Tan Investment Pte Limited v Goldhem Group Limited HC Auckland CIV 2010-404-1187

[2010] NZHC 2086

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-001187

BETWEEN  TAN INVESTMENT PTE LIMITED Plaintiff

ANDGOLDHEM GROUP LIMITED First Defendant

ANDSANDEEP AGGARWAL Second Defendant

ANDPALLAVI GUPTA Third Defendant

Hearing:         9 November 2010

Appearances: B M Stewart for the Plaintiff

M A Karam for the Defendants

Judgment:      12 November 2010

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

12.11.10 at 2:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:

B Stewart, Simpson Western, Takapuna – [email protected]

M Karam, Barrister, Auckland – [email protected]

TAN INVESTMENT PTE LTD  V GOLDHEM GROUP LTD AND ORS HC AK CIV 2010-404-001187  12

November 2010

[1]      The plaintiff, (Tan) lent the first defendant, (Goldhem) the sum of $650,000 on 30 October 2008.    The loan was  for one  year and repayable by four equal quarterly instalments of $162,500 together with interest at 10.5 per cent per annum, payable monthly.

[2]      The second defendant (Mr Aggarwal) and the third defendant (Mr Gupta)

guaranteed the advance.

[3]      No principal reduction of the advance was made and no interest was paid during the term of the advance or indeed subsequently.  Mr Tan has filed an affidavit on behalf of Tan.  He deposed Tan was the former owner of a leasehold interest in premises at 92 Great South Road, Newmarket, Auckland.  At the same time a related company, H2K Investment Limited (H2K) operated a motel business from the premises called the Ascot Motel.

[4]      Tan and  Goldhem  completed an  agreement  for sale  and purchase of the premises (the premises agreement) dated 23 July 2008.  By a separate agreement of same date, H2K and Goldhem completed an agreement for the sale and purchase of the motel business (the business agreement).

[5]      Originally  the  premises  agreement  provided  for  a  vendor  advance  to Goldhem of $500,000.  This sum was later amended to the sum of $650,000 and is recorded in a term loan agreement dated 20 October 2008.   Mr Aggarwal and Mr Gupta completed signed guarantees of the loan obligations.

[6]      Initially and in response to Tan’s summary judgment application to recover the outstanding loan, the defendants filed, on 14 April 2010, a protest as to jurisdiction.   It claimed Tan was bound by an agreement to resolve disputes by arbitration, thereby precluding the Court from jurisdiction to hear Tan’s claim.

[7]      Five days later the defendants filed an application for stay.  It stated that the loan agreement and the business agreement were linked by the premises agreement.

[8]      Clause 17 of the premises agreement recorded the vendor advance secured by a mortgage.

[9]      Clause 18 of the premises agreement acknowledged that:

a)       Goldhem was purchasing the Ascot Motel business to be operated from the premises.

b)The premises agreement was conditional on the business agreement becoming unconditional and that settlement of both would occur simultaneously.

[10]     Clause 13 of the business agreement provided that disputes between H2K and

Goldhem were to be referred to mediation.

[11]     H2K and Tan had the same directors and shareholders.

[12]     The two sale and purchase agreements were settled on 31 October 2008. Goldhem  had  earlier  taken  possession  of  the  premises  and  the  business  on  14

October 2008.

The stay application

[13]     Tan filed an opposition to the stay application.  Mr Tan’s affidavit evidence in support noted that:

a)       Unlike the business agreement, neither the premises agreement nor the term loan agreement contained a dispute resolution procedure.

b)The defendants had not disputed the loan monies were outstanding and due for payment.

c)        Over the period April – May 2009 various issues were raised by the defendants, including:

i)        Goldhem had paid too much to purchase the business.

ii)Goldhem’s operation of the Ascot motel had suffered as  a result of Hansens Motel continuing to operate alongside it. Hansens Motel was operated by a company called Ascot Star Ltd that Mr Tan and others had an interest in.

iii)Goldhem had spent significant funds restoring the exterior of the building and chattels.

iv)That historical data concerning customers at the motel had not been provided as promised.

v)The business had suffered due to the “broadband internet facilities” having been removed from the premises.

vi)That the Ascot Motel business was suffering due to Hansens Motel continuing to use the name “Ascot Star” in various web search engines which provided results for Hansens Motel causing potential quests to stay there instead.

vii)That  representations  had  been  made  regarding  occupancy rates.

[14]     In his reply affidavit Mr Aggarwal provided a copy of a letter dated 16

October 2008 (i.e. prior to settlement) about the existence of the Ascot Star website link.

[15]     In his judgment upon the stay application Associate Judge Faire held he was not prepared to imply a dispute resolution terms in the terms of the loan agreement. He referred also to the fact that the matters about which the defendants complained,

arose from the business agreement and that the parties to that agreement were not parties to the loan agreement.

[16]     Following this the defendants filed a opposition to the summary judgment application claiming, inter alia:

a)        The purchase of the motel business and of the premises was linked.

b)That  the  defendants  were  induced  into  the  business  purchase  by misrepresentations made by Mr Tan.

c)        That such conduct amounted to misrepresentation and was deceptive conduct in trade.

d)That the knowledge and conduct of Mr Tan can be attributed to his companies.

e)        That Mr Tan’s conduct was oppressive entitling the loan agreement to be varied.

f)        Those  misrepresentations  by  Mr  Tan  entitled  the  defendants  to contractual relief.

Background

[17]     The Ascot Motel is one of four motels, three of which are adjacent and the fourth was operated a short distance away in Great South Road, Epsom Auckland. The Ascot Motel occupied no. 92 and the Hansens Motel no. 96, Great South Road.

[18]     In 2005 Ascot Star Ltd was incorporated.   The owners of the respective motels became shareholders.  It appears from the evidence that the ultimate purpose intended for Ascot Star Ltd was to amalgamate the businesses of all four motels, under the ownership and control of Ascot Star Ltd.  Company accounts indicate that meanwhile the company provided management and associated resources for all four companies which independently maintained trading accounts with Ascot Star Ltd.

[19]     The businesses of all four motels was promoted under the banner Ascot Star and a website   was created and was owned by Ascot Star Ltd.

[20]     By the time of the events with which the parties’ dispute occurred, just the Ascot Motel and Hansens Motel continued to operate under the Ascot Star banner. The shares were owned by the Tan interests and by Mr and Mrs Simons the proprietors of Hansens Motel.  Until the premises and business sales to Goldhem, Mr and  Mr  Simons  had  managed  both  the  Ascot  Motel  and  Hansens  Motel.    A significant number of motel bookings were routinely made online through links connected to the Ascot Star website.

[21]     Before the defendants purchased the Ascot Motel from Tan and from H2K they negotiated  for  the  purchase  as  well  of  the  Hansens  Motel.    The  evidence indicates Mr and Mrs Simons engaged this process but did not proceed because they could not agree with the Tan interests about how to divide the price offered by the defendants.   It appears clear from the evidence before me that Mrs Simons in particular  is  unhappy  with  the  consequences  of  the  deal  struck  independently between the defendants and the Tan interests.

[22]     Until about 14 October 2008 Mr and Mrs Simons had managed the business of the adjacent motels.   They did so from offices located within the Ascot Motel. With the arrival of the defendants, Mr and Mrs Simons vacated those offices having, I infer, been required to establish new offices within the premises of the Hansens Motel.

[23]     In May 2008 the company of the third defendant Mr Gupta purchased the motel at 98 Great South Road and has operated it since.  Undoubtedly it is through this connection that the defendants pursued an interest in purchasing the Hansens and Ascot Motels.

Opposition to Summary Judgment

[24]     In essence the defendants raised by way of defence those same issues pursued by their stay application.   More importantly their defences have been pleaded by

reference to the actions of Mr Tan acting for both vendor companies in a transaction where, it is asserted, they were interlinked.   In this way it is claimed that representations alleged to have been made by Mr Tan in connection with the sale of the business may be raised in defence of the loan obligations incurred independently in connection with the sale and purchase of the premises.  Because of this link the defendants plead defences alleging:

a)        Misleading and deceptive conduct in trade pursuant to s 43 of the Fair

Trading Act 1986 (the FTA);

b)Oppressive conduct in accordance with part V of the Credit Contracts and Consumer Finance Act 2003 (the CCCFA), and

c)        Misrepresentations  and  entitling  relief  pursuant  to  the  Contractual

Remedies Act 1979 (the CRA).

[25]     Through the same link the plaintiffs assert a right of equitable set off of loan obligations because of those alleged misrepresentations made in connection with the business sale.

[26]     Lengthy affidavits in opposition have been filed by Mr Aggarwal and also by

Mrs Simons.

Mr Aggarwal

[27]     Mr  Aggarwal’s  affidavit  reviews  pre  purchase  discussions  with  Mr  Tan. These included:

a)       Mr Tan’s claim that the motel would need an occupancy of not less than  60  per  cent  to  be  profitable.    Mr  Tan  provided  a  schedule showing an average occupancy rate of 68.9 per cent.

b)        That the Ascot Motel would have exclusive use of the “Ascot Star”

website through which most of the motel bookings was derived.

c)       That all chattels (including beds, spa pools, kitchen equipment, office equipment and tools) observed onsite would be included in the sale of the business.

d)That Mr Tan would provide assistance during a two week transition period.

e)       That Mr Tan would provide a data base of all previous guests for use for marketing purposes.

[28]     Mr Aggarwal advised that he encountered difficulties in obtaining finance for the purchase.  Then, Mr Tan provided him with a copy of a valuation of the Ascot Motel at $1.51M.  Following this the sale price was reduced to $1.5M.  Mr Tan also provided a copy of a “budgeted cash flow summary” for the year ended June 2009. The property valuation referred to the premises as “Ascot Star Motel”.   The cash flow summary was expressed to be for “the Ascot Star Motel Limited”.

[29]     Mr Aggarwal deposed that immediately after Goldhem took possession of the motel issues arose concerning the “Ascot Star” website, web booking systems and email address; removal of chattels; and lack of assistance by the vendor.

[30]     He said all bookings for Ascot went to Hansens Motel.   The defendants’ solicitors immediately wrote to H2K’s solicitor expressing concern.  Their enquiry discerned that the link with the Ascot Star website went to Hansens.  He learned that the email address was not under Goldhem’s control but rather under the operators of Hansens.

[31]     Mr Aggarwal deposes learning of a dispute between Mr Tan and the owners of Hansens as to the ownership of the name “Ascot Star”.   Mr Aggarwal cited instances of other website addresses showing photographs and providing the address of the Ascot Motel premises but referring enquiries to Hansens.

[32]     Mr Aggarwal lists various chattels he says the defendants did not receive when taking possession including office and general equipment, laundry equipment,

bedroom equipment and outdoor equipment.  Also he said new spa pools had to be purchased for two of the rooms.   Without those each room would have lost more than $10,000 per annum at a 70 per cent occupancy rate.

[33]     Mr Aggarwal claimed that Mr Tan provided no assistance at all during the 14 day transition period – that he “was no-where to be seen”.

[34]     He concludes that the business was significantly impeded from the outset and heavy losses were incurred.  He said that after taking possession the occupancy rate to the motel was 30 per cent.  The issue in relation to the website bookings was not resolved for over a year.   In the course of solicitor correspondence over website concerns the defendants received a letter from the solicitors for the proprietors of Hansens which advised that the trade name of “Ascot Star” was owned by Mr and Mrs Simons; that they were 50 per cent shareholders and directors of Ascot Star Ltd; and had been in negotiations with Mr Tan to extract Hansens Motel from the Ascot Star trade name.

[35]     Since, the defendants claim they have discovered that the website and web engine access were never owned by Mr Tan’s interests and were not his to sell and therefore his representation about those matters were false causing, it is claimed,

‘drastic losses’.  Even now the defendants do not have ownership of the Ascot Star website.

Mrs Simons

[36]     Mrs Simons asserts she does not believe that the business of the Ascot Motel belonged to H2K when Goldhem bought it.  Rather, it was owned by Ascot Star Ltd. Also  she  considers  that  certain  assets  and  intellectual  property  rights  sold  to Goldhem by “interests associated with Mr Tan” were not owned by those interests. She says:

a)       That in January 2006 Ascot Star Ltd was incorporated to put the amalgamation plans of four adjacent motels, including Ascot Motel and Hansens Motel, into effect.

b)It was intended that the ownership of the businesses of all four motels would be transferred to Ascot Star Ltd.

c)        That Ascot Star Ltd ran the business of each motel and the signage and branding of each was changed to “Ascot Star Motels”.

d)That the businesses of the Ascot and Hansens Motels were run from the Ascot reception of the Hansens motel.

[37]     Mrs Simons says a number of matters demonstrated that Ascot Star Ltd was operating the business of the Ascot Motel:

a)        Ascots Star Ltd paid the lease obligations to the owner, Tan.

b)        All signage and related branding in the Ascot Motel was changed to

Ascot Star.

c)        End of year accounts for the Ascot Motel were under the Ascot Star

Ltd banner.

d)       All other expenses previously incurred by H2K were taken over by

Ascot Star Ltd or Ascot Star Motels Ltd, including:

i)        Motel insurance.

ii)       Efpos merchant statements. iii)  Enviro Waste statements.

iv)      Meridian Energy statements.

v)       Auckland Gas Company statements.

[38]     Mrs Simons states that Ascot Star Ltd initially commissioned the creation of the domain site  which it still owns.   Subsequently in

March 2006 it commissioned and paid for the creation of the website  It still owns that website.   She asserts the web design and integration work was critical to the success of the motel businesses; that it is well accepted in the motel and hotel industry that a very large proportion of all bookings, whether they are through travel agents or customers directly, come through the internet and/or email.  Bookings through the telephone are much less prevalent than they were in the past.

[39]     Mrs Simons states that because the business of the Ascot Motel and Hansens were being operated as one, all rooms for Hansens and the Ascot were listed together on all websites.   She considers and has always considered that any “intellectual property” and the web work belonged to Ascot Star Ltd, of which she and her husband are 50 per cent shareholders.  Further, Mr Tan knew well that the web work did not solely belong to him or to any entity associated with him.

[40]     Mrs Simons recounts that in mid 2008 a dispute arose between Mr Tan and she and her husband.  Mr Tan advised that third parties wished to purchase both the Ascot and Hanson’s motels.  Immediately there developed a disagreement regarding the sharing of the proceeds of sale and about apportionment of outstanding bills and rent.  She says that dispute continues to this day.

[41]     Following the sale of the Ascot Motel, Mrs Simons says she and Mr Simons were compelled to move from that site to the adjacent Hansens property.   When doing so they took with them most of their personal chattels and the Hansens chattels that had been used in the Ascot Motel.  She cannot understand how H2K purported to on sell the Ascot Motel business, given that it was, as she says, part owned by Ascot Star Ltd.   In addition she said all of the chattels of the business and the ownership of the website as well as other online booking engine references, were the property of Ascot Star Ltd or Ascot Star Motels Ltd.  Therefore that material was not Mr Tan’s or H2K’s to sell.   She and her husband continued to retain the website, email address and booking sites which they believe are, at least in part, owned by them.

Tan’s case for summary judgment

[42]     It is provided by Mr Tan.  Mr Tan says he did indicate to the defendants that he represented the interests of the companies that owned the Ascot Motel, and also confirmed that Tan held 50 per cent of the shareholding in the company operating the motels under the Ascot Star banner.

[43]     He disputes making any representations or statements regarding profitability of the motel.  He acknowledges showing an occupancy report indicating an average occupancy of 68.9 per cent for the year to May 2008.  He agrees he indicated that if purchase went ahead the purchasers would have the use of the name “Ascot Motel” for the motel business.

[44]     He says he made it clear to the defendants at all times they would not have the use at all of the Ascot Star website as it was owned by Ascot Star Ltd.  Indeed, he said he advised them it was important they set up their own independent website, preferably well in advance of taking possession.  He disputes advising the defendants that bookings under the name of Ascot or Ascot Star would result in bookings for the Ascot Motel.  He said they did not appear to accept any priority ought to be given to that advice.

[45]     Mr Tan says the purchasers were not concerned with detail and only had a cursory inspection of two or three rooms in the Ascot Motel, including room one which was the only room with a spa.   They did not inspect rooms two and three which the defendants now claim no longer had the spas they formerly did.   The agreement for the sale of the motel business by H2K contained a complete list of chattels.  He said all chattels on that list were delivered.

[46]     Mr Tan acknowledges that prior to the agreements being signed he agreed he would be prepared to help during a two week transition period.

[47]     He  said  there  was  no  discussion  at  all  prior  to  entering  into  the  two agreements for a database of previous guests to be provided.  That occurred after the defendants  took  possession  but  no  requirement  for  same  was  contained  in  the

business purchase agreement.   Besides, he says a list of all previous guests was readily accessible at all times through the Ascot Motel computer.

[48]     Mr Tan deposes that Mr and Mrs Simons were present when the defendants’ initial verbal offer of $2.5M, including $1.6M for the Ascot Motel, was put.  He said that although the price share did not meet the Simons expectations they accepted the Ascot Motel could be sold separately.   In the course of his negotiations with the defendants he says he did not represent at any time that the Ascot Motel on its own was a very profitable business.  He says he did advise that it would be possible to operate the Ascot Motel as a separate business from Hansens Motel if it was run well.

[49]     Mr Tan states that the Bayleys' valuation incorrectly referred to the Ascot Motel as the Ascot Star Motel and the budget cash flow although headed up Ascot Star Motels Ltd, in fact was a budget cash flow for the Ascot Motel only.

[50]     Mr Tan deposes that in the course of events leading up to the sale to the defendants he and his solicitor had discussions with the Simons and their solicitor. He said the Simons recognised that H2K and Tan were free to sell the Ascot Motel business and the leasehold interest separately from the Hansens Motel.  Necessarily this would involve the Simons vacating the managers unit in the Ascot Motel and relocating that and the manager’s accommodation to Hansens Motel.

[51]     Mr Tan says the use of the Ascot Star website was never included in the sale of Ascot Motel.  He said the defendants were aware at all times they would not have access to that website.  He says he provided them with a list of websites that they should give consideration to including in their links in the website he assumed they would set up well prior to possession.  Mr Tan exhibited a copy of the list provided. He had no idea the Simons would “deliberately retain” references on the Ascot Star website to the Ascot Motel and still include photographs of the motel even after Goldhem took possession of it.

[52]     Mr Tan said the Simons led him to believe they would discontinue the use of the Ascot Star website and set up a new website for Hansens Motel as soon as the

sale of the Ascot Motel business was completed.   He became annoyed when he learnt that the Simons then failed to cooperate to avoid any confusion between the two businesses.  His solicitor wrote to the Symon’s solicitor on 14 and 16 October

2008 seeking immediately resolution of the website issue.  He says at the same time he suggested to Mr Aggarwal that he instructed his own solicitor to write to the Simons solicitor.

[53]     Mr Tan says the wifi transmitter leased by the Ascot Motel was removed at the instigation of Mrs Simons upon her advice that the motel building was to be demolished.   He says it would have been for the defendants to arrange for the reinstallation of the transmitter; something they could have achieved immediately. He said the removal of the transmitter did not affect internet services or email to the Ascot Motel itself.

[54]     Mr Tan deposed that it was not until a few months after settlement that the defendants raised the issue regarding chattels.  Mr Aggarwal deposed that a number of chattels required replacement.  Mr Tan says Mr Aggarwal does not state whether the specific chattels required replacement because they had been removed or whether they had been replaced with damaged or unusable items.

[55]     After Mr Aggarwal asked to obtain access to historical data of guests at the motel he learned that Mrs Simons had deliberately locked out the motel from the software that would have provided the data.   When learning this Mr Tan says he advised Mr Aggarwal how that access lock could be overcome at a modest cost of

$200.00 – 300.00 a cost which Mr Tan was prepared to meet.  That invitation was not apparently taken up.

[56]     He denies claims that he was not in attendance during the 14 day transition period.  He says he attended the Ascot Motel almost every day, a good deal of that time seeking to resolve issues with the Simons regarding the running of the Ascot Motel business following the taking of possession.

[57]     Mr  Tan  states  that  the  defendants  have  not  provided  any  management accounts, or cash flows or accounts of any description or other independent evidence

that would establish the revenues or lack of them generated by the Ascot Motel following the taking of possession by Goldhem.   Also he stated that during the relevant period New  Zealand was in  a recession and combined with the global downturn, the tourism and accommodation sector was badly affected.

[58]     As to Mr Aggarwal’s claim that the issue over the website bookings was not resolved for over a year Mr Tan notes that the defendants did not help themselves by failing to take urgent and immediate action to set up a website that would compete with the Ascot Star website to ensure that the bookings were directed to their own website.

[59]     Mr Tan denies the claim that an agreement had been reached between Tan and Goldhem and between Tan and the Simons that the name Ascot Star would no longer be used and that the domain name would cease to exist.

[60]     Mr Tan asserts that ownership of the website does not affect the defendants in any way.  He always believed that Ascot Star Ltd owned the website.  The fact that the Simons may later have asserted that they were the owners of the website is irrelevant, as he made no representations to the defendants regarding the website and web engine access and there was no agreement for the sale or transfer of the website to Goldhem.  Mr Tan clarifies issues regarding the establishment of Ascot Star Ltd and Ascot Star Motels Ltd.  He says that notwithstanding the original joint venture partners intent the Simons continued to manage the motels and ownership of the individual businesses were never transferred to the Ascot Star companies.

Principles

[61]     Tan needs to satisfy the Court that none of the defendants has a defence to its claims.

[62]     In this case there is no dispute that Goldhem is bound by the terms of its loan agreement to Tan.  There is no dispute that Mr Aggarwal and Mr Gupta are bound by their written guarantees.   Accordingly Tan is entitled to its judgment unless the defendants  can  satisfy  the  Court  they  have  arguable  defences,  in  this  case  by

equitable set off due to Mr Tan’s actions and conduct in connection with Goldhem’s purchase of the motel business from H2K.

[63]     The affidavit evidence in this dispute highlights a number of factual matters upon which the parties do not agree.  Normally the Court does not resolve material conflicts of evidence or assess the credibility of deponents.  But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the  evidence  is  inconsistent  with  undisputed  contemporary  documents  or  other

statements by the same deponent, or is inherently improbable [1].

[1] Eng Mee Yong v Letchumanan (1980) AC 331 at 341.

[64]     In appropriate circumstances the Court should be prepared to act robustly.

Considerations

[65]     The case has two parts, for present purposes.  The first concerns statements made or actions undertaken by Mr Tan.  The second concerns whether the plaintiffs can do anything about it even if arguably Mr Tan did those things because the defendants’ loan obligations lie with Tan whereas its business contract was with H2K.

[66]     If Mr Tan’s words and conduct bear only upon the business contract and not the loan contract then at best the defendants have a right of counterclaim against H2K only which of itself would not be sufficient to prevent Tan obtaining judgment in connection with the outstanding loan.

[67]     I  propose  to  review  the  defendants’  evidence  concerning  the  words  and conduct of Mr Tan in connection with the business agreement.  My purpose will be to examine whether the defendants have an arguable case which might justify a cancellation of the business purchase, or prove a claim for damages at least equal to the amount of Tan’s claim.  If on the evidence I find an arguable case exists, I will then determine whether there is any legal or factual basis for attributing the alleged conduct of Mr Tan on behalf of H2K, to Tan.

Discussion

[68]     I will deal with each of the conduct claims in turn.

Chattels

[69]     Mr Aggarwal asserts the parties agreed when he and Mr Gupta were taken through the Ascot Motel by Mr Tan that Mr Tan advised them that all chattels on the site would be included in the sale of the business including beds, spa pools, kitchen equipment, office equipment and tools.

[70]     It is not in dispute that a chattels list was provided with the business sale agreement nor that all of those chattels therein detailed were delivered when possession was taken and settlement concluded.   I infer therefore that the representation referred to other chattels in addition to the chattels list and which were identified on the ‘walk through’ occasion Mr Aggarwal has referred to.  Specifically Mr Aggarwal claims that spa pools were contained in rooms two and three of the motel prior to the signing of the agreement.

[71]     Mr Tan deposed that rooms two and three of the motel originally contained spa pools but that these were removed as they were old and not in working order, well before the approach of Mr Aggarwal and Mr Gupta to purchase the motel business; that Mr Gupta and Mr Aggarwal visited the motel on two occasions only prior to the execution of the business agreement; that they made cursory inspections of a small number of rooms which included room one but did not include rooms two and three.

[72]     The defendants also contend that when they took possession of the motel it immediately became apparent that several chattels had been removed or replaced with damaged or unusable items.

[73]   I accept Mr Stewart’s submission that these allegations are inherently improbable because:

a)       Careful inspection was undertaken prior to possession being taken and accordingly  the  defendants  were  not  in  a  position  to  assert  that chattels had been removed or replaced.

b)As deposed by Mr Tan, after the defendants took possession he and Mr Aggarwal went through the motel room by room with the list of chattels that had been provided and the only issue raised at that time was in respect of the guest computer.  It was old and H2K replaced that computer at its own cost.

c)       No issue was raised by the defendants regarding the condition of the chattels and no allegation was made that any of the chattels had been removed at the time of inspection by Mr Tan and Mr Aggarwal.

d)It  was  not  until  several  months  elapsed  after  settlement  that  the defendants raised the other issues regarding the chattels.

e)       No value at all has been given by the defendants regarding the cost of replacement of those chattels the defendants claim have not been delivered.

Occupancy rates and profitability

[74]     The defendants contend that Mr Tan made misrepresentations regarding the occupancy, profitability and cash flow of the motel.  I have identified these earlier in paragraphs  [27]  and  [28]  herein.     The  defendants  contend  that  occupancy, profitability and cash flow were represented by Mr Tan as being greater than levels experienced by Goldhem after taking possession.

[75]     I agree with Mr Stewart’s submission that these allegations are inherently improbable, because;

a)       No turnover warranty was provided in the business agreement.  The defendants had the option of including a turnover warranty clause but did not.   Although the business agreement in question adopted the

standard ADLS form wherein a turnover warranty clause was contained, the parties chose to delete the turnover warranty clause from the agreement.

b)Mr Tan affirms that the occupancy summary (68.9 per cent) provided to the defendants was correct.  Indeed it was prepared by Mrs Simons from her management database.

c)       Mr Tan advises that the budgeted cash flow summary provided to the defendants had been prepared for H2K’s own budgeting purposes and was unrelated to the proposed sale of the two motels.

d)The defendants have not provided any evidence such as cash flow accounts to establish the revenues of the motel following the taking of possession by Goldhem.

e)       During the relevant period, New Zealand was in a recession as part of the  worldwide  financial  crisis.    The  tourism  and  accommodation sector was badly affected by the global downturn.

Customer database

[76]     The defendants claim Mr Tan confirmed he would provide the defendants with a database of all previous guests in order to assist the marketing efforts of the defendants and to assist the defendants to ensure they enjoy repeat business from customers.

[77]     Again,   I   accept   Mr   Stewart’s   submission   that   this   allegation   of misrepresentation is inherently improbable because:

a)       There  were  no  discussions  between  Mr  Tan  and  the  defendants regarding the provision of a database of previous guests until after the defendants took possession and therefore there was no misrepresentation concerning the customer database that induced Goldhem into entering into the business agreement.

b)There  was  no  requirement  in  the  business  agreement  that  H2K provide  a  database  of  previous  guests.     Notwithstanding,  such database was provided.

c)       A  list  of  all  previous  guests  was  at  all  times  available  to  the defendants through the “Room Soft” programme contained on the office computer which was included as part of the purchase.  Shortly prior to possession being given it is unchallenged that Mr Tan advised Mr Aggawal that the defendants would be able to access the historical data on this computer.

d)After Goldhem had taken possession of the motel it was discovered that Mrs Simons had locked the parties out of the Room software and that the defendants were unable to access the historical information. If so then her actions were outside of Mr Tan’s control.  Also Mr Tan then advised Mr Aggarwal that a software provider could unlock the access on short notice at a modest cost of $200.00 – 300.00.  Mr Tan said H2K would cover the cost for unlocking the access but the defendants did not take up that invitation.   The information is still there if the defendants wish to access it.

The website “ and the use of the name “Ascot Star”

[78]     The defendants contend that Mr Tan represented to them that they would have the use of the name “Ascot”.  Mr Tan states he advised the defendants that the name “Ascot Motel” was included in the sale of the business.  This was confirmed by a letter from H2K’s solicitor by letter dated 31 October 2008.

[79]     The  defendants  contend  that  Mr  Tan  represented  that  they  would  have exclusive use of the website “ (the website).

[80]     Mr Tan deposed that it was at all times aware that the website belonged to Ascot Star Ltd and that accordingly H2K was unable to sell the website to the defendants.

[81]     The website was not provided for in the business agreement but surely would have been if the defendants now claim it was critical to the profitable conduct of the business they were buying.

[82]     Mr  Tan,  unchallenged,  states  he  continuously  advised  the  defendants  to urgently set up a website, preferably well in advance of possession being taken in order to secure online bookings to the Ascot Motel.  In this regard he provided them with a list of websites he considered should be included as links on Goldhem’s new website.  Mr Tan could not understand why the defendants did not set up a website as a matter of urgency or employ a competent web designer for that purpose to ensure that email enquiries would be directed to Goldhem’s website.

[83]    It is inherently improbable Mr Tan would provide advice regarding the importance of setting up a new website or to give a list of website links, much less to sell any property he knew did not belong to H2K when, bearing in mind the significance of the website issue, no condition regarding same was included in the written business agreement.

Vendor assistance

[84]     The provision of vendor assistance is a contractual term under the business agreement.   Accordingly if Goldhem wishes to bring a claim for breach of the relevant provision then such would need to be brought by way of a separate proceeding against H2K.

Internet facilities

[85]     The defendants claim all of the services and connections were removed prior to possession being taken, and resulted in a significant loss of customers.   But, neither the business agreement nor the list of chattels mentions internet services and connections being included.   Nor, is there any allegation that Mr Tan made any representations in relation to those.

[86]     Mr Tan says they were not removed and that Mr Aggarwal’s complaint must refer to the WIFI transmitter.  He says apparently Mrs Simons informed the company which owned the WIFI transmitter that the Ascot Motel was to be demolished and accordingly  asked  the  company  to  remove  the  transmitter.     Regardless,  the transmitter could have been reinstalled that same day if required.   Apparently the defendants have chosen not to have it reinstalled.

[87]     Mr Tan deposes that the WIFI transmitter had no impact on the internet services of the Ascot Motel itself and could not have caused loss of customers. Unquestionably Mr Tan is correct.

Summary

[88]     Of those misrepresentations referred to a number are quite trivial and as I have already commented, there is an inherent improbability about the claims.  They are explained without reference to time or circumstance or detail.   They are unsupported by data identifying any cost consequence.  Only the misrepresentation claim in relation to the use of the name “Ascot Star” and the website could conceivably have affected profitability but the Court has no evidence of how or to what  extent  this  might  occur.    I  have  already  observed  that  in  any  event  the allegations fall short of assuming any credibility.

[89]     Nor I think is the defendants’ cause assisted by Mrs Simons’ evidence.  Only in the context of this dispute has she latterly sworn an affidavit questioning the validity of the sale to the defendants.  No such objection was raised until then.  The claim is unsupported by documentary evidence.  Arguably also it was her embargo of any access to the website which has directly affected the defendants, not the actions of Mr Tan.  Surely, if it is as claimed that Mr Tan claimed on behalf of Tan or  H2K,  a  proprietary  interest  in  the  website,  then  the  defendants  would  have ensured the inclusion of appropriate clauses in the business agreement.

[90]     If Mr Tan is correct about his claims of Mrs Simon’s actions then it is open to the defendants to seek legal advice in relation to those.

[91]     In the outcome I have determined that allegations of misrepresentation and associated conduct do not provide actionable cause by way of equitable set off.  It does not matter then such equitable set off claims could be raised by virtue of Mr Tan’s links to H2K and to Tan.  Only if that link imputed some element of agency or attribution could an equitable set off claim arise.   Although I have determined the defendants have no arguable defence, I should explain why claims of agency or attribution would not have enabled the defendants to set up an equitable set off claim by reference to the FTA, the CRA or the CCCFA.

Equitable set off claim

[92]     In commercial proceedings it is not uncommon for related companies  to contract as separate parties to a business transaction.   Nor, I think for a single personality to be involved on behalf of each of those related companies.

[93]     In this case we have related companies separately owning the motel premises, and the motel business.  The defendants required finance to fund the purchase of the premises which the owner of the premises was prepared to provide.

[94]     More often than not it is the sale of the business which gives rise to claims of bargain  unsatisfied.    This  should  not  entitle  a  purchaser  of  both  business  and premises to assume in a commercial context that there should exist a safeguard in the event of the purchaser dissatisfaction.  Nor should it be a matter of assumption that the failure of the purchase of the business should provide a basis for questioning a separate purchase of the premises even though the two vendors are related.   In a commercial context if this situation occurs it is obvious that the link will be targeted in the one connection to support a claim in the other.

[95]     Therefore  if  those  actions  are  truly  to  be  interlinked  they  ought  to  be prescribed and an obligation to meet payment of a premises vendor’s loan ought to be linked to the satisfactory settlement of the associated business sale.  The issue is capable of express contractual commitment.

[96]     Here, the business and premises sales are separate.  The loan obligations are distinct from the business sale obligations.

[97]     In  this  case  Tan  was  not  a  party  to  the  business  agreement.    Here  the allegations of CRA misrepresentation, and of misleading and deceptive conduct in terms of the FTA, and oppressive conduct in terms of the CCCFA all relate to and arise from the business agreement.  Accordingly the factual allegations raised by the defendants all relate to H2K and not to Tan.   The defendants have not made any allegations of misrepresentation, misleading or deceptive conduct against Tan either in relation to the loan agreement or the premises agreement.

[98]     The allegations concerning Mr Tan’s conduct concern the sale of the business and not the sale of the premises or in relation to the loan agreement.

[99]     I do not accept that Mr Tan was acting as agent for Tan when he allegedly made the misrepresentations to the defendants and mislead or deceived them because quite clearly in relation to the premises agreement and the loan agreement he was not acting as the agent for H2K.

[100]   The  defendants  rely upon  the  Court  of  Appeal  decision  in  Bartle  v  GE Custodians Ltd [2] to attempt to show that Mr Tan’s knowledge of the alleged misrepresentations and misleading or deceptive conduct can be attributed to Tan.  In that case the lender (GE) knew nothing of the poor joint venture investment the Bartle’s had entered into with the Blue Chip Group, and knew nothing of the Bartle’s financial situation.  The Bartle’s investment duly failed and they defaulted under the loan  agreement.    Because  GE  has  outsourced  its  lending  operations  to  another (TML) and because TML was held to have knowledge of the manifest flaws in the

Blue Chip joint venture with Bartle and that the Bartle’s financial position was such that they could not service the loan advance by GE the Court of Appeal held that the loan was oppressive in terms of the CCCFA.

[2] [2010] NZCA 174

[101]   The Court of Appeal held that TML was the agent of GE it having assumed responsibility on behalf of GE for the servicing and enforcing of loans.

[102]   I think our present case can be distinguished by reason of the fact that Mr Tan did not act as an agent for Tan in respect of any issues surrounding the business agreement.   Quite simply Tan had no involvement in the business or the business agreement.

[103]   For an act of a person to be attributed to his/her company it will depend on the circumstances in which that act was made.  In the present case the law of agency (being a general rule of attribution) is sufficient to determine whether Mr Tan’s conduct is to be attributed to the plaintiff.   I consider that Mr Tan could not have been acting as an agent for Tan if and when he made the alleged CRA misrepresentations and/or engaged in misleading or deceptive conduct in terms of the FTA, or the alleged oppressive conduct in terms of the CCCFA.   Accordingly there is no basis for attributing Mr Tan’s conduct to the plaintiff.

[104]   In this case the defendants are attempting to attribute the alleged conduct of Mr Tan to Tan to try and establish a defence to the plaintiff’s claim and set off.  I accept Mr Stewart’s submissions that the allegations raised by the defendants in the current proceeding exist in their own right and they are not dependant on the existence  of  Tan’s  claim.     To  the  extent  the  defendants  assert  they  have  a counterclaim against Tan it will not provide a defence.  Unless Mr Tan’s conduct can be attributed to Tan, the defendants claim would be against H2K in any event.

Summary

[105]   The allegations made by the defendants relate to the business agreement to which Tan was not a party.  Mr Tan did not act as agent for Tan in respect of the alleged conduct and there is no basis for attributing his conduct to Tan.

[106]   The defendants’ allegations give rise to a claim that can only be brought by way of counterclaim and not by way of set off.

[107]   Unless the conduct of Mr Tan can be attributed to Tan any claim that the defendants have would be against H2K and not Tan.   As, in my assessment, the

defendants claim can only be brought by way of counterclaim, it is not a defence to a summary judgment application.

[108]   In my view the defendants’ allegations are inherently lacking in credibility and are improbable.   The Court is entitled to take the robust view in those circumstances.

Judgment

[109]   The plaintiff’s claim for summary judgment is granted in the full amount sought namely $771,801.88 together with interest at 13 per cent from 18 February

2010 to the date of judgment.  Also costs are awarded to the plaintiff on a solicitor and client basis for the period from 31 January 2010 to date of judgment.  The Court will approve those costs upon citing satisfactory evidence in support of same.

Associate Judge Christiansen