 5 will have a major impact on how losses are allocated for the financial years ending 31 March 2010 and 2011. He submitted that until these factual issues are resolved there is no point in issuing declarations as to the meaning of the clauses of the deed of Saha Partnership which I have set out in paragraph [50] of this judgment.
[59] It is possible Mr Barker is entirely correct when he says that the settlement principles are not relevant to the interpretation of the relevant clauses of the deed for Saha Partnership. However, at this juncture, I am faced with an assertion that there are factual issues that will impact on whether or not it is necessary to interpret the
terms of the deed of Saha Partnership which formed the basis of the second claim for summary judgment.
[60] As with so many features of this case, there is in my view, too much factual uncertainty for the Court to engage in an exercise in interpreting clauses in the partnership deed which may ultimately prove to be founded upon a fundamental misunderstanding of crucial facts. Accordingly, I do not believe it is appropriate for the Court to attempt to interpret the clauses of the deed of Saha Partnership outlined in paragraph [50] of this judgment.
Third claim for summary judgment
[61] Mr Houghton and Mr Arbuckle seek summary judgment as to liability only in relation to what they allege are multiple examples of Dr Saha’s breaches of his duty to disclose relevant information to his fellow partners.
[62] It was submitted on behalf of Mr Houghton and Mr Arbuckle that although Dr Saha disputes breaching his fiduciary duty to his fellow partners, a close examination of the evidence referred to by Dr Saha is mostly irrelevant or of marginal relevance. It was submitted that there were in fact “no real disputes of fact, except in some limited areas”. To assist, counsel for Mr Houghton and Mr Arbuckle provided a detailed schedule of the evidence relied upon in support of the third claim for summary judgment.
[63] Notwithstanding the very detailed factual analysis undertaken on behalf of Mr Houghton and Mr Arbuckle, I am far from satisfied there is no real question to be tried in relation to the claim that Dr Saha is liable for breach of his fiduciary duty to disclose material information to his fellow partners.
[64] Dr Saha disputes being the author of the financial information which lay behind the projections of profit made to the partners on 19 March 2010 and the reasons why the financial position of Saha Partnership deteriorated so markedly soon after 31 March 2010. These are some of the many factual issues that are relevant to whether or not Dr Saha breached his fiduciary duty to inform his fellow partners of material matters. Those factual issues will have to be resolved at trial.
Fourth claim for summary judgment
[65] In their fourth claim for summary judgment Mr Houghton and Mr Arbuckle seek judgment for liability only against Dr Saha in relation to the retirement of Mr Thompson from Saha Partnership in November 2009. Mr Thompson retired from the partnership when he learnt that he was suffering from a terminal illness.
[66] Mr Houghton and Mr Arbuckle say that under the terms of the deed of Saha Partnership Mr Thompson was obliged to repay any negative current account balance and pay his share of any liability of the partnership that arose prior to his retirement.
[67] It is pleaded that at the time Mr Thompson retired from Saha Partnership his drawings for the financial years ending 31 March 2008, 2009 and 2010 had exceeded his profit share by a considerable margin. It is said that by 31 March 2010
Mr Thompson’s current account would have had a debit balance of $768,450.
[68] Mr Houghton and Mr Arbuckle say that on 16 November 2009 Dr Saha negotiated a retirement agreement with Mr Thompson which resulted in him being paid $873,891.51 for the financial years ending 31 March 2009 and 2010 or a total of
$1,260,469 when regard is had to repayment of Mr Thompson’s capital. Mr Houghton and Mr Arbuckle point out that the profit for Saha Partnership for the year ending 31 March 2009 was just $335,431 and that Dr Saha’s decision to pay Mr Thompson such a generous retirement package was a material matter that should have been disclosed by Dr Saha to his fellow partners.
[69] Dr Saha’s position is that he was instructed by the partners to enter into a settlement with Mr Thompson. He maintains the settlement was concluded honestly and in good faith and implemented by Mr Frost. Dr Saha says that at the time he was congratulated by some of the defendants for resolving a difficult situation.
[70] The issue as to whether or not Dr Saha breached the terms of the deed of Saha Partnership when negotiating this settlement with Mr Thompson hinges on whether or not the partners agreed to waive the terms of the partnership deed when
authorising Dr Saha to negotiate a settlement with Mr Thompson. That requires factual determinations that are beyond the scope of a summary judgment hearing.
Fifth claim for summary judgment
[71] The fifth claim for summary judgment concerns what is referred to by the parties as the Kudu Contract. When the Saha partners attended their settlement meeting on 21 and 22 November 2010 they agreed that an asset of Saha Partnership, the Kudu Contract, would be sold to Dr Saha’s company, Energy International Advisory Ltd (EIAL) and that Dr Saha would personally guarantee the purchase. The purchase price was $700,000. It was also agreed EIAL would not have to pay any cash for the purchase of the Kudu Contract. Instead, the purchase price would, in the first instance, be debited to Dr Saha’s current account in the Saha Partnership. But if there was any shortfall in paying third party creditors, the Kudu Contract would have to be paid for before recourse was made to the partners. Clause 10 of the settlement principles is said to reflect this agreement. It states:
If shortfall in paying third party creditors then Kudu Contract paid in cash for amount outstanding to third party creditors (rather than call on partners).
[72] Mr Houghton and Mr Arbuckle say there are third party creditors who have not been paid and that as Saha Partnership has no ability to pay its creditors, Dr Saha, through EIAL is required to pay for the Kudu Contract.
[73] Dr Saha raises a number of defences to this claim.
[74] First, he maintains that it was represented that “calls” on partners would be
over and above the requirement for payment of the deficits in their current accounts.
[75] Second, accounts are not yet finalised. As such there is no relationship of creditor/debtor between partners and the partnership and hence no debt exists for which a requirement for payment of deficits can validly be made.
[76] Third, the agreement reflected in cl 10 of the settlement principles is intertwined with the remaining settlement principles agreed to by most of the partners in November 2010. Dr Saha says the extent to which one party’s
obligations under one of the settlement principles can be in force cannot be considered separately from all obligations.
[77] Fourth, any requirement for payment of creditors before a call is made on a partner can only realistically be enforced in circumstances where those third party creditors were taking steps for payment. Dr Saha says they are not. Dr Harley, rhetorically asks, how is the Court to require Dr Saha to make payment to creditors in isolation of all the terms of the settlement and to creditors that the defendants claim should not be paid in any event?
[78] In my assessment, the fifth claim for summary judgment is also misconceived. While ultimately Dr Saha may have to pay for the Kudu Contract, it is unlikely his liability will arise until the accounts are settled and the exact position of Saha Partnership responsibilities to third party creditors is known. That is best resolved in the context of a substantive hearing.
Application to strike out claim for interest
[79] Mr Houghton and Mr Arbuckle seek to have the plaintiffs’ claim for interest struck out on the basis that there is no contractual right to interest and Dr Saha has failed to plead any material facts that give rise to any expectation that Saha Partnership could claim interest.
[80] Mr Houghton and Mr Arbuckle point out that the wind-up accounts are not settled. Nor are the accounts for the financial years ending 2009 and 2010 settled. It follows therefore that until those accounts are settled no demand could be made to repay any net debit balance or any interest. Dr Harley agrees there can be no liability to pay interest until the accounts are settled.
[81] In my assessment, striking out the claim for interest at this stage is unnecessary and will not assist in resolving this litigation. Any question of Dr Saha’s entitlement to interest can be resolved at the time of the substantive hearing.
Conclusion
[82] The five claims for summary judgment and the claim to strike out the
plaintiffs’ claim for interest are dismissed.
[83] All issues identified in the applications for summary judgment and the strike- out application will need to proceed to trial.
[84] Costs are reserved.
D B Collins J
Solicitors:
Morrison Kent, Auckland for Plaintiffs and First Counterclaim Defendants
Macalister Mazengarb, Wellington for First Defendant and Second Counterclaim Defendant
Greenwood Roche Chisnall, Wellington for Second Defendant and Third Counterclaim Defendant Buddle Findlay, Wellington for Third and Sixth Defendants and First and Second Counterclaim Plaintiffs
Aspire Legal Services, Porirua for Fifth and Seventh Defendants and Fifth and Sixth Counterclaim
Defendants
Minter Ellison Rudd Watts, Wellington for Eighth Defendant and Seventh Counterclaim Defendant
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