Singh v Patel
[2020] NZHC 2242
•31 August 2020
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1021
[2020] NZHC 2242
BETWEEN JASVINDER SINGH
Plaintiff
AND
ROOPA PATEL
ELITE BUSINESS SERVICE NZ LTD
Defendants
Hearing: 20 and 21 July 2020 (further submissions received 5, 14 and 20
August 2020)
Appearances:
A R Gilchrist for Plaintiff A A H Low for Defendants
Judgment:
31 August 2020
JUDGMENT OF LANG J
This judgment was delivered by me on 31 August 2020 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
Solicitors:
Pabla Law, Manukau, Auckland
Alexandra Low & Associates, Auckland Counsel:
A Gilchrist, Barrister, Auckland
SINGH v PATEL [2020] NZHC 2242 [31 August 2020]
[1] In March 2015 the plaintiff, Mr Jasvinder Singh, acquired 49 per cent of the shares in a company called Steve Taylor & Associates North Shore Limited (STA). That company operated an accounting business on the North Shore. Mr Singh acquired the shares from the second defendant, Elite Business Services NZ Limited (Elite), a company incorporated and owned by the first defendant, Mrs Roopa Patel.
[2] On 11 January 2016, Mrs Patel arranged for a staff member employed by STA to register a notice of particulars of shareholding with the Registrar of Companies. This gave notice that Mr Singh’s shares had been transferred back to Elite. It is common ground that Mrs Patel took this step without Mr Singh’s knowledge and authority. In 2018 Mrs Patel arranged for another notice of particulars to be registered. This gave notice that Elite had transferred all the shares in STA, including those formerly held by Mr Singh, to herself. STA was placed in liquidation in September 2019. As a result, the shares that Mr Singh held in STA are now worthless.
[3] In this proceeding Mr Singh advances three claims against the defendants. First, he alleges they committed the tort of conversion when they transferred his shares to Elite and then on to Mrs Patel. Secondly, he alleges Mrs Patel knowingly assisted Elite to acquire his shares and thereby committed the tort of causing Mr Singh economic loss by unlawful means. Thirdly, Mr Singh contends Mrs Patel agreed to assume personal liability to pay him the funds required to repay two loans he and his wife had obtained from the ANZ Bank to fund the purchase of the shares in STA.
Background
[4] Mr Singh purchased the shares in STA for the benefit of his wife, Ms Parminder (Pam) Sandhu. Ms Sandhu is an accountant by occupation and met Mrs Patel in 2009.
[5] Ms Sandhu wanted to be involved in her own business after she became fully qualified as an accountant. During the period leading up to March 2015 she and Mr Singh became aware that Mrs Patel had entered into an agreement to buy the shares in STA from IP and Admin Ltd, a company owned by Mr Stephen Taylor. At that stage Mrs Patel was managing a small accountancy practice in Ellerslie that was owned by her company Elite Solutions NZ Ltd (Solutions).
[6] There is a dispute as to who initiated and promoted the negotiations relating to the purchase by Mr Singh of shares in STA. It appears to be common ground, however, that by 11 March 2015 Mr Singh and Ms Sandhu had agreed to buy 49 per cent of the shares in STA. Ms Sandhu said she could not get a loan to buy the shares because she owned no assets in her own name. For that reason they decided to register the shares in the name of Mr Singh alone. It is clear, however, that Ms Sandhu was responsible for most of the negotiations with Mrs Patel prior to the point at which the shares were purchased.
[7] The terms on which Mr Singh agreed to purchase the shares were never reduced to writing. Similarly, although Mr Singh’s solicitors prepared a draft shareholders agreement, it was never signed by either party. As a result, the contractual relationship between Mrs Patel and Mr Singh can only be ascertained from contemporaneous oral and written communications between the parties and their respective solicitors.
[8] Mr Singh and Ms Sandhu owned an unencumbered house property. To fund the purchase of the shares they obtained two loans totalling $290,000 from the ANZ Bank (ANZ). This enabled them to pay the sum of $300,000 into Elite’s bank account on 16 March 2015. Elite then acquired all the shares in STA from IP and Admin Ltd on 17 March 2015. It subsequently transferred 49 per cent of those shares to Mr Singh on 5 June 2015.
[9] Following settlement STA continued to operate its accountancy practice on the North Shore under Mrs Patel’s management. Neither Ms Sandhu nor Mr Singh played any role in the operation of STA’s business. Ms Sandhu became responsible for managing the Ellerslie practice owned by Solutions. She remained an employee of Solutions until approximately November 2016, when Mrs Patel closed the office.
[10] From April 2015 STA paid the monthly instalments of principal and interest on the two loans Mr Singh and Ms Sandhu had obtained from ANZ. This continued until 27 August 2018. In addition, STA and Mrs Patel provided guarantees to ANZ for those loans. The arrangement between Mr Singh and Mrs Patel was that Mr Singh’s shareholding in STA would drop to 35 per cent when the monthly payments from STA
had repaid the ANZ loan in full. In this way it was hoped that Mr Singh would acquire 35 per cent of the shares in STA without having to make any payments himself towards the ANZ loan.
[11] STA also paid the principal and interest on a loan Mrs Patel had obtained from the Bank of New Zealand (BNZ) to enable her to acquire her shares in STA.
What price did Mr Singh agree to pay for the shares?
[12] A preliminary issue arises as to the price Mr Singh agreed to pay for the shares. He contends he paid the sum of $325,000 whilst the defendants contend the purchase price was $300,000.
[13] The answer to this issue lies in whether a payment of $25,000 that Ms Sandhu deposited into Solutions’ bank account on 11 February 2015 formed part of the purchase price for the shares. Mr Singh and Ms Sandhu contend that it did; the defendants say the payment was a loan Ms Sandhu made to Solutions to assist it with cash flow issues the company was experiencing at that time. They say the payment had nothing to do with the purchase of the shares.
[14] I accept the evidence of Mrs Patel on this issue. First, STA paid interest on the sum of $25,000 into Ms Sandhu’s bank account at her request. By contrast, it paid the principal and interest on the loans Mr Singh and Ms Sandhu had obtained from the ANZ Bank into their joint bank account. The parties obviously treated the two sets of payments differently from that perspective.
[15] More importantly, on 12 March 2015 Ms Sandhu sent an email to her solicitor, Mr Stephen Palmer, instructing him to amend the shareholders agreement to record that they were paying $300,000 for the shares.1 This coincides with the payment Mr Singh and Ms Sandhu made to Elite’s bank account on 16 March 2015. If the parties had intended the earlier advance to be part of the purchase price I have no doubt Ms Sandhu would have instructed her solicitor to amend the shareholders agreement
1 The email is set out at [51].
to show a purchase price of $325,000. I therefore find that Mr Singh agreed to pay the sum of $300,000 for the shares.
First cause of action: conversion
Liability
[16] Mr Singh contends that Mrs Patel and Elite committed the tort of conversion when Mrs Patel arranged for the shares formerly owned by him to be transferred to Elite. They committed it again when Elite subsequently transferred all the shares in STA to Mrs Patel in January 2018.
[17] There is no dispute regarding the elements that need to be proved to establish the tort of conversion. The leading recent authority remains Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5).2 The defendant’s conduct must be:
(a)inconsistent with the rights of the owner;
(b)deliberate, in the sense that the conduct is intentional, rather than intending to cause loss;3
(c)so extensive an encroachment on the rights of the owner or other person as to exclude him or her from use or possession of goods; and
(d)conduct that deprives the owner of his or her interest in the goods.
Did the defendants act in a manner inconsistent with Mr Singh’s rights as owner of the shares?
[18] On the defendants’ behalf Ms Low submitted that there was insufficient evidence to establish that they converted the shares. She pointed out that s 87 of the Act requires every company to maintain a share register and s 84 provides that, subject to the constitution of the company, shares in a company may be transferred by entry
2 Kuwait Airways Corp v Iraqi Airways Co [2002] UKHL 19, [2002] 2 AC 883 at [39], cited with approval in Glenmorgan Farm Ltd (In rec and liq) v New Zealand Bloodstock Leasing Ltd [2011] NZCA 672, [2012] 1 NZLR 555 at [26].
3 OBG v Allan [2007] UKHL 21, [2008] AC 1 at [42].
of the name of the transferee on the share register. Ms Low submitted there is no evidence Mrs Patel entered either transfer of shares in STA’s share register so as to implement a transfer of the shares in accordance with s 84.
[19] I accept this submission. The evidence is entirely silent as to whether STA maintained a share register as required by s 87 of the Act. There is similarly no evidence to confirm Mrs Patel entered an initial transfer of the shares from Elite to Mr Singh or that she subsequently entered transfers of the shares from Mr Singh back to Elite and then from Elite to herself. There is only the evidence that notice of both transfers was registered with the Registrar of Companies so that it became publicly available information on the Companies Office website.
[20] If Mrs Patel arranged for notice of the change in shareholding to be given to the Registrar it might be possible to infer she also took the step of recording the share transfer in the company’s share register. In Tyrion Holdings Ltd v Claydon Brewer J was prepared to infer that a company had created and maintained a share register until it became misappropriated or mislaid.4 That decision has been the subject of academic criticism on the basis that experience has shown that many small companies fail to keep a share register as required by the Act.5
[21] In the present case I am not prepared to infer on the balance of probabilities that Mrs Patel took the steps necessary to record the share transfers in the company’s share register. It is equally, if not more, likely in my view that the company did not maintain any share register and, if it did, that Mrs Patel did not enter any of the transactions in the register. Mr Gilchrist did not explore this issue with Mrs Patel during cross-examination but I have no confidence Mrs Patel would have been able to shed light on the issue in any event. She arranged for another staff member to give notice of the change in shareholding to the Registrar because she either did not know how to do it or did not know the password required to post documents on the Companies office website. I have no confidence, notwithstanding her qualifications
4 Tyrion Holdings Ltd v Claydon [2015] NZHC 428, [2015] NZAR 698 at [11].
5 Thomas Bloy and Tamina Cunnungham-Adams “No share register? No problem. Inferring the existence of the non-existent” [2015] NZLJ 210.
as an accountant, that she would have known about the requirement to keep a share register and/or the need to enter changes of shareholding in the share register.
[22] The manner in which Mrs Patel approached her contractual relationship with Mr Singh also suggests she was not a person who took particular care about commercial arrangements. Both she and Mr Singh were prepared to acquire the shares in STA without signing any document evidencing the agreement they had reached as to the terms on which they were to hold the shares in STA. This occurred despite the fact that solicitors had prepared a draft shareholders agreement. It then appears that she never completed any financial statements for STA for the next three years.
[23] I therefore consider it more likely than not that Mrs Patel went no further than lodging the notice with the Registrar of Companies so the BNZ would see Mr Singh no longer held shares in the company. I consider it unlikely that she recorded the transfer of Mr Singh’s shares to Elite in the company’s share register, assuming STA kept a share register.
[24] All of the parties may well have believed that the notice given to the Registrar of Companies was sufficient to divest Mr Singh of his ownership of the shares. That is not, however, the factual or legal position. A transfer of shares could only be effected through registration in the company’s share register. Unless and until that was done Mr Singh remained the legal and beneficial owner of the shares and he remained free to deal with them as he saw fit. If STA did not keep a share register, or Mrs Patel did not register the shares in his name when he initially acquired them, Mr Singh could have applied to the Court for an order rectifying the share register under s 91 of the Act. It follows that neither Mrs Patel nor Elite committed an act that divested Mr Singh of the ownership of his shares in STA or that prevented him from exercising dominion or control over the shares. The claim in conversion must fail as a result.
[25] My conclusion on this issue is fortified by the fact that after January 2016 Mrs Patel continued to act in all respects as if Mr Singh still held his shares in STA. STA continued to make monthly payments to Mr Singh and Ms Sandhu’s joint bank account until 27 August 2018. If Mrs Patel had sought to appropriate Mr Singh’s
shares for Elite in January 2016 I have no doubt she would have stopped the monthly payments at or about that time.
[26] Mrs Patel also said she continued to provide Ms Sandhu with financial information about the company when she requested it. Neither Ms Sandhu nor Mr Singh had played any role in STA’s management before the share transfer and this did not change after 11 January 2016.
[27] Mrs Patel’s act in filing notices with the Registrar of Companies was plainly inconsistent with Mr Singh’s rights as owner of the shares. Of itself, however, it would be insufficient to amount to an effective transfer of Mr Singh’s shares in terms of s 87 of the Act. Only an entry in the company’s share register could achieve that outcome.
[28] I consider the likely explanation for what happened is to be found in what Mrs Patel told Ms Sandhu in January 2016 after Ms Sandhu became aware of the notice that had been filed with the Registrar of Companies. Mrs Patel’s evidence at trial was largely along the same lines. Mrs Patel told Ms Sandhu that STA needed further accommodation from the BNZ to meet its operating expenses over the Christmas holiday period. Mrs Patel said the BNZ had noted the fact that Mr Singh had shares in STA. It would only grant the company a temporary overdraft facility if it provided a general security agreement over its assets and both shareholders provided personal guarantees.
[29] Mrs Patel said she tried to contact Ms Sandhu by telephone at this point, but Mr Singh told her Ms Sandhu was in India. Mrs Patel said she did not tell Mr Singh the reason for her call because she always dealt with Ms Sandhu on matters relating to STA. Mr Singh cannot recall that conversation.
[30] Mrs Patel said she knew Mr Singh would not be happy about giving a guarantee to the BNZ. She therefore decided to transfer his shares back to Elite. I consider Mrs Patel only took that step to ensure the bank would not require Mr Singh to provide a guarantee in return for the provision of an overdraft facility. Mrs Patel compounded the problem so far as Mr Singh and Ms Sandhu were concerned by telling Ms Sandhu
she could not take steps to rectify the situation because this would cause problems with the bank.
Does the tort of conversion extend to intangible assets?
[31] The claim in conversion faces a second potential problem. This relates to the issue of whether economic losses caused by wrongful dealings with shares in a company are recoverable in conversion. This issue arises because the tort of conversion has traditionally protected the right to possession of goods or chattels. It has not extended to interference with intangible assets or property. Shares have traditionally been regarded as choses in action and as such are intangible assets. The reason for this was explained by Muir J in the following passage in Darlow v Raymond: 6
[130] … A chose in action is defined as personal property which can only be claimed or enforced by action, and not by taking physical possession. A share in a company is categorised as a chose in action because the shareholder has certain rights, such as to receive dividends and the means to enforce their rights by action. These are core characteristics of a chose in action, which give it the quality of personal property. Moreover, a share is defined as personal property in s 35 of the Companies Act 1993.
[32] Mr Gilchrist relied on this passage as confirming that shares are property and as such can be subject to a claim in conversion. He also relies heavily on s 35 of the Companies Act 1993, which provides that a share in a company is personal property. I do not accept this submission. There can be no doubt that choses in action such as shares are capable of being regarded as property. That is not the issue. The issue is whether their status as intangible assets precludes them from being subject to a claim in conversion.
[33] The most recent decision of high authority on this issue is that of the House of Lords in OBG Ltd v Allan.7 One of the appeals in that case concerned the actions taken by receivers appointed by the creditor of a company. The receivers proceeded to realise the company’s assets for the benefit of the creditor. These consisted of both physical and intangible assets. The intangible assets consisted of debts owing to the
6 Darlow v Raymond [2017] NZHC 269, [2017] 3 NZLR 269.
7 OBG Ltd v Allan, above n 3.
company. It transpired that the receivers had been invalidly appointed. The company was placed in liquidation and the liquidators caused the company to sue the receivers in conversion for losses sustained on the sale of the company’s assets. The House of Lords held by a majority8 that an action in conversion was available for recovery of losses suffered in relation to the sale of the physical assets but not the intangible assets.9 Baroness Hale of Richmond and Lord Nicholls of Birkenhead dissented. Both considered the time had come to extend the tort of conversion to the type of intangible assets wrongly dealt with by the receivers.10
[34] The decision in OBG has not been the subject of consideration by the New Zealand courts. Conflicting observations have been made in this Court, however, as to whether shares can be the subject of a claim in conversion. In Black v Giltech Precision Castings (2004) Ltd French J observed:11
[190] Contrary to a submission made by Mr Farrow, I consider that shares are capable of being the subject of a conversion claim in New Zealand, at least in principle. Both the claims in detinue and conversion, however, require the plaintiffs to show they are legally entitled to possession of the shares. They are not able to show that, because of the agreement.
[35]In Pure Elite Holdings Ltd v Bodco Ltd Wylie J expressed the opposite view:12
[203] I turn to the third cause of action. It asserts conversion, on the basis that the defendants by their actions converted PEHNZ’s shares in Danpac. Conversion is committed where a party deliberately interferes with the property of another, without lawful justification and in a manner inconsistent with the other party’s rights as owner. As I have noted, the defendants’ unilateral actions in taking back the shares were manifestly inappropriate. However, as the law stands at present, liability for conversion applies only to an interest in chattels, and not to a chose in action – including shares. For this reason the third cause of action must fail. Further, and in any event, any conversion cannot survive my finding that there is no ongoing entitlement to the shares.
[36] In both cases the observations were made by way of obiter comment, and in neither case did the Judge refer to OBG or give any reasons for the conclusion expressed. Neither is therefore particularly persuasive.
8 Comprising Lord Hoffmann, Lord Walker of Gestinghope and Lord Brown of Eaton-under- Heywood.
9 At 94-107, 271 and 321-322.
10 At 220-238 and 304-318.
11 Black v Giltech Precision Castings (2004) Ltd [2012] NZHC 1148, [2012] NZCCLR 13 at [190].
12 Pure Elite Holdings Ltd v Bodco Ltd [2019] NZHC 2191.
[37] The issue of whether the courts in New Zealand should follow the majority or minority approaches in OBG is the subject of a detailed and thought-provoking article published in 2009 by Susannah Lei Kan Shaw.13 This describes the origins of the tort of conversion and the manner in which it has developed from the historical action for trover. It examines the reasoning adopted by the majority and minority judgments in OBG and concludes that the courts in New Zealand should, in an appropriate case, now recognise that the tort of conversion extends to intangible assets.
[38] These issues were not canvassed in any detail at trial and I therefore sought further written submissions from counsel subsequently. I am grateful to them for the submissions they have filed even though I have now decided the case against Mr Singh on the facts. Any comments I now make about the issue are obviously obiter for that reason. In deference to the careful arguments of counsel, however, I propose to make some observations about it.
[39] First, it needs to be remembered that OBG was decided in 2007. Digital and other forms of technology have developed considerably since then. Most business entities today would view intangible assets as being vital to their survival and success. Such assets are also readily capable of being converted by others, often with devastating consequences.
[40] Secondly, as Baroness Hale pointed out,14 the facts of OBG demonstrate the illogicality of restricting the ambit of the tort to physical assets. Why should the receivers have been liable for converting the company’s tangible assets but not liable for converting its intangible assets? The only real justification for the distinction lies in the historical development of the tort.
[41] Thirdly, I accept that other torts may cover the deliberate conversion of intangible property. The tort Mr Singh relies upon in the second cause of action is one example. The disadvantage of that tort is that it requires intent to cause harm to the economic interests of another person. For reasons I shall shortly outline that is not the
13 Susannah Lei Kan Shaw “Conversion of Intangible Property: A modest, but principled extension? A Historical Perspective” (2009) 40 VUWLR 419.
14 OBG Ltd v Allen, above n 3, at 311.
case here. The advantage of the tort of conversion is that it imposes strict liability. The plaintiff is not required to prove intent to cause economic harm to another.
[42] Fourthly, two members of the majority in OBG expressed concern at the prospect of extending a tort involving strict liability to intangible assets.15 This is obviously a policy issue that will need to be considered in cases where such consequences may be regarded as undesirable. In the present case the concern does not arise because, on any view, Mrs Patel should not have given notice to the Registrar without discussing the proposal with Mr Singh. She had the ideal opportunity to do that when she called him in December 2015 and discovered Ms Sandhu was overseas. Mrs Patel’s explanation that she did not raise the issue with Mr Singh because she always dealt with Ms Sandhu on matters relating to STA does not excuse her failure to raise the issue with Mr Singh. He was the party most directly affected by her proposal. Once Mrs Patel discovered Ms Sandhu was overseas she should have told Mr Singh about the issue with the BNZ so he could make his own decision as to what should be done to deal with the problem.
[43] If Mr Singh had been able to prove Mrs Patel deprived him of the ability to deal with his shares I would therefore have held that the tort of conversion extended to this act.
[44] In case I am wrong on the issue of whether Mrs Patel converted the shares, I propose to briefly consider whether the remining elements of the tort have been established and, if so, the damages to which Mr Singh would be entitled. I deal with the latter issue in greater detail in case it should need to be revisited in the future.
[45] If Mrs Patel effected a valid transfer of Mr Singh’s shares to Elite and then to herself she would thereby deprive Mr Singh of the ability to control them. For all intents and purposes she and Elite would stand in his place as owner of the shares. That level of encroachment on Mr Singh’s rights as owner of the shares would clearly be sufficient in my view to amount to conversion. It follows that, but for the factual finding I have made, Mr Singh would have proved the elements necessary to establish the tort of conversion against both defendants.
15 At 99 per Lord Hoffmann and at 321 per Lord Brown of Eaton-under-Heywood.
Damages
[46] The objective of damages awarded for conversion is to provide compensation for the loss the plaintiff has suffered as a result of the tort being committed.16 In most cases this will be the value of the goods at the time they were converted.17 In Kuwait Airways, Lord Nicholls of Birkenhead emphasised that the plaintiff should recover its “true loss”.18 Calculation of damages in this context requires a twofold enquiry. First, the plaintiff must establish that the defendant’s wrongful conduct contributed to the loss. If it did, the court must assess the extent of the loss for which the plaintiff should be liable.
The arguments
[47] Mr Singh’s argument on damages was based on the fact that he and his wife had agreed to pay at least $300,000 for the shares in March 2015. He contended it was therefore likely the shares still had the same or similar value when Mrs Patel and Elite converted them in January 2016.
[48] Ms Low submitted that the transfer of the shares was not causative of Mr Singh’s loss. Rather, any loss was caused by the ultimate failure of STA.
[49] Ms Low also pointed out that Mr Singh and Ms Sandhu did not undertake any due diligence before they agreed to buy the shares from Elite. They seem to have been content to pay 35 per cent of the price Mrs Patel had agreed to pay IT and Admin Ltd for the shares in STA. However, STA leased its premises and equipment. It had few, if any, assets of its own. The principal value of the accountancy business it acquired lay in its client database but STA did not acquire the database. Instead, Elite acquired the database from IP and Admin Ltd. Elite then leased the database to STA for an indefinite term at a nominal annual rental. Under the terms of the lease STA alone had the right to terminate the lease of the database.
16 IBL Ltd v Coussens [1991] 2 All ER 133 (CA).
17 Furness v Adrium Industries Pty Ltd [1996] 1 VR 668 (VSC); Kuwait Airways Corp v Iraqi Airways Co, above n 2, at 1090.
18 Kuwait Airways Corp v Iraqi Airways Co, above n 2, at [68].
[50] Ms Low pointed out that the structure used in the acquisition of STA’s business clearly caused Mr Stephen Palmer, the solicitor acting for Mr Singh and Ms Sandhu, significant concern. On 12 March 2015 Mr Palmer sent the following email to Mrs Patel’s solicitor:
Hello Jaswin
When is possession/settlement to take place?
Can you please advise what Elite is actually buying and what security it is giving and to whom? Why cannot our respective clients acquire both the database + equipment and the shares in [STA]? In my opinion, there does NOT need to be this two stage process.
Can I have a copy of the current IP & Admin Lease to STA?
What about the [STA] restraint of trade and our requested indemnity?
The draft Agreement that you have sent me is not satisfactory in its current form – no list of “assets supplied” attached, what amount is payable and how often and when? Schedule 2 has a figure but nothing else. Has this already been signed by your client?
If we are paying a percentage of the entire purchase price for the business, I don’t believe that that is reflected in the value of the shares that we are acquiring in STA (i.e. STA owns nothing but right to use equipment and database). If agreement ends, my client ends up with worthless shares – in my opinion, the major asset is the database!!!
Surely you need to put in place the share capital increase now.
If we are paying money to you now, what security do we have if the above hasn’t/doesn’t happen?
(Emphasis added)
Mr Palmer added Ms Sandhu as a recipient of this email so she was clearly aware of his concerns.
[51]Ms Sandhu responded to Mr Palmer on the following day as follows:
Stephen, Jasvinder and I have taken on board your concerns. We are still going ahead. Please amend our contribution in the shareholders agreement to
$300,000 to round off and email a copy of the same to Roopa to sign off.
Also, please draw & forward to Roopa’s lawyer, an indemnity with clauses about possible legal action by SBA and BNZ.
[52] Ms Low submitted that Mr Palmer’s email obviously alerted Mr Singh and Ms Sandhu to the fact that the structure of the purchase meant Mr Singh would be buying shares in STA that were potentially worthless. She said they went ahead with the purchase notwithstanding their solicitor’s advice and must now accept responsibility for the loss they have suffered. She contended the shares were virtually worthless form the outset and that Mr Singh has not suffered any true loss as a result of Mrs Patel’s actions.
Decision
[53] I do not accept the argument for Mr Singh that the value of the shares in January 2016 was the same as their value when he purchased them ten months earlier. Ten months can be a significant period in commerce and there is very little evidence regarding STA’s financial performance after Mrs Patel took control of it.
[54] I do not, however, accept the first argument for Mrs Patel that any loss was caused by the ultimate failure of the company and not by Mrs Patel’s actions. The first alleged share transfer occurred on or about 11 January 2016 and STA was not placed in liquidation until September 2019. The fact that the shares may have been worthless in September 2019 does not mean they were also worthless more than three years earlier at the point where the defendants converted them.
[55] I also do not accept the shares were virtually worthless from the outset. Mr Palmer’s warning that the shares were potentially worthless was directed to the consequences that would follow if STA no longer had the use of the database. As at 11 January 2016 STA still had the contractual right to have exclusive use of the database. This was obviously a valuable asset, as Mr Palmer’s email makes clear. It is also demonstrated by the fact that Mrs Patel said in evidence that she ultimately sold it to her current employer for the sum of $1 million.
[56] STA continued in business for more than three years after Mrs Patel arranged for Mr Singh’s shares to be transferred to Elite on 11 January 2016. Although neither party produced financial statements at the trial there is some evidence that it was able to trade profitably during this period. In particular, it was obviously able to meet its
operating expenses and also make monthly payments to both Mrs Patel and Mr Singh so they could meet their mortgage commitments.
[57] In assessing the value of the shares in STA as at 11 January 2016 I consider the events that occurred in June 2016 to be important. By that stage Mr Singh and Ms Sandhu were endeavouring to recover the price they had paid for the shares. In June 2016 Ms Sandhu prepared a standard form agreement that purported to relate to the sale and purchase of STA’s business. Both parties accept, however, that it was intended to be a contract under which Elite agreed to pay Mr Singh for his shares.
[58] The agreement was backdated to 11 January 2016. This confirms it was intended to reflect the fact that Elite was to acquire Mr Singh’s shares in STA as at that date. The agreement recorded the purchase price as being “$286,000 + $25,000
+ $75,000”. The agreement required Elite to pay the purchase price in full on 31 October 2016.
[59] In evidence Mrs Patel said she believed the “$75,000” component of the purchase price was the annual salary Ms Sandhu was already receiving from Solutions. Her evidence on that point was not challenged. The “$25,000” component obviously related to the repayment of the advance Ms Sandhu had made to Solutions on 11 February 2015. The agreement recorded that this sum was to be treated as a loan until it was settled. The final component of “$286,000” was clearly the amount Mrs Patel agreed Elite would pay Mr Singh for the acquisition of his shares.
[60] Mrs Patel said Elite did not have the funds to settle the purchase of the shares on 31 October 2016. That fact does not matter for present purposes. The important point is that Mrs Patel agreed on Elite’s behalf in June 2016 that Mr Singh’s shares were worth $286,000 as at 11 January 2016.
[61] Mrs Patel alleges she was subject to duress in the form of illegitimate pressure from Ms Sandhu and Mr Singh during mid-2017 when they endeavoured to obtain payment from her after Elite was unable to complete the purchase of the shares under the agreement dated 11 January 2016. She did not make the same complaint in relation to her decision to have Elite sign the agreement dated 11 January 2016 and there is no
evidence to support such a claim in any event. I therefore take Elite to have agreed, through Mrs Patel, that it was prepared to pay the sum of $286,000 for the shares based on their value as at 11 January 2016. I would therefore take that sum to be the true measure of the loss suffered by Mr Singh as a result of Mrs Patel and Elite converting his shares to their own use on that date.
[62] Ms Low submitted that Mr Singh breached his obligation to mitigate his loss but I am satisfied this argument cannot be sustained. As I have already recorded, Ms Sandhu confronted Mrs Patel in January 2016 as soon as she became aware of what had occurred. During this meeting she asked Mrs Patel to return the shares to Mr Singh but Mrs Patel said this could not be done because of the issues it would raise with the bank. It is therefore not surprising that Mr Singh and Ms Sandhu then concentrated their efforts on obtaining a refund of the purchase price Mr Singh had paid for the shares. This included entering into the agreement dated 11 January 2016 under which Elite agreed to pay Mr Singh for the shares it had already acquired from him. I do not consider Mr Singh could have done any more to mitigate his loss.
[63] I do not consider it necessary to consider further the second alleged act of conversion, namely the share transfer from Elite to Mrs Patel in January 2018. By that stage Mr Singh’s loss had already crystallised under the first share transfer.
[64] But for my factual finding Mr Singh would therefore have been entitled to damages in the sum of $286,000 against both defendants under the cause of action based in conversion.
The second cause of action: causing harm to Mr Singh’s economic interests by unlawful means
[65] My finding in relation to the cause of action based on conversion means the second cause of action cannot succeed because Mr Singh has failed to prove Mrs Patel transferred his shares to Elite and then to herself. In case I am wrong on that issue, however, I propose to briefly deal with it.
[66] The ambit of this tort is not entirely clear. In Van Camp Chocolates Ltd v Aulsebrooks Ltd the Court of Appeal observed:19
In principle, as we see it, an intent to harm a plaintiff’s economic interests should not transmute the defendant’s conduct into a tort actionable by the plaintiff unless that intent is a cause of his conduct. If the defendant would have used the unlawful means in question without that intent and if that intent alone would not have led him to act as he did, the mere existence of the purely collateral and extraneous malicious motive should not make all the difference. The essence of the tort is deliberate interference with the plaintiff’s interests by unlawful means. If the reasons which actuate the defendant to use unlawful means are wholly independent of a wish to interfere with the plaintiff’s business, such interference being no more than an incidental consequence foreseen by and gratifying to the defendant, we think that to impose liability would be to stretch the tort too far. Moreover, it would entail minute and refined exploration of the defendant’s precise state of mind – an inquiry of a kind the law should not call for when a more practicable rule can be adopted.
(Emphasis added)
[67] The threshold for establishing the requisite intention is high. As the House of Lords noted in OGB Ltd v Allan:20
A high degree of blameworthiness is called for, because intention serves as the factor which justifies imposing liability on the Defendant for loss caused by a wrong otherwise not actionable by the Claimant against the Defendant. The Defendant’s conduct in relation to the loss must be deliberate. In particular, a Defendant’s foresight that his unlawful conduct may or will probably damage the claimant cannot be equated with intention for this purpose.
[68] Mr Singh contends Mrs Patel deliberately caused harm to his economic interests by initially causing his shares in STA to be transferred to Elite and then subsequently causing them to be transferred to herself. As is evident from the passage set out above from Van Camp, however, Mr Singh must establish that Mrs Patel intended the transfers of the shares to cause harm to his economic interests.
[69] Mrs Patel’s cause is obviously not helped by the fact that she failed to tell Mr Singh or Ms Sandhu about either transaction before or after she carried it out. I consider Mrs Patel’s explanation about these events21 to be unconvincing given the fact that this was clearly an important issue that directly affected Mr Singh. He owned the shares and Mrs Patel’s proposed course of action involved the transfer of his shares
19 Van Camp Chocolates Ltd v Aulsebrooks Ltd [1984] 1 NZLR 351 (CA) at 360.
20 OGB Ltd v Allan, above n 3, at [166].
21 Set out above at [28].
to Elite. In addition, Mrs Patel has no explanation for the fact that she did not tell Mr Singh and Ms Sandhu what she had done after she effected the first share transfer. They only discovered what had happened by chance.
[70] Importantly, however, Mrs Patel continued to treat Mr Singh as if he still owned the shares in STA after she effected both transfers. For the next 32 months STA continued to make payments into Mr Singh and Ms Sandhu’s joint bank account so they could meet their mortgage payments. Mrs Patel also continued to comply with any requests for financial information that Ms Sandhu made of her.
[71] The position may have been different if Mrs Patel had transferred the shares to Elite and then sold them for a profit to a third party. She did not do that. Instead they remained in Elite’s name until January 2018, when they were transferred to Mrs Patel. She then retained the shares until STA went into liquidation. There is therefore no evidence Mrs Patel sought to use the transfers to gain an economic advantage for herself at Mr Singh’s expense.
[72] Mr Gilchrist did not challenge Mrs Patel’s evidence about her intention when she effected the first share transfer and I consider her explanation makes sense given the time of year at which it occurred. Furthermore, the share transfer avoided the need for Mr Singh to provide a guarantee to the BNZ in relation to STA’s indebtedness to the bank. To that extent the transaction was to Mr Singh’s economic advantage.
[73] I therefore do not consider Mr Singh has established that Mrs Patel undertook the first share transfer with the intention of harming Mr Singh’s economic interests.
[74] Mrs Patel said in evidence she was unable to recall why she effected the second share transfer in 2018. Again, however, she did not discuss that issue with either Mr Singh or Ms Sandhu before she transferred the shares to herself.
[75] By the time Mrs Patel implemented the second share transfer in January 2018 Mr Singh had long since abandoned his bid to have the shares returned to him. By that stage his sole concern lay in recovering the purchase price he had paid for the shares. The second share transfer made no difference to that issue. Regardless of the
reason for Mrs Patel implementing the second share transfer I do not consider it could have been intended to harm Mr Singh’s economic interests further.
[76] It follows that I do not consider Mrs Patel arranged for either share transfer with the intention of harming Mr Singh’s economic interests. This cause of action fails as a result.
Third cause of action: debt
[77] Under this cause of action Mr Singh alleges Mrs Patel agreed to pay him the sum of $315,000 so he would not be out of pocket in relation to the loans he and Ms Sandhu had obtained from ANZ.
[78] Mr Singh relies in this context on emails Mrs Patel sent to Ms Sandhu and Mr Singh during 2017. Perhaps the clearest example is an email Mrs Patel sent to Ms Sandhu on 8 August 2017:
Firstly, I would like to say thank you for being with me and your patient so far.
We have already discussed and have update from my end at certain level through txt messages.
There is a small renovation on property that we are getting done hopefully will complete by next week. Exterior walls cladding has fallen over due to storm and heavy rain last two weeks ago. Insurance did not pass claim as its odd place so they think its required maintenance.
We have internal within our group interested to come and see after renovation. Hopefully they will accept offer that we can get maximum on this property so we can repay your full amount.
This is our plan from our end to get maximum beneficial to all of us. One thing I want to assure you and that is from this property after paying bank loan of this property you will be first one to pay that’s for sure.
I will keep you posting at every development from my end. Till then I appreciate your co-operation.
(Emphasis added)
[79] On 24 August 2017 Mr Singh’s solicitors sent Mrs Patel a letter that included the following statement:
I act for Jasvinder Singh.
Mr Singh advises me of the following:
…
§In recognition of the fact that what you or Elite have done is totally inappropriate, you have agreed that your trust, which owns a property at 21 Oakdale, Hillsborough, will transfer the property to Jasvinder and Parminder, treating money that Jasvinder paid for his shares as being a paid deposit of $315,000.00. The price is to be the value of the property as determined by an independent valuer appointed by the NZ Valuers Institute on the application of Jasvinder or Parminder, the cost of the valuation to be paid by your trust.
§...
If the agreement doesn’t become unconditional, then Jasvinder would at the very least want the money that he paid for his shares to be refunded, which would be upon demand unless other terms are agreed. That doesn’t mean to say that he wouldn’t pursue any legal rights or remedies that he may have against you, Elite, or your husband as a director of Steven Taylor & Associates North Shore Limited, or any right that he may have to refer the matter to the authorities.
…
Given that Elite would seem to have blatantly misappropriated Jasvinder’s shares, Elite would owe Jasvinder either the money paid for his shares in Steve Taylor & Associates North Shore Limited or damages for an amount that may be greater than the price paid by Jasvinder for the shares. In those circumstances, it may not be appropriate for the Agreement for the Sale and Purchase of the property to provide that Jasvinder and Parminder are deemed to have paid to the Trustees $315,000.00 as a deposit. From Jasvinder’s and Parminder’s perspectives, it would be simpler to have the price reduced by that amount. Alternatively, Jasvinder could assign to the trustees, as payment of the deposit, an acknowledgement of debt by Elite to Jasvinder whereby Elite acknowledges that it owes Jasvinder $315,000.00
I have advised Jasvinder that he and Parminder shouldn’t rush around getting an Agreement for Sale and Purchase prepared until and unless you and your husband who I understand is your co-trustee of the trust, confirm in writing (email will suffice) that you agree to sell the property on the terms set out in this letter. Accordingly, please forward to me written confirmation from both of you that:
§you are the only trustees of the trust;
§the trust is the sole owner of the property;
§the trust agrees to sell the property to Jasvinder and Parminder on the terms set out in this letter; and
forward to me in writing an acknowledgement by Elite that it owes
$315,000.00 to Jasvinder for his shares in Steve Taylor & Associates North Shore Limited that have been appropriated by Elite.
[80] This proposal does not have appear to have been taken any further by either party. On 4 September 2017 Mr Singh sent an email to Mrs Patel setting out three options for settlement. Option 3 was in the following terms:
Option 3 – Loan Agreement
Loan Amount $375,000
Interest Only 15%
Term 1 year
Principal can be repaid in multiples of $100,000 of more during the loan period of one year
[81]Mrs Patel responded on 13 September 2017as follows:
As we all know at this current financial situation of mine only 3rd option is viable for me. Please discuss with your lawyer
[82]Mrs Patel followed this with the following email the same day:
Please go ahead and get agreement prepared as per your first email option 3. I hope you should be happy now.
[83] Mr Gilchrist submits that, taken together, these communications clearly establish an assumption by Mrs Patel of personal liability to reimburse Mr Singh for the purchase price he had paid for the shares in STA.
[84] I do not accept this submission for several reasons. First, Mrs Patel clearly anticipated the terms of any agreement would be recorded in a formal agreement that Mr Singh’s lawyers were to prepare. This never occurred. Secondly, although Mrs Patel used the word “I” and “me” on several occasions I am by no means sure that this is determinative given that she is a lay person. Nor is there anything in the emails to confirm Mrs Patel intended to bind herself personally when she previously had no personal obligation to pay Mr Singh anything.
[85] In this context it is also important to bear in mind that the agreement for the sale and purchase of the shares dated 11 January 2016 recorded Elite as being the
purchaser of the shares. Similarly, the letter from Mr Singh’s solicitors dated 24 August 201722 expressly refers to the fact that Elite will be required to provide an acknowledgement of debt to Mr Singh. If any party was to be responsible for making a payment to Mr Singh it was therefore likely to be Elite and not Mrs Patel. Mr Singh may, in fact, have a valid cause of action against Elite based on its failure to complete the purchase of his shares under the agreement signed in June 2016 but dated 11 January 2016. Mr Singh has not sought to pursue that avenue in this proceeding because he advances the third cause of action against Mrs Patel alone.
[86] Mrs Patel denied in cross-examination that she ever intended to assume personal responsibility for reimbursing Mr Singh for the purchase price of the shares. She says she has never had the money to enable her to make that payment. She also said that during August and September 2017 she was under tremendous personal pressure not only from Ms Sandhu and Mr Singh but also from other parties. She said she would have agreed to anything at that time to take the pressure off.
[87] It is well established that illegitimate pressure that is sufficient to coerce a party to enter into an otherwise binding contract may render the contract voidable.23 In the present case, however, I do not consider Mr Singh and Ms Sandhu put illegitimate pressure on Mrs Patel. They plainly wanted to extricate themselves from the situation in which they found themselves. For her part it is not surprising Mrs Patel felt guilty about what she had done. This may have underpinned her willingness to assist Mr Singh and Ms Sandhu in finding a means by which they could be repaid. I am satisfied, however, that in making the comments she did Mrs Patel did not thereby become personally subject to any binding or enforceable obligation to make a payment to Mr Singh.
[88]This cause of action fails as a result.
22 Set out at [79].
23 McIntyre v Nemesis DBK Ltd [2009] NZCA 329, [2010] 1 NZLR 463 at [63].
Judgment and costs
[89] I enter judgment in favour of Mrs Patel on all three causes of action. She is entitled to costs against Mr Singh calculated on a category 2B basis together with disbursements as fixed by the Registrar.
Lang J