Signum Holdings Limited v Okuora Holdings Limited
[2023] NZHC 3041
•1 November 2023
ORDER PROHIBITING PUBLICATION OF THE JUDGMENT AND ANY PART OF THE PROCEEDINGS (INCLUDING THE RESULT) IN NEWS MEDIA OR ON THE INTERNET OR OTHER PUBLICLY AVAILABLE DATABASE UNTIL 7 NOVEMBER 2023. IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-152
[2023] NZHC 3041
BETWEEN SIGNUM HOLDINGS LIMITED
Applicant
AND
OKUORA HOLDINGS LIMITED
Respondent
Hearing: 15 August 2023 Appearances:
N F Flanagan and P J O’Boyle for Applicant
D R Kalderimis and T J Powell for Respondent
Judgment:
1 November 2023
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 1 November 2023 at 2.15 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
SIGNUM HOLDINGS LIMITED v OKUORA HOLDINGS LIMITED [2023] NZHC 3041 [1 November 2023]
Introduction
[1] Okuora Holdings Ltd (Okuora) provided funding to Signum Holdings Ltd (Signum). In January 2022, Okuora appointed receivers to Signum. In April 2022, as one of a suite of interrelated agreements involving the satisfaction of Signum’s indebtedness to Okuora, the bringing to an end of the receivership, and a change in ownership of Signum, Okuora and Signum entered into a deed of agreement to pay (the DAP).
[2] Under the DAP, in consideration of Okuora entering into the suite of agreements and waiving any claims against Signum or any related company, Signum was to pay Okuora $500,000 by no later than 31 March 2023. When the debt was not paid Okuora issued Signum with a statutory demand.
[3] Signum applies to set aside the statutory demand, asserting it is fairly arguable the DAP should be rescinded in equity as having been obtained by undue influence.1 It says also there are disputed facts and difficult issues of law making the case unsuitable for final resolution on a summary application of this kind.
[4] The undue influence is said to have been exercised by Maury Penno (Ms Leyland Penno), who executed the DAP both as the sole director of Signum and as a director of Okuora.
[5] Signum says Ms Leyland Penno, and through her Okuora, had full governing and managerial control over Signum, and in breach of a duty of candour she failed to disclose to Signum and to its shareholders material information such that Signum’s consent to the DAP was obtained by undue influence.
[6] The information is a single email sent by John Penno, Ms Leyland Penno’s husband and also a director of Okuora, to a key customer of Signum which Signum says undermined the likelihood of a continued commercial relationship between Signum and the customer.
1 Companies Act 1993, s 290(4)(a). An additional ground the DAP was procured unconscionably is not now pursued.
[7] Okuora opposes the application to set aside the statutory demand. It says there was no undue influence as neither Signum nor its shareholders reposed trust and confidence in Ms Leyland Penno giving rise to a duty of candour in the respect alleged. Okuora contends this is a dispute between commercial parties whose rights are governed by the terms of the commercial bargain struck between them, which included terms precluding Signum from challenging Okuora’s right to payment. Signum also argues there was no concealment or failure to disclose material information in any event. Furthermore, Okuora submits the remedy of rescission is not available because Signum cannot selectively avoid part of a transaction, and it would be unjust to set aside the DAP in circumstances where Signum and those associated with it have taken the benefit of it.
[8] I am satisfied there is not an arguable case the DAP should be rescinded for undue influence. The issues that arise and lead me to that conclusion are the following:
(a)whether there was a relationship of trust and confidence as between Ms Leyland Penno and Signum so as to give rise to a duty of candour;
(b)whether Ms Leyland Penno in fact exercised influence over Signum; and
(c)whether Signum can selectively avoid part of the overall transaction.
Background
[9] Okuora is an investment company in which Ms Leyland Penno and John Penno are the shareholders and directors. Mr Penno was also a founder of Synlait Milk Ltd (Synlait) and the Chair of the Board of Synlait at relevant times.
[10] Signum is a holding company and held the shares of Trust Codes Ltd (Trust Codes), which sold technology facilitating the digital tracing of products through supply chains. The founders of the companies included Paul Ryan (Mr Ryan), Peter Ryan and Mark Darrow, who were also directors of Signum at relevant times. Mr Ryan was also the Chief Executive Officer (CEO) of Signum and Trust Codes.
[11] Synlait processes products for The a2 Milk Company Ltd (a2MC). Part of the services Synlait provided to a2MC was an item traceability and anti-counterfeit solution to track products it produced for a2MC. That service was originally provided by Trust Codes pursuant to a supply agreement that expired in February 2020, after which Trust Codes continued to supply its services while discussions were ongoing for a further supply agreement. No such agreement was ever entered into, and Signum terminated its relationship with Synlait in October 2022. However, Mr Ryan says at the relevant times Trust Codes considered a2MC to be a customer of critical importance.
[12] In May 2019, Signum needed funding. Okuora agreed to invest in Signum and became a minor shareholder. Upon Okuora’s investment, Ms Leyland Penno became a director of Signum and, about a month later, Trust Codes. She remained a director until 27 May 2022.
[13] Relations between Okuora and Signum’s founders soured, and further funding was required. By 10 July 2020, Mr Ryan, Peter Ryan and Mr Darrow had resigned as Signum directors, leaving the board inquorate. An agreement was reached whereby Okuora provided new debt funding under a convertible note agreement dated 22 July 2020, and Mr Ryan returned as a director. It was agreed Mr Ryan and Peter Ryan would not support Mr Darrow becoming a director again because of issues Okuora had with his conduct.
[14] During the next year relationships did not improve and there was further disagreement regarding funding for Trust Codes. By December 2021, the sale of Trust Codes was contemplated but the directors were unable to agree on the basis or terms of the sale.
[15] It appears that by January 2022 Signum was insolvent and could not meet its obligations to Okuora under the convertible note agreement. On 18 January 2022, Mr Ryan again resigned as a director and then CEO of Signum and began to work out his notice period. Mr Ryan also threatened to take steps to remove Ms Leyland Penno and Signum’s two independent directors. The independent directors chose to resign
on 24 January 2022. As a result, the board of Signum was again inquorate with Ms Leyland Penno the sole director.
[16] In an email of 24 January 2022, Mr Penno advised Mr Ryan of concerns Okuora had about Mr Ryan’s conduct, including that he had deliberately misled shareholders and other stakeholders of the legal arrangements between Okuora and Signum. He said Mr Ryan would be held liable for any reduction of value in Signum and accruing to Okuora as a result.
[17] Mr Ryan’s solicitor responded to those concerns the same day, denying any wrongdoing on the part of Mr Ryan and putting Okuora on notice that any repetition of the allegations exposed it and any responsible director to legal liability. The content of this correspondence reflects the breakdown in the relationship between Okuora, its directors and Mr Ryan.
[18]On 28 January 2022, Signum was placed into receivership.
[19] On 4 February 2022, the receivers terminated Mr Ryan’s notice period and relieved him of his duties as CEO.
[20] On 7 February 2022, Mr Penno wrote to David Bortolussi, the CEO of a2MC, (the a2MC email) and, amongst other things, expressed his concerns as to the conduct of Mr Ryan which Mr Ryan considers was “extraordinary in its vindictiveness”. The email is disparaging of Mr Ryan and makes serious allegations against him, including of fraudulent and criminal behaviour. However, Mr Penno stands by the content of the email and rejects Mr Ryan’s characterisation of it. He also says that although concerns about Mr Ryan’s conduct were noted, so too were his strengths. Okuora submits the email is, overall, consistent with Mr Penno’s expressed concerns in his 24 January email, as well as the relevant context and wider shareholder dispute.
[21] Mr Bortolussi responded on 7 February 2022 and expressed interest in a2MC acquiring Okuora’s interests in Signum. The receivers granted a2MC permission to work with Mr Ryan for due diligence purposes. a2MC undertook due diligence and entered negotiations, but then withdrew from the process on 10 March 2022.
[22] On 15 March 2022, Mr Ryan provided a term sheet making an offer to purchase Signum’s convertible note, end the receivership and assume control of Signum and Trust Codes. The purchaser would be PPM SPV Ltd (PPM), a company Mr Ryan later formed with Peter Ryan and Mr Darrow.
[23] The initial understanding was that the entire purchase price was to be paid by PPM. Mr Ryan proposed a variation by which $500,000 of the $1.7 million (later reduced to $1.5 million) would be paid directly by Signum. Meredith Connell, acting for Signum and taking instructions from Mr Ryan, drafted the agreement for Signum to pay that $500,000. That agreement is the DAP.
[24] During negotiations disclosure was provided by Okuora to Meredith Connell. The agreement for sale and purchase by which PPM was to acquire Okuora’s debt rights in Signum (the ASP) contained both vendor and purchaser warranties, notably cl 1.4 of sch 1 as follows:
1.4 Material circumstances: [Okuora] is not aware of any material circumstance which has not been disclosed in writing to [PPM] in respect of the period on and from 18 January 2022, which might reasonably be expected materially and adversely to affect the financial position, business, assets or profitability of the Company or a Related Company. Provided however that nothing in this warranty applies to information actually known to [PPM], Paul Ryan, Peter Ryan or Mark Darrow at that date of this Agreement, or which is publicly available.
[25] Included in the disclosure provided by Okuora was a letter dated 6 April 2022 describing Signum’s relationships with Synlait and a2MC as well as requested correspondence relating to the disclosures. It was an unusual feature of the negotiation, but a matter of some importance in light of what Signum is now alleging, that Meredith Connell substantially edited a draft of Okuora’s disclosure letter to limit the extent of disclosure while Okuora insisted upon providing broad disclosure.
[26] The matters Meredith Connell sought to remove from the disclosure letter are also of significance, including almost all the disclosures in respect to a2MC and concerning the relationship between Signum and Synlait and Mr Ryan. In relation to Mr Ryan, the disclosure provided was in these terms:
12 Matters relating to Paul Ryan: Mr Ryan’s employment agreement was terminated by Signum’s receivers on 4 February 2022 pursuant to section 32 of the Receiverships Act 1993. Mr Ryan has made a number of threats of litigation against the Company and its Related Companies, and their present and former directors, including having served an employment claim, submitted a complaint to the Privacy Commissioner and serving (and withdrawing) a statutory demand on Trust Codes.
[27] The disclosure correspondence included an email from Chapman Tripp to a2MC, referring to the a2MC email in the following terms:
In addition, [Trust Codes] has a number of concerns in relation to Paul’s conduct as an employee and director. There concerns were brought to a2MC’s attention in John Penno’s email to David Bortolussi on 7 February 2022.
[28] Despite the reference to the a2MC email in the disclosure material, there was no request made by Meredith Connell for a copy of it at that time.
[29] On 10 April 2022, the final arrangements between PPM, Okuora, Signum, Trust Codes, Signum’s shareholders and the receivers of Signum were recorded in a suite of transaction documents. These included the ASP to which both Signum and Trust Codes were parties, the DAP, an amended and restated shareholders agreement, a deed of release and termination of receivership, and a deed of mutual release (the transaction agreements).
[30] Also on 10 April 2022, Ms Leyland Penno executed a resolution as sole director of Signum. The resolution acknowledged her personal interest in the transaction and resolved that:
(a)in approving the documents in the transaction she was acting for a proper purpose; and
(b)Signum’s entry into and performance of the documents and the transaction was in the best interests of Signum.
[31]On 11 April 2022, Mr Ryan returned as CEO of Signum and Trust Codes.
[32] It was a requirement of closing that Signum’s shareholders ratified the transaction agreements. Clause 5.3 of the ASP set out PPM’s obligations on closing and included at (b) and (c) the following:
5.3Purchaser’s Obligations: On Closing, subject to compliance by [Okuora] with all of its obligations …
…
(b)Documents: [PPM] will deliver to [Okuora] and [Signum]:
…
(iv) Shareholder Approvals: a copy of the Shareholder Approvals, signed by all parties thereto other than Okuora;
…
(c)Ratification: [PPM] will deliver to [Okuora] a ratification by the Shareholders, the Company and Trust Codes of this Agreement, the Agreement to Pay, and all the documents delivered by [Signum] or any of its subsidiaries under this Agreement, such ratification by such companies being by way of unanimous resolutions of their newly constituted Boards of Directors, in each case in a form satisfactory to [Okuora].
[33] Mr Ryan took responsibility for liaising with and obtaining the consent of all shareholders, other than Okuora, to the transaction agreements. This took some time but was completed by 26 May 2022, at which time the Signum shareholders also signed the deed of release and the amended and restated shareholders agreement. The shareholders resolution provided:
Background
…
8.The exercise of powers authorising [Signum] and its subsidiaries to enter into the Transaction, and to approve the execution of the documents in relation to the Transaction by Maury Leyland Penno as the sole director (notwithstanding that [Signum] and its subsidiaries were inquorate), requires ratification by the Shareholders.
Resolved as a resolution of the shareholders of [Signum] in writing in accordance with section 122 of the Act that:
…
2The exercise of powers authorising [Signum] and its subsidiaries to enter into the Transaction by Maury Leyland Penno as sole director of
[Signum] and each of its subsidiaries, and the execution of documents to give effect to the Transaction by Maury Leyland Penno as sole director of [Signum] and each of its subsidiaries, is ratified and approved by the Shareholders, including where applicable pursuant to s177 of the Companies Act 1993.
[34] On 27 May 2022, Ms Leyland Penno retired as a Signum director, PPM’s purchase closed, and the receivership ended. PPM then converted the convertible notes and PPM and its three shareholders, Mr Ryan, Peter Ryan and Mr Darrow, together held over 70 per cent of Signum. Shortly thereafter, PPM sold approximately one-third of its new holding to Jamestrong Packaging Pty Ltd for $1.2 million.
[35] The relationship between Signum, Synlait and a2MC continued and efforts were made to negotiate a new supply agreement. On 17 June 2022, Mr Ryan reported to shareholders on his confidence in the integrity of the a2MC/Signum relationship. However, on 26 October 2022, Signum reported to its shareholders that it had decided to cease working with Synlait. Its decision was unrelated to the a2MC email.
[36] On 14 December 2022, PPM wrote to Okuora referring to a potential warranty claim under the ASP including in relation to the a2MC email. However, no such claim was made.
[37] In early March 2023, Trust Codes’ assets were sold to VerifyMe Inc (VerifyMe). Trust Codes is no longer an operating business and Mr Ryan is now CEO of Trust Codes Global Ltd, a wholly owned subsidiary of VerifyMe.
[38] On 4 March 2023, Okuora issued a statutory demand for payment by Signum under the DAP. On 8 March 2023, Meredith Connell replied, for Signum, that the DAP debt had not fallen due for payment.
[39] On 9 March 2023, Meredith Connell purported to reserve Signum’s rights in regard to the validity of the DAP. Okuora’s lawyers sought clarity as to the nature of any dispute concerning the DAP.
[40] On 10 March 2023, Meredith Connell wrote that the validity of the DAP was a “broader issue than that of the statutory demand currently in play”.
[41] Okuora withdrew its statutory demand on 13 March 2023, asking that Meredith Connell set out any concerns Signum had in respect to the DAP. Meredith Connell did not do so.
[42] Signum did not make payment under the DAP on 31 March 2023 and, on 2 April 2023, Okuora issued a second statutory demand (the demand challenged in this proceeding).
[43] On 6 April 2023, Meredith Connell disputed the demand, raising undue influence as a result of the alleged failure by Okuora and Ms Leyland Penno to disclose the a2MC email. Further correspondence between the solicitors followed.
[44] On 18 April 2023, Signum filed its application to set aside the statutory demand.
The law
[45] The relevant statutory provisions dealing with the issue of statutory demands and applications to set them aside are ss 289 and 290 of the Companies Act 1993. These provide:
289Statutory demand
(1)A statutory demand is a demand by a creditor in respect of a debt owing by a company made in accordance with this section.
(2)A statutory demand must—
(a)be in respect of a debt that is due and is not less than the prescribed amount; and
(b)be in writing; and
(c)be served on the company; and
(d)require the company to pay the debt, or enter into a compromise under Part 14, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within 15 working days of the date of service, or such longer period as the court may order.
290Court may set aside statutory demand
(1) The court may, on the application of the company, set aside a statutory demand.
…
(4)The court may grant an application to set aside a statutory demand if it is satisfied that—
(a)there is a substantial dispute whether or not the debt is owing or is due; or
(b)the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c)the demand ought to be set aside on other grounds.
…
[46]The principles that apply to applications under s 290(4)(a) are as follows:2
(a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to the existence of the debt. The Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion that a dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved first in ordinary civil proceedings before any statutory demand is issued.
(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
(e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.
[47] Notwithstanding that grounds for setting aside a statutory demand have been made out, the court retains a residual discretion to refuse to set aside a statutory demand, but it would only be a rare case where such a discretion was exercised.3
2 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
3 Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 at [49].
Signum’s reliance upon undue influence
[48] Signum says Trust Codes’ tracing technology was of value to a2MC and, despite the direct commercial relationship being between Trust Codes and Synlait, the relationship between Trust Codes and a2MC was of critical importance and inherently fragile precisely because Trust Codes had no direct contract with a2MC.
[49] Signum alleges that Ms Leyland Penno, and thus Okuora, exercised what is commonly called “actual undue influence” upon Signum, that is where overt acts of improper pressure or coercion are affirmatively proved without the aid of a legal presumption that such undue influence has been applied.4 A category of indirect pressure amounting to actual undue influence is where the relationship between the parties is such that the stronger party owes, but fails to meet, a duty of candour to the weaker party.
[50] Signum contends that at all material times Ms Leyland Penno owed a duty of candour to Signum because she had full governing and managerial control over Signum and its financial affairs such that she had acquired ascendancy over it. This is said to be by virtue of her sole directorship of Signum and the vacancy of the office of CEO by Mr Ryan.
[51] Additionally, Signum says the fact it was in receivership reinforced the ascendancy because, on Signum’s execution of the DAP, Okuora agreed to terminate the receivership.
[52] It contends that Ms Leyland Penno’s disclosure that she had a conflict as a director of Okuora could not relieve her of her wider equitable obligations to the company both as a fiduciary, by virtue of her role as sole director, and the particular obligations imposed on her in equity by the doctrine of undue influence.
[53] Signum argues that Ms Leyland Penno breached her duty of candour by failing to disclose the a2MC email. It contends that, owing to the unique structure of the
4 Nelson Enonchong Duress, Undue Influence and Unconscionable Dealing (3rd ed, Sweet & Maxwell, London, 2019) at [8-001].
transaction, such disclosure was required to have been made to the shareholders of Signum as they had the final say on the DAP by their act of ratification, and anything other than disclosure to the shareholders themselves would not have been meaningful.
[54] Signum submits the failure to disclose the a2MC email was a breach of Ms Leyland Penno’s duty of candour because its overall effect was that Mr Penno and Synlait did not trust Mr Ryan and could not work with him in the context of the relationship between Trust Codes and a2MC in the long term, and thus it was material to whether it was in Signum’s interest to enter into the transaction and the DAP.
[55] Signum also submits Okuora is bound by Ms Leyland Penno’s conduct, because a company is bound by the undue influence of a natural person who controls and directs the company where it enters into a contract procured by that undue influence.5
The law of undue influence
[56] The doctrine of undue influence concerns the circumstance where the intention of one party to enter into a transaction is secured other than through the exercise of their free judgement, but by reason of some unacceptable form of persuasion by the other party to the transaction.6 The essence of the doctrine is the overbearing of the will that makes the influence “undue”. The focus of the court’s enquiry is the mind of the person consenting to the impugned transaction, not the motives of the person who is exerting pressure or influence upon them.7
[57] In Green v Green, Winkelmann J stated the legal principles relating to undue influence including:8
(a)The overall burden of proof rests on the person seeking to establish undue influence.
(b)The burden of proof is on the balance of probabilities. …
5 O’Sullivan v Management Agency and Music Ltd [1985] QB 428 (CA) at 447–448 per Dunn LJ, at 463–464 per Fox LJ and at 470 per Waller LJ.
6 Native Resorts Ltd v First Citizens Bank Ltd [2022] UKPC 10 at [10]; and Enonchong, above n 4, at [8–001].
7 Green v Green [2016] NZCA 486, [2017] 2 NZLR 321 at [39].
8 Green v Green [2015] NZHC 1218 at [100] (footnotes omitted), approved on appeal in Green v Green, above n 7, at [48].
(c)The person asserting undue influence must show that the alleged influence led to the making of the impugned transaction, and that the influence was undue in the sense that the transaction was not the result of the free exercise of an independent will on the part of the person at whose expense the transaction was made.
(d)The question of whether a transaction was brought about by undue influence is a question of fact. A party can succeed in establishing this either directly by proving “actual undue influence” or [by] recourse to an evidential presumption which arises where it is established that:
(i)the person said to have been subject to undue influence placed trust and confidence in the other; and
(ii)the transaction called for an explanation.
…
[58] The leading case is the House of Lord’s decision in Royal Bank of Scotland plc v Etridge (No 2),9 but the most convenient summary of the matters that must be proved to establish undue influence is in the text Equity and Trusts in New Zealand as follows:10
(a)The other party to the transaction (or someone who induced the transaction for his or her own benefit) had the capacity to influence the complainant – that is, there was a relationship of trust and confidence between them (which need not necessarily be fiduciary in nature);
(b)Influence was exercised;
(c)Influence was undue – in the sense of being unfair or unacceptable;
(d)Influence brought about the transaction; and
(e)The circumstances or consequences of the transaction or gift are such that equity’s conscience is exercised. In other words, advantage must have been taken (although whether the transaction is actually disadvantageous is a different question).
Was there a relationship of influence?
[59] In Royal Bank of Scotland plc v Etridge (No 2), Lord Nicholls described undue influence as arising out of a relationship between two persons where one has acquired
9 Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773.
10 J Stephen Kós “Undue Influence” in Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 679 at 681 (footnote omitted) citing Contractors Bonding Ltd v Snee [1992] 2 NZLR 157 (CA) at 166; Bank of Credit & Commerce International SA v Aboody [1990] 1 QB 923 (CA) at 967; and see Public Trust v Vernon [2015] NZHC 1928 at [121].
over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage.11 He said:12
… the influence one person has over another provides scope for misuse without any specific overt acts of persuasion. The relationship between two individuals may be such that, without more, one of them is disposed to agree a course of action proposed by the other. Typically this occurs when one person places trust in another to look after his affairs and interests, and the latter betrays this trust by preferring his own interests. He abuses the influence he has acquired. In Allcard v Skinner … Lindley LJ … described this class of cases as those in which it was the duty of one party to advise the other or to manage his property for him.
[60] Lord Nicholls noted that the question is whether one party has reposed sufficient trust and confidence in the other, rather than whether the relationship between the parties belongs to a particular type,13 but said there is no single touchstone for determining whether the principle is applicable and:14
The principle is not confined to cases of abuse of trust and confidence. It also includes, for instance, cases where a vulnerable person has been exploited. … Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and ascendancy, domination or control on the other. None of these descriptions is perfect. None is all embracing. Each has its proper place.
[61] Lord Nicholls noted that proof the complainant received advice from a third party before entering into the impugned transaction is one of the matters a court takes into account when weighing all the evidence. Proof of outside advice does not of itself necessarily show that subsequent completion of the transaction was free from the exercise of undue influence.15 Whether a transaction was brought about by the exercise of undue influence is a question of fact to be decided having regard to all the evidence of the case.
[62]In Lloyds Bank Ltd v Bundy, Sir Eric Sachs put the matter this way:16
Such cases tend to arise where someone relies on the guidance or advice of another, where the other is aware of that reliance and where the person upon whom reliance is placed obtains, or may well obtain, a benefit from the
11 Royal Bank of Scotland plc v Etridge (No 2), above n 9, at [8].
12 At [9] (footnote omitted).
13 At [10].
14 At [11].
15 At [20].
16 Lloyds Bank v Bundy [1975] 1 QB 326 (CA) at 341.
transaction or has some other interest in it being concluded. In addition, there must, of course, be shown to exist a vital element which in this judgment will for convenience be referred to as confidentiality. It is this element which is so impossible to define and which is a matter for the judgment of the court on the facts of any particular case.
[63] Not every fiduciary relationship will be one of influence,17 and where the parties are in a purely commercial relationship undue influence has less of a part to play. In Etridge, Lord Nicholls said, albeit in relation to the notice requirements for third parties to be bound by the undue influence:18
Different considerations apply where the relationship between the debtor and guarantor is commercial, as where a guarantor is being paid a fee, or a company is guaranteeing the debts of another company in the same group. Those engaged in business can be regarded as capable of looking after themselves and understanding the risks involved in the giving of guarantees.
[64] In Zamet v Hyman, a widower, then aged 79, became engaged to marry a widow aged 71. Shortly before the marriage they executed a deed where, in consideration of a payment of £600, on the death of her husband the wife gave up any claim she might have against the husband or his estate.19 The wife sought to have the deed set aside on the grounds that it was obtained by undue influence of her then fiancé. The deed was set aside. The court agreed with the first instance Judge that the relationship between the husband and the fiancé was one where confidence had been breached. Donovan LJ said, given the nature of the confidence, the husband:20
… clearly owed her the duty to explain this impugned transaction to her in proper detail so that she would have all the facts before her to enable a free and rational choice to be exercised. Had he done so, she would have realised that she was being asked to give up the rights which would accrue to her on marriage for a song. I fully appreciate that the husband may have thought that by this transaction he was doing the proper thing by both his children and his intended bride: but at the same time I think the evidence established that he used his influence over her to obtain her agreement, despite the absence of figures which were essential to a free and independent decision by her; and which figures he would have had to place before her independent solicitor, had she employed one.
17 J Stephen Kós “Undue Influence”, above n 10, at [22.6]; and Zamet v Hyman [1961] 1 WLR 1442 (CA) at 1452.,
18 Royal Bank of Scotland plc v Etridge (No 2), above n 9, at [88].
19 Zamet v Hyman, above n 17, at 1453 (CA).
20 At 1453.
[65] In Hewett v First Plus Financial Group plc a husband persuaded his wife to join with him in a re-mortgage of a property to provide security for his credit card debts.21 The wife agreed but, unbeknown to her when she signed the documents, the husband was having an affair which would lead to his separation from the wife. The wife applied to set aside the mortgage on the ground of undue influence by the husband. Briggs J noted that the questions to be determined were first whether Mrs Hewett had reposed a sufficient degree of trust and confidence in her husband to give rise to the obligation of candour and fairness and, secondly, whether the fact Mr Hewett was having an affair was something which his obligation of fairness and candour towards his wife required him to disclose.
[66]In respect to the first issue, the Judge said:22
… the first question is whether Mrs Hewett reposed a sufficient degree of trust and confidence in her husband to give rise to … an obligation of candour and fairness owed to her. I consider that she did, for two reasons. The first is that, as the Judge found, she regarded Mr Hewett as being in charge of the family finances, albeit not to an extent that excluded her from any participation in important decisions … It would in my opinion be wrong to confine a husband's obligation of candour and fairness when proposing a risky financial transaction to his wife as confined to cases where the wife meekly follows her husband's directions without question. The purpose of an obligation of candour is that the wife should be able to make an informed decision (with or without the benefit of independent advice) properly and fairly appraised of the relevant circumstances.
… The second reason is that the specific transaction which Mr Hewett put to his wife required her to take on trust his promise to make the instalment payments due to First Plus arising from the re-mortgage. As the Judge put it
… that is what Mr Hewett swore to do on their children's lives. There was therefore both a pre-existing relationship of trust and confidence, and an intensification of it derived from the very basis of the proposed transaction.
[67] In response to the second question, the Judge found that Mrs Hewett’s decision to accede to her husband’s request was based on an assumption on her part that he was as committed as she was to the marriage, to the family and the preservation of their home life in the future.23 The truth was that he had embarked upon an affair which risked his departure from the family and withdrawal of both emotional and financial support. On that basis, his affair required disclosure.
21 Hewett v First Plus Financial Group plc [2010] EWCA Civ 312.
22 At [29]–[30].
23 At [33].
[68] Another example is Bank of Credit and Commerce International SA v Aboody.24 There, a husband and wife guaranteed their company’s loans and put charges on the wife’s house in favour of the bank. The bank attempted to enforce its securities, but the wife claimed she entered into the contracts under actual undue influence. The husband and wife had a relationship where she trusted him and would enter into contracts when asked by him with little or no explanation. The court did not accept this was a merely passive role in terms of her signing the agreements and said that Mr Aboody suggested to his wife she should enter into the transactions. The court approved the following passage from the lower court:25
There was more than a situation of trust; there was actual influence founded on that trust and [Mr Aboody] used it intentionally. He intended and knew that without any discussion or consideration of risk [Mrs Aboody] would sign security documents for a series of increasingly large overdrafts of the company. He never offered her any choice of her own. She was deprived altogether of the free use of any independent and informed judgment in the transaction. He never mentioned risk at all even if he thought it was a slight one. The only judgment that she could be said to have exercised was her mistaken judgment of Mr. Aboody and his business capacity and probity.
[69] In my view it is not arguable that Signum or its shareholders reposed trust and confidence in Ms Leyland Penno to look after their interests in respect to the transaction or that, vis-à-vis Ms Leyland Penno, they were in a position of “trust and confidence, reliance, dependence or vulnerability”.26 There are several reasons for this.
[70] The transaction agreements were negotiated, entered into and closed against a long background of distrust, suspicion and conflict between Okuora (and Mr Penno and Ms Leyland Penno) and Mr Ryan and the shareholder parties with whom Mr Ryan was associated. I have set out just some of this in the background facts above. That atmosphere remained up to the closing of the transaction and beyond.
[71] Mr Ryan acknowledges in his affidavits that the relationship with Mr Penno was “fraught” and “strained”. This understates the position. I do not intend to deal
24 Bank of Credit and Commerce International SA v Aboody, above n 10.
25 At 969.
26 Royal Bank of Scotland plc v Etridge (No 2), above n 9, at [11].
with all the evidence of what was a breakdown in relations between Mr Ryan, Mr Penno and Ms Leyland Penno, some examples reflecting that will suffice.
[72] As noted earlier, Mr Ryan gave notice resigning as a director because of differences concerning the sale of the business. He also resigned as CEO of Signum on 18 January 2022, giving as his reasons “comments made about me by directors” and the attempt to “rewrite the record means my position as CEO is no longer tenable”.
[73] On 21 January 2022, Mr Ryan gave Ms Leyland Penno notice he was raising a personal grievance for constructive dismissal due to comments made about him by the directors that “were destructive to trust and confidence in the employment relationship”. He said the Board had lost confidence in him because he challenged a sale of the business “which appears to benefit Okuora over and above any other creditor or shareholder”.
[74] On the same day, Mr Ryan called for a special meeting of shareholders to remove the independent directors and Ms Leyland Penno as Chair of the Board.
[75] On 24 January 2022, there was the correspondence between Mr Penno and Mr Ryan’s solicitors including mutual threats of legal action.
[76] On the same day, Mr Ryan’s solicitors sent a letter to the directors of Signum proposing to appoint independent directors, replace Ms Leyland Penno as the Chair of the Board of Signum, and that Mr Ryan take the lead to urgently finalise a sale of the assets and business of Trust Codes.
[77] In an email of 2 March 2022, Mr Ryan wrote to Signum’s shareholders confidentially to “set out where things are at from my perspective” stating:
There are employee/shareholders on this email trail and I want to emphasise that you are receiving this email because you signed the confidential letter with a2MC, and that what I say here must remain strictly confidential. It must not be shared with the company, the receivers, or with Okuora/John & Maury Leyland Penno. In fact, this email must stay within this group of recipients.
[78] He goes on to say how “Okuora may have successfully poisoned the well” and that “[t]he model I have worked on for the last week shows that damage from
receivership and [Ms Leyland Penno’s] sole management for the last 6 weeks will mean [Trust Codes] cannot turn a profit for at least 12 months, or longer”.
[79] Mr Ryan sent an email on 10 March 2022 to Signum shareholders, noting a2MC had decided to withdraw its offer to acquire Okuora’s interests in Signum. He said the process for the sale of Trust Codes’ business was “failing” and “there is deep suspicion all around”. He went on to say, “[t]here is obviously a breakdown in trust between the Okuora parties and us (or some of us anyway)”.
[80] Signum submits this case is not a simple one of two commercial parties contracting at “arm’s length” and “on an equal footing” because, by reason of Ms Leyland Penno’s sole directorship of Signum and its receivership, Signum was at the mercy of Okuora. I do not agree with those submissions. This case is very different from those that I have referred to above, which usually arise in a family context where a stronger party takes advantage of a personal relationship of trust and confidence to victimise a weaker party.
[81] Mr Ryan and those associated with him are sophisticated businesspeople. The parties negotiated with the benefit of experienced commercial lawyers. They agreed terms of a complex commercial transaction, of which the DAP was but one part. Signum’s outstanding debt to Okuora was purchased by a rival shareholder faction, any dispute relating to Signum’s failure to repay Okuora’s prior funding was fully and finally settled, Signum was removed from receivership, and Mr Ryan immediately returned to the day-to-day control of Signum and Trust Codes (before the transaction had even closed). Notably, the commercial bargain struck between the parties included a disclosure protocol, agreed contractual warranties, no set-off clauses and waivers.
[82] The terms of the agreements entered into by Signum and Okuora with the benefit of legal advice are inconsistent with the assertion now advanced that Signum was a vulnerable party victimised by a stronger party. The intention was clearly to settle all matters as between those parties. This is reflected, for instance, in the terms of the deed of mutual release to which they were parties, which provides:
1.FULL AND FINAL SETTLEMENT
1.1Release of claims: By entry into of this Deed and subject to Settlement:
(a)Signum and Trust Codes;
(b)[Okuora];
(c)[Ms Leyland Penno];
(d)[Mr Penno]; and
(e)the Continuing Shareholders,
fully and finally settle and release all claims of any kind between any such party (in any of their capacities) (or associated or related parties or body corporate of them or shareholders or directors thereof or of any such person) on the one hand and any other party or parties (in any of their capacities) (or associated or related parties or body corporate of them or shareholders or directors thereof or of any such person) on the other hand, now or in the future in connection with or in any way relating to Signum, Trust Codes and Signum’s other subsidiaries, including (without limitation) the matters listed in clause 1.2, other than in respect of any future claim for enforcement of this Deed or in respect of any future claim arising from any action or inaction of a party in relation to a matter other than in connection with the subject matter of this Deed.
1.2Subject matter of this Deed: For the purposes of this Deed, the following matters are included in within the scope of the full and final settlement under clause 1.1:
…
(c) any claims against [Okuora, Ms Leyland Penno and Mr Penno], in any capacity, relating in any way to Signum, Trust Codes or any other subsidiary of Trust Codes, or the appointment or actions of the Receivers.
…
[83] Ms Leyland Penno was the sole director of Signum at the time the transaction agreements were signed, but it is not the case that at all material times she had full governing and managerial control over Signum. Mr Ryan was reappointed CEO of Signum from 11 April 2022 and the shareholders did not ratify the transaction agreements until 26 May 2022. Both before and after his reappointment Mr Ryan took charge of communicating with the shareholders and completed his own due diligence, including personally checking with a2MC and Synlait before signing the ratification and having the other shareholders sign it.
[84] The shareholder ratification was the expedient adopted to address Ms Leyland Penno’s conflict of interest and the fact Signum was inquorate. That Ms Leyland Penno had a conflict of interest was a matter well known to all involved, as must have been the circumstances under which Signum became inquorate leaving Ms Leyland Penno as the company’s sole director.
[85] However, importantly, under the ASP it was the obligation of PPM to obtain the shareholder ratification of the transaction agreements. Given the breakdown in the parties’ relationship, it is simply implausible that Mr Ryan or any of those associated with him would, or did, rely on Ms Leyland Penno.
[86] As far as shareholders other than those closely associated with Mr Ryan are concerned, Ms Leyland Penno had no involvement with them in the process of obtaining shareholder ratification of the transaction agreements. She offered no explanation to the shareholders of the terms of the transaction agreements. No shareholders made any enquiries of her about the transaction agreements. There is no evidence from any such shareholders that they placed reliance upon Ms Leyland Penno.
[87] I find there was no relationship of influence between Ms Leyland Penno and Signum giving rise to a duty of candour. That is sufficient to dispose of this application, but I will deal with the other two issues I have identified.
Did Ms Leyland Penno exercise influence?
[88] It follows from what I have said above that Ms Leyland Penno did not exercise any influence over Signum or its shareholders. It was plain it was never intended the shareholders would rely upon Ms Leyland Penno in deciding whether to ratify the transaction agreements, and they did not do so. As I have noted, it was PPM’s obligation to obtain the shareholder ratification, and Mr Ryan took the lead in satisfying the shareholders that it was worth proceeding.
[89] There is nothing surprising about this as Mr Ryan was a former director of Signum, had worked with a2MC on its own proposal to acquire Signum, and from 11 April 2022 had returned to his former role as CEO of Signum. Okuora submits,
and I accept, Mr Ryan was in an excellent position to judge the commercial attitude of Synlait and a2MC and to relay this back to the shareholders.
[90] Mr Ryan took an independent view to confirm that the relationship with both Synlait and a2MC was satisfactory before the shareholders ratified the transaction agreements. This is reflected in Mr Ryan’s affidavit where he says:
43The arrangements between Trust Codes and a2 were very much based on the relationship between us. There were not legally binding agreements and so the relationship was everything. I had enjoyed a close working relationship for a2 since they became a customer via Synlait in 2018 (indeed, it was my understanding from a2 that it was a2 not Synlait who had come across Trust Codes and asked Synlait to engage us). I was aware of the inherent risk of such a situation, so was very careful to make the best assessment I could of the strength or otherwise of the relationship before ratifying the deal.
44That included my making enquiries of a2, seeking warranties and disclosures from Signum and [Okuora], and generally doing everything I could to assess what was going on. I was acutely aware of the bad blood between Mr Penno and I, and so was anxious to ascertain exactly what he had said or done so I could make a realistic assessment of the possible impact of it.
[91] The receiver of Signum, Neale Jackson, also records in his affidavit the steps Mr Ryan took to secure the shareholders’ support. He attaches to his affidavit an email he sent to Okuora’s solicitors and Chapman Tripp on 6 May 2022 recording conversations Mr Ryan had with a2MC and Synlait because one of the shareholders was seeking comfort as to the state of the relationship with a2MC. The email reads:
1.Yesterday Paul only had Connell McLaren to go
2.Connell (apparently) wants comfort that the A2 relationship is durable. Paul says he is not prepared to waive claims unless he knows the business remains viable
3.Paul has had “long conversations” with A2 and is comfortable he has a way forward with them provided some issue involving logistics data is resolved between TCL and Synlait. Maury was aware of this issue
4.Paul spoke with Synlait yesterday – Maury intervened to unblock those comms
5.Paul told me he was then comfortable providing Connell what he wanted subject to one further discussion
[92] For completeness, I note Mr Darrow has filed an affidavit in which he says that before the shareholders ratified the DAP they were provided with a copy of Ms Leyland Penno’s resolution of 10 April 2022 and that:
8In deciding whether to ratify the DAP as a shareholder of Signum, I had no choice but to rely on Ms Leyland-Penno, as Signum’s sole director. I considered she was, at that time, the only person who could manage most of the company’s affairs and protect its best interests.
9… In particular, I relied on Ms Leyland-Penno’s resolutions that in approving the Documents and the Transaction, she was acting for a proper purpose and that Signum’s entry into and performance of the Documents and the Transaction was in Signum’s best interests.
[93] Although he has not seen the a2MC email, Mr Darrow says that had he known about it he would not have ratified the transaction documents including the DAP.
[94] As I noted earlier, the court will not ordinarily resolve factual disputes on an application of this kind. However, it is well recognised that the court is not required to accept uncritically statements on an affidavit “however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be”.27
[95] It is not clear what I am to make of Mr Darrow’s affidavit. It cannot be evidence that the a2MC email was material information that ought to have been disclosed by Ms Leyland Penno consistent with an obligation of candour when Mr Darrow has not seen the email. I cannot therefore accept his evidence that had he known of the email he would not have ratified the transaction agreements.
[96] If it is intended to show reliance was placed upon Ms Leyland Penno’s director’s resolution, it does not advance Signum’s cause, there being nothing to suggest Ms Leyland Penno’s resolutions were wrongly given.
[97] However, I expect Mr Darrow’s evidence is intended to show reliance, at least by Mr Darrow, upon Ms Leyland Penno as the “only person who could manage most
27 Eng Mee Yong v Letchumanan [1980] AC 331 at 341 applied in this context in Koura Mining Ltd v Geotech Ltd [2016] NZHC 1926 at [29].
of [Signum’s] affairs and protect its best interests”. I do not accept Mr Darrow’s evidence in this respect.
[98] Mr Darrow is one of the founders of Signum and is closely associated with Mr Ryan. He was a former director of Signum. He had been in dispute with Mr Penno and Mrs Leyland Penno from least July 2020. There are emails written by Mr Darrow in early 2022 to Signum’s shareholders critical of Okuora and the Board of Signum chaired by Ms Leyland Penno. He was directly involved in the purchase of Okuora’s convertible note, becoming a shareholder of PPM on 3 May 2022 and a director of Signum on 25 May 2022 just before the closing of the ASP. He would have been aware that Mr Ryan had returned as CEO of Signum from 11 April 2022. To suggest that in these circumstances he had no choice but to, and did, rely on Ms Leyland Penno is simply implausible.
Can Signum selectively avoid part of the overall transaction?
[99] The usual remedy in equity for undue influence is the setting aside of the impugned transaction and the restitution of benefits transferred to restore the parties back to their original positions (restitutio in integrum) through the transfer of property and money.28 The remedy cannot be sought against persons who acquire rights for value and without notice.29 Relief is discretionary, but it must be given on settled principles rather than a judge’s personal conception of fairness. The court should keep the basic object of restoring the parties back to their original positions in mind.30
[100] At both common law and equity it will be a bar to rescission if restitutio in integrum is impossible.31 However, that bar has a far narrower scope of operation when the relief, as in this case, is equitable in nature. Equitable rescission will be permitted provided practical or substantial justice would be done by the parties. The court is not required to restore the parties to precisely the state they were in prior to
28 Allcard v Skinner (1887) 36 Ch D 145 (CA) at 186.
29 Bainbrigge v Brown (1881) 18 Ch D 188.
30 Dominic O’Sullivan, Steven Elliott and Rafal Zakrzewski The Law of Rescission (3rd ed, Oxford University Press, Oxford, 2023) at [13.09].
31 Erlanger v New Sombrero Phosphate Co [1874-80] All ER Rep 271 (HL) at 285–286.
the contract being formed.32 The “bar” is therefore delineated by the extent to which a court can manage to achieve practical justice.
[101]The learned author of Duress, Undue Influence and Unconscionable Dealing
puts the matter this way:33
The court of equity is able to rescind a transaction even where strict restitutio in integrum is not possible by using its powers to make allowances for changes in value of the thing transferred or by ordering the taking of accounts in order to achieve practical justice between the parties.
[102]The author continues:34
The claimant who obtains recission or for whose benefit the court orders the taking of accounts will be required to give credit for any benefits they received from the transaction. Equity looks not only at the advantages gained by the wrongdoer, but also at the benefits gained by the victim of the vitiating factor. The maxim is, “he who seeks equity must do equity”. The benefit received, for which credit must be given, will depend upon the type of transaction.
[103] In O’Sullivan v Management Agency and Music Ltd the court rejected an argument that restitutio in integrum was impossible.35 The multiple defendants were ordered to account for profits, and allowances were made for expenses and some reasonable remuneration for work actually performed pursuant to the transaction as well as certain tax liabilities. Interest was ordered at both compound and simple rates on the relevant sums.
The parties’ submissions
[104] Signum asserts the shareholders ratification to the entire transaction was improperly procured by undue influence yet does not wish to unwind and return matters to how they stood on 25 May 2022 just before the shareholders ratification. It seeks rescission of the DAP only. Okuora submits Signum cannot seek to take the benefit of the transactions overall but selectively invoke undue influence to avoid paying a part of the agreed purchase price.
32 Root v Badley [1960] NZLR 756 (SC) at 762.
33 Enonchong, above n 4, at [28-021]
34 At [28-022].
35 O'Sullivan v Management Agency and Music Ltd, above n 5.
[105] Okuora says that undue influence is an equitable doctrine which will not be applied inequitably, and the overall question is whether it would be unjust or unfair to allow a claim to be made. I was referred to Allcard v Skinner where Lindley LJ said:36
Whether the Plaintiff’s conduct amounts in point of law to acquiescence or laches, or whether it amounts to an election not to avoid a voidable transaction, or whether it amounts to a ratification or a confirmation of her gifts, are questions of mere words which it is needless to discuss. In my judgment, it would not be fair or right to the Defendant to compel her now to restore the money sought to be recovered by this appeal. Nor, in my opinion, would such a result be in conformity with sound, legal, or equitable principles.
[106] Okuora’s submission is that it would be evidently unjust and unfair to allow Signum, Mr Ryan and his associates to take the benefit of a bargain, by which Signum was rescued from receivership and the Ryans and Mr Darrow resolved their shareholder dispute with Okuora and gained control of Signum, without paying the agreed price.
[107] Okuora submits that not only have the transaction agreements as a whole been affirmed but Signum and the shareholders have unreasonably delayed raising any concerns about the agreements, instead undertaking a year’s worth of activity and entering into subsequent transactions all premised on such validity. It cannot now fairly or equitably be claimed that Signum’s shareholders never properly consented to the arrangements of which the DAP is merely a part.
[108] Signum argues that in equity a transaction may be set aside for undue influence upon terms, and that the court has a broad jurisdiction to grant such relief as it thinks just. It says that here the court could simply decide that Signum owes a lesser amount to Okuora to “reflect the equities of the position”. This submission relies upon O’Sullivan v Management Agency where Dunn LJ said:37
This analysis of the cases shows that the principles of restitutio in integrum is not applied with its full rigour in equity in relation to transactions entered into by persons in breach of a fiduciary relationship, and that such transactions may be set aside even though it is impossible to place the parties precisely in the position in which they were before, provided that the court can achieve practical justice between the parties by obliging the wrongdoer to give up his profits and advantages, while at the same time compensating him for any work that he has actually performed pursuant to the transaction.
36 Allcard v Skinner, above n 28, at 189.
37 O’Sullivan v Management Agency and Music Ltd, above n 5, at 458.
[109] Signum advances a further argument that the DAP should be considered separately to the transaction as a whole because the only parties to it were Signum and Okuora, whereas Signum was not a principal contracting party to the ASP (although it was a party), and it contains an entire agreement clause. It says the DAP can be set aside on terms, severed and rescinded as part of the overall transaction.
[110] Signum also submits the court should not refuse to set aside the statutory demand based on equitable defences which require a broad approach guided by the overarching principle of equity and good conscience. It says these matters cannot be evaluated on affidavit evidence in a summary jurisdiction.
My analysis
[111] I agree with Okuora’s submission that in the circumstances of this case Signum cannot take the benefit of the bargain set out in the transaction agreements without paying the agreed price.
[112] Signum’s submission that the DAP should be treated as a stand-alone agreement is unreal. It overlooks that the DAP was one of several interrelated agreements giving effect to the transaction, the consideration for the DAP included the entering into of the transaction agreements, and the DAP was incorporated into the ASP itself. In my view, Signum’s submission reflects the fact that restitutio in integrum is simply impossible in this case. It is plain the parties cannot be returned to their positions as at 25 May 2022. Signum cannot be returned to receivership and Okuora’s debt rights cannot be restored. There is no means by which practical justice between Okuora and Signum could be done.
[113] However, even if I was to accept Signum’s submission that the DAP could be treated separately from the transaction as a whole, that would not avail Signum to avoid payment of the amount Okuora says is due. The requirement that a claimant who obtains rescission will be required to give credit for any benefits received from the transaction has work to do here, and restitutio in integrum as it applies to loan transactions provides a useful illustration of the principle in operation. It means that the court cannot simply set aside a loan transaction and leave the borrower with the money received under it. That would result in the borrower being unjustly enriched
to the extent of the amounts already advanced by the lender. The borrower will be required to repay the monies received with interest at a rate fixed by the court.38
[114]In National Commercial Bank (Jamaica) Ltd v Hew the Privy Council said:39
In the circumstances it is not strictly necessary to consider what remedy would have been appropriate if Mr Hew’s claims had succeeded. But their Lordships think it desirable to state that in their opinion the orders below could not have stood unaltered. Where a transaction is obtained by undue influence, it must be set aside ab initio; and this requires a mutual accounting with mutual restitution by both parties. Where the transaction is one of guarantee this presents no difficulty. A surety incurs a liability but obtains no benefit. It is sufficient to set aside his liability; there is nothing for him to disgorge by way of counter-restitution. But where the transaction is one of loan the position is very different. It would not be just simply to set aside the loan; this would leave the borrower unjustly enriched. The proper course is to set aside the contract of loan and require the borrower to account for the moneys received with interest at a rate fixed by the court. Since the effect is merely to vary the rate of interest, it is not surprising that it is rare for the borrower himself to challenge the transaction.
[115] The same approach recommends itself to me here. Signum was indebted to Okuora and its indebtedness was released at a discount under the terms of the DAP in return for payment of $500,000. To set aside the DAP without requiring Signum to account for the $500,000 would leave it unjustly enriched, insofar as Signum would retain the entire benefit of the transaction of which it complains.40 While Signum argues the Court could decide to rescind the DAP but find that it owes a lesser amount to Okuora to reflect the equities of the position, counsel did not identify what “equities” are engaged that could possibly lead to such a result.
[116]For those reasons, I find that Signum is not entitled to rescission of the DAP.
Result
[117]Signum’s application to set aside Okuora’s statutory demand is dismissed.
38 Enonchong Duress, Undue Influence and Unconscionable Dealing, above n 4, at [28-024] citing National Commercial Bank (Jamaica) Ltd v Hew [2003] UKPC 51, [2003] All ER (D) 402 at [43] and Leeder v Steven [2005] EWCA Civ 50 at [21].
39 National Commercial Bank (Jamaica) Ltd v Hew, above n 38, at [43].
40 Enonchong Duress, Undue Influence and Unconscionable Dealing, above n 4, at [28-024].
[118] There shall be an order under s 291(1)(a) of the Companies Act 1993 that Signum is to make payment to Okuora of the amount claimed in the statutory demand within five working days of the date of this judgment, failing which Okuora may apply to liquidate Signum.
[119] Okuora is entitled to its costs. Counsel are to confer and if they cannot agree on costs then they may file memoranda and costs will be determined on the papers. Memoranda should be no longer than five pages.
[120] I can see no reason why a suppression order should be made in respect to any parts of this judgment, but in light of concerns that have been raised by Synlait and a2MC I will make an interim order that this judgment shall not be published for a period of five days so that any application for suppression orders may be made if it is considered necessary. The Registrar is to provide a copy of this judgment to counsel who appeared for Synlait and a2MC at the commencement of the hearing for that purpose.
O G Paulsen Associate Judge
Solicitors:
Meredith Connell, Auckland
Harmos Horton Lusk Limited, Auckland Simpson Grierson, Auckland
Lane Neave, Christchurch
Copy to:
D Kalderimis/T Powell, Auckland
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