COFFEY v WALKER [2019] NZHC 2795

COFFEY v WALKER [2019] NZHC 2795 [31 October 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-0857[2019] NZHC 2795BETWEEN PAUL CORNEL COFFEY and WILLISSTREET TRUSTEE SERVICES LIMITEDas trustees of the PC Coffey TrustPlaintiffsAND MARK ALAN WALKER as trustee of theWynsfield Family TrustDefendantHearing: 3 September 2019Appearances: G E Slevin for the PlaintiffsD J Clark and J Collett for the DefendantJudgment: 31 October 2019JUDGMENT OF ASSOCIATE JUDGE SMITHThis judgment was delivered by me on 31 October 2019 at 4.00 pm,pursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors / Counsel:Maude & Miller, WellingtonG Slevin, Barrister, AucklandWilson McKay, Auckland[1] The plaintiffs are the trustees of a trust called the PC Coffey Trust (Coffey).The defendant is, and was at all material times, a trustee of a trust known as theWynsfield Family Trust (Wynsfield).[2] In May 2008 Coffey entered into a written agreement with Wynsfield for thesale and purchase of 30 per cent of the shares owned by Coffey in the companiesAlligator Ltd (Alligator) and Independent Monitoring Services Ltd (IMS) (the saleagreement).[3] The purchase price for the shares was $700,000, and Wynsfield was to pay$200,000 of that sum on the completion date. The balance of the purchase price wasto be satisfied by a loan from Coffey, due for repayment on 1 June 2013.[4] Wynsfield paid the $200,000 and the shares in Alligator and IMS weretransferred to it.[5] No repayment of principal or interest has been made on the $500,000 loan, andon 8 May 2019 Coffey issued this proceeding, claiming recovery of the loan andinterest. Coffey says that there is no defence to its claim, and it has applied forsummary judgment. That application is opposed by Wynsfield.[6] I now give judgment on the application for summary judgment.The evidenceCoffey[7] Alligator was originally formed to supply and install CCTV, alarm and accesscontrol systems for customers. IMS mainly provided monitoring services for suchsystems, independently of the suppliers. Both companies were successful from theoutset as they had taken over established businesses Mr Coffey had run with a previousbusiness partner.[8] Mr Coffey had known the defendant, Mr Walker, since the late 1980s.Mr Walker was then an owner of a private investigation company, and he laterestablished a security company that operated in the same field as Alligator. Lateragain, Mr Walker became the National Investigations Manager for the ASB Bank,which was then a significant client of IMS.[9] Mr Coffey and Mr Walker discussed business matters frequently, andeventually Mr Coffey told Mr Walker he wanted to step back from the day-to-dayoperations of his companies. Mr Walker expressed an interest in taking up a 30 percent stake in Alligator and IMS, and Mr Coffey regarded him as an ideal candidate.He instructed Coffey's solicitors to draw up the sale agreement.[10] Mr Coffey was unable to provide a complete, signed copy of the saleagreement subsequently entered into between Coffey and Wynsfield. The copy heproduced was missing one schedule, containing a shareholders' agreement which wassaid to form part of the agreement. However, Mr Coffey produced a draft copy of theshareholders' agreement, which he believed was not significantly different from theone attached to the sale agreement, and there was no dispute by Wynsfield that ashareholders' agreement was entered into substantially in this form.[11] The sale agreement provided for the transfer of 30 shares in each of Alligatorand IMS to the trustees of Wynsfield on payment of the $200,000. The $200,000 waspaid on the date of the agreement, and the shares were duly transferred. The remainderof the $700,000 purchase price was lent to Wynsfield on terms set out in the saleagreement. The term of the loan was five years, and pending repayment interest waspayable at the rate of nine per cent per annum, at six monthly intervals. The firstpayment of interest was due in early December 2008, but that instalment was not paid.No interest has subsequently been paid by Wynsfield.[12] By cl 3.3.1 of the sale agreement, Wynsfield was obliged to apply at least80 per cent of all dividends and distributions due to it from Alligator and/or IMS inrepayment of the loan. Payment of dividends was dealt with in the shareholders'agreement. Clause 7.1 of the shareholders' agreement provided that dividends,including interim dividends, could be declared and paid each financial year, at thediscretion of the board. The clause recorded the shareholders' intention that thecompanies would pay substantially all of their net profits as dividends, subject only torequirements for meeting cashflow and capital requirements (at the determination ofthe board), and to the terms of the loan (which required Wynsfield to direct thecompanies to pay 80 per cent of their dividends to the companies).[13] The copy of the sale agreement produced by Mr Coffey provided, at cl 2.1, forthe purchase price of $700,000. The following words were then crossed out: " plusan amount calculated to take account of the value of each company's stock on handand fixed assets at 31 May 2008". There is some doubt as to why the words werecrossed out, but it is common ground that Wynsfield agreed to pay a further sum,additional to the $200,000, which would cover stock and fixed assets, and that a furthersum of $63,333 (30 per cent of $211,110) was paid by Wynsfield.1[14] The $200,000 paid by Wynsfield was put into Alligator by Coffey, as part ofits ongoing commitments to Alligator and IMS.[15] Mr Walker's role in the businesses was to attract new customers for IMS, andto provide hands-on management in respect of finances, human resources, andcompliance matters. But a number of problems arose during the first year of hisemployment. Although he was drawing a substantial salary, he was not successful inattracting significant new business. By June 2009, the companies were suffering froma lack of effective administration, and were experiencing cashflow issues. At thatpoint, Mr Walker decided to return to his position with ASB.[16] There was some discussion at that stage about Wynsfield selling its shares backto Coffey, but nothing came of those discussions. Mr Walker resigned as a directorand ceased working for the companies.[17] Alligator and IMS both struggled after that. IMS lost its contract with ASB,which was its biggest client, and it had to move its monitoring facilities from ASB'spremises where they had been located. There were cashflow difficulties. Bymid-2011, the companies had both accrued significant tax arrears, and the1 There remains a dispute as to whether the sum was intended to cover Wynsfield's 30 per cent shareof net tangible assets, which would have included some provision for liabilities (Wynsfield'sposition), or whether the payment was only in respect of the companies' fixed assets and stock(Coffey's position).Commissioner of Inland Revenue commenced liquidation proceedings. AlthoughMr Coffey applied some of his own money towards the companies' tax arrears, it wasnot enough. The companies were both put into liquidation on 18 July 2011.[18] In 2013 the Commissioner charged Mr Coffey with numerous tax offences. Hewas convicted and sentenced to 10 months' home detention, and a fine of $20,000.Mr Coffey said that Mr Walker gave evidence at the trial of the tax charges, and wascross-examined about the share transaction. Mr Walker acknowledged incross-examination that he had signed the sale agreement, that the purchase price forthe shares was $700,000, and that $200,000 of that sum was paid on completion date.Mr Walker further acknowledged in his evidence that the balance of $500,000 was tobe satisfied by way of loan as set out in cl 3 of the sale agreement, and that neither thatsum nor any interest thereon had been paid.[19] Mr Coffey said that he instructed a debt collection agency to recover the unpaidloan and interest in 2015, and there was correspondence at that time with the lawyersacting for Wynsfield. Wynsfield's lawyers said that Mr Walker had a counterclaim,and they also indicated that if a proceeding was issued against Wynsfield they wouldapply for security for costs. Mr Coffey said this was about the time he was being triedover the tax matters, and he was not then in a position to put up any security for costs.He did not take the matter any further at that stage.[20] In more recent years, Mr Coffey has been the sole caregiver for his mother,who has been in bad health. He said that is why Coffey has not pursued the matteruntil now. As Mr Coffey's mother has recently moved to a rest home, he has becomefree to turn his attention to the present claim.Wynsfield[21] Mr Walker said that the original discussion he had with Mr Coffeycontemplated a payment of $200,000 in cash for the shares, with the balance of thepurchase price to be repaid from dividends spread over a period of five years. He saidthat it was important to him that his secure employment with ASB would be replacedby similar secured employment with Alligator or IMS. Purchase of a 30 per centshareholding would provide him with employment as well as a long-term investment.[22] Mr Walker's understanding was that his only risk would be the loss of the initialpayment of $200,000. The balance of the purchase price would be paid fromdividends, and that was to be recorded in a shareholders' agreement. Mr Walkerproduced a copy of an email he sent to Mr Coffey on 6 April 2008, setting out a basicproposal to purchase the shares. The email included the following:3 Agreement to pay off cost of remaining shares to you over next 3 yearsout of anticipated profits. To that end I would like to determine theminimum amount of drawings I am able to live on, and meet myfinancial commitments, ensuring that my repayment of the shares iscompleted as soon as possible.[23] Mr Walker said that the financial position of Alligator and IMS wasmisrepresented to him before Wynsfield entered into the sale agreement. In an emailreceived by Mr Walker around March 2008, Mr Coffey said that the monthly averagerevenue of IMS over the previous 12 months had been about $70,000, or $840,000 perannum. The revenue figure for Alligator over the same period was said to be similar,with an additional $225,000 of fixed contract maintenance work. Mr Coffey estimatedrevenue for IMS over the ensuing 12 months at $840,000, and for Alligator$1,300,000. Based on those figures, the parties accepted the figure of $700,000 forthe acquisition of the 30 per cent shareholding by Wynsfield. Important toMr Walker's assessment, were what he understood to be genuine long-term contractsthat could reliably be expected to continue. That expectation was confirmed inMr Coffey's March 2008 email.[24] Mr Coffey told Mr Walker that the future monthly income would be sufficientto fund all expenditure and provide a salary for Mr Coffey and Mr Walker of $5,000each per fortnight. There would also be a motor vehicle lease allowance of $1,500 perfortnight, and petrol and operating expenses would be run through the companies.Mr Coffey would have any additional drawings debited to his current account with thecompanies, but on the basis that the level of drawings would not have a negativeimpact on the financial viability of the businesses. The expected surplus was to beallocated as dividends, which would be used by Wynsfield to repay the outstandingbalance owing under the sale agreement.[25] Mr Walker said that Mr Coffey gave him details of the net tangible assets ofthe companies. First, he told Mr Walker that the plant, fixtures, fittings and stockwould have a value of approximately $134,190. Later, he told Mr Walker that plant,fixtures and fittings had a book value of $138,110, and stock of $73,000. Mr Walkersaid that he accepted the latter figures, even though they considerably exceeded theamounts previously advised to him by Mr Coffey.[26] Mr Coffey also told Mr Walker that debtors and creditors had approximatelyequal value, and that there was no need to show Mr Walker full financial accounts ora print-out of debtors and creditors. He said that there were no other assets or liabilitiesof any significance, and therefore no capital accounts existed or were required.Mr Walker said that he accepted those assurances, but now believes that there werefinancial accounts that Mr Coffey did not then supply and has not since supplied tohim. He contended that Mr Coffey lied to him about the companies' liabilities.[27] Mr Walker asserted that Mr Coffey took no steps in his role as managingdirector of the companies to either complete the shareholders' agreement or submit anemployment contract or financial accounts to Mr Walker. Nor was there ever anyproper valuation of the net tangible assets. Mr Walker never knew the full extent ofthe companies' tax obligations, or details of when they arose.[28] Mr Walker did not receive full financial statements for the companies until theywere provided to him on 8 June 2009. The statements showed that for the periodending 31 March 2008, the companies had made a combined profit of approximately$72,400, but that figure included expenses totalling $298,950 (Alligator) and $48,057(IMS) that Mr Walker considered were personal expenses incurred by Mr Coffey.[29] The statements of financial performance for both companies for the periodApril 2008 to March 2009 showed a net profit of $34,450.92 for IMS and a net loss ofapproximately $279,000 for Alligator. Mr Walker noted that while the revenues ofboth companies had increased markedly, Mr Coffey had not contained his spendingwithin agreed parameters. Mr Walker listed expenses in this period totalling $513,805for Alligator and $251,312 for IMS, saying that much of this expenditure was forMr Coffey's personal benefit, contrary to the parties' agreement. He asserted thatmany of the expenses were not genuine tax-deductible items.[30] Mr Walker did not obtain independent legal advice before he signed the saleagreement. He said that he has now seen that the agreement omitted schedules, andwas drafted to suit Coffey in material ways, including by not incorporating financialaccounts, a warranty of the accuracy of the accounts, and a warranty relating topayment of liabilities such as income tax, GST, and PAYE. He said that he had nocommunication with the law firm that prepared the sale agreement, but relied onMr Coffey's assurances about it. He referred to a "higher level of undisclosed debt"owed by the companies to the law firm that prepared the sale agreement, andsignificant amounts owed to the firm of chartered accountants acting for thecompanies.[31] Mr Walker said that the second part of cl 2.1 of the sale agreement (the partthat was crossed out, referring to the value of stock on hand and fixed assets at 31 May2008) was meant to refer to net tangible assets, with the $700,000 representing theintangible, goodwill component of the purchase price. Mr Walker noted that, in hisaffirmation in support of the summary judgment application, Mr Coffey confirmedthat the deleted words were intended to reflect "net tangible assets", and thatMr Walker had accepted that the alleged loan was based on that. Mr Walker said thatthe problem with Coffey's analysis was that if all existing debt had been deducted,including tax obligations, bank debt, credit cards, and other liabilities, the value of thenet tangible assets would have been a substantial negative amount that should havebeen deducted from the balance of the purchase price, and/or paid to Wynsfield incash. Mr Walker said that he never entered into a separate loan agreement or securityover the shares in the companies (as the sale agreement required), and even though theclaimed debt was expressed in the sale agreement to be "a loan", the sum was in realitythe balance of the purchase price, subject to adjustment, and was to be paid fromdividends.[32] Mr Walker said that he did not know whether Mr Coffey had paid Wynsfield'scash contribution of $263,333 into Alligator as Mr Coffey claims he did.[33] Mr Walker referred to what he regarded as the lavish lifestyle Mr Coffeyenjoyed. He also referred to Mr Coffey's friendships with a number of individualswhose businesses provided Alligator and IMS with a large amount of the companies'revenue, questioning whether sales revenues based on such relationships (as opposedto the quality of the goods and services provided) could be relied upon. Mr Walkeralso contended that the entertainment, travel and accommodation expenses claimed byMr Coffey in the companies' statements of financial performance were not onlycontrary to his agreement with Mr Coffey, but also demonstrated the high level ofpersonal expenditure Mr Coffey was charging to the companies. Mr Coffey was usingthe companies to disguise personal spending, making it appear to be tax deductible.Mr Coffey also supplied his long-term partner with a vehicle and other benefits whileshe worked for the companies.[34] Mr Walker agreed that his role in the business was to attract new customers toIMS and to provide hands-on management in many areas in the Auckland region. Buthe denied Mr Coffey's allegation that he had any role (agreed or otherwise) in relationto finances. The finances were managed and tightly controlled by Mr Coffey, with noinput from Mr Walker. Mr Coffey did not share with him any form of managementaccounts or financial accounts, and Mr Walker had no access to bank statements, orsigning authority on the companies' bank accounts. He described Mr Coffey assecretive.[35] Mr Walker said that the companies' sales increased substantially in the periodhe was an employee, but Mr Coffey's personal spending continued to be channelledthrough the companies.[36] Mr Walker said that he would not have purchased the shares if he had knownthe extent of the companies' liabilities. He referred to the fact that interest expensesfor both companies in the year ended 31 March 2009 totalled $72,914.51, exclusiveof interest on hire purchase agreements. That annual figure suggested a total debt levelfor the two companies, at a hypothetical interest rate of seven per cent per annum, ofwell over $1 million.[37] Soon after commencing employment, Mr Walker noticed that the companies'suppliers were not being paid. And he found out that there were tax debts owing forboth companies (PAYE and GST). The tax obligations had existed for some time, andwere at a late stage of enforcement, but Mr Walker had not been given any informationabout them. Mr Walker spoke to Mr Coffey about the tax obligations, and he was toldto arrange regular payments. Repayments commenced at the rate of $3,000 per week,but the companies soon defaulted in meeting their ongoing tax liabilities.[38] Mr Walker's salary from the companies was stopped by Mr Coffey in June2009. Mr Coffey told him that the companies had other priorities, and was not able topay his salary. Also, the first dividend was to have been paid no later than six monthsafter settlement. The dividend was not paid, and there was no explanation fornon-payment other than a lack of funds due to the payment of tax arrears and bankdebt. Those were the urgent priorities.[39] There was a meeting at the companies' Auckland office in June 2009, at whichit was agreed that Mr Walker should find alternative employment and that somethingwould need to be done about his shareholding in the companies.[40] By this time Mr Walker had realised that the companies had beenmisrepresented to him by Mr Coffey. The large debts owed to Inland Revenue had notbeen disclosed, and the management accounts that had been shown to Mr Walker didnot correctly reflect the trading activities of the companies.[41] On 17 June 2009 Mr Walker wrote to Mr Coffey advising that he would returnto a new role with ASB. He raised the issue of re-selling his shares in the companiesto Coffey, balancing his unpaid salary and interest on the shares and generallyconcluding all aspects of the parties' relationship. He was looking for a "walk away"position under which he would lose the $263,333 invested, but would obtain a cleanexit.[42] Nothing came of the mid-2009 discussions for the sale back of the shares toCoffey. Mr Walker said that Mr Coffey was nevertheless fully aware of Mr Walker'sview of Mr Coffey's responsibility, especially in relation to the tax obligations and thebank debt, and he understood the reasons for Wynsfield's refusal and inability to paythe balance of the purchase price.[43] Without informing Mr Walker or obtaining Wynsfield's approval as ashareholder, Mr Coffey executed a general security agreement (GSA) in relation toboth companies, in favour of himself, on 6 May 2011. And on 17 July 2011 heappointed Iain Shephard and Christine Dunphy as receivers of the companies. Thisoccurred approximately one hour before a High Court hearing of the liquidation claimsfiled by the Commissioner of Inland Revenue.[44] Both companies had sold their businesses the day before the appointment ofthe receivers. Mr Walker contended that the sales were made at a large undervalue, toan entity associated with a Wellington employee of the companies who was along-term girlfriend or partner of Mr Coffey. A receivers' report later showed that thebusiness was sold for $240,063.19, leaving a debt owed to the Commissioner of InlandRevenue of $423,244 and an overall shortfall of $910,024. Mr Walker noted that thesale price appeared to be for the value of plant, fixtures, fittings and stock, with noprovision for goodwill.[45] Mr Walker regarded the sale of the companies as an attempt to defeat creditorsand to destroy the value of his own 30 per cent shareholding in the companies (as wellas his entitlement to unpaid salary).[46] Mr Walker produced a copy of the liquidators' final report dated 21 August2015 in the liquidations of the companies. The primary focus of the liquidators'investigations was the sale of the businesses, and whether valuable consideration hadbeen received. As a result of the liquidators' investigation, a claim was brought againstthe purchaser under s 348 of the Property Law Act 2007 (the PLA). The liquidatorsalso considered various other avenues of investigation, but they concluded that furtheraction against Coffey could not be economically justified.[47] Mr Walker contended that the present claim represents Mr Coffey's attempt to"resurrect old issues that he abandoned long ago". He said that he had misplaced ordestroyed many of the documents going back to 2008, and that had prejudiced hisability to properly respond to the summary judgment application. Mostcommunications between himself and Mr Coffey were by email, and the emails werestored on the companies' computer, which Coffey has retained. Mr Walker's ownpersonal computer records have long since ceased to exist.Coffey evidence in reply[48] In his reply affidavit, Mr Coffey affirmed that neither Alligator nor IMS hadbeen trading for a full year when the deal was done with Wynsfield. Financialstatements for the year from 1 June 2007 to 31 March 2008 would not have beenprepared until sometime after the sale agreement was executed.[49] Mr Coffey agreed that the intention was that Wynsfield would pay off the loancomponent of the share purchase from dividends. He said that he was assured byMr Walker that he would be able to grow the businesses substantially through hisconnections, which would have made it possible to pay off the loan from dividends,but that did not happen.[50] Mr Coffey denied telling Mr Walker that there was no need to show him fullfinancial accounts or print-outs of creditors and debtors. Full financial statements forthe two companies did not exist at the time of the negotiations for the sale agreement,but Mr Walker was given profit and loss accounts for the periods worked, a balancesheet, list of creditors and debtors, and schedules of fixed assets and stock. All of thatinformation was presumably reviewed by Mr Walker's accountant Alan Bertelsen,who was also a trustee of Wynsfield.[51] Mr Bertelsen later acknowledged receiving management accounts for thecompanies. In the course of an interview he had with investigators from theDepartment of Inland Revenue on 21 May 2012, at which Mr Walker was also present,Mr Walker and Mr Bertelsen were asked by the investigators if they had ever viewedor used financial or management reports, and whether any such reports were producedto them. Mr Walker is reported as having replied that, prior to buying into thebusiness, Mr Coffey was asked for financial statements so that Mr Walker andMr Bertelsen could make an assessment as to whether or not the share acquisitionwould be a viable venture. Mr Walker then said: The ah figures that were supplied weren't um from an accountant oranything were they, they were just [52] It appears from the transcript of the interview that Mr Bertelsen interrupted atthat point, saying:No they were management accounts and we asked for financials and um they,they weren't supplied and [Mr Walker] was counselled about that at the timebut ah, rightly or wrongly chose to go ahead with it.[53] Mr Coffey also produced a copy of the transcript of Mr Walker's evidencegiven in the tax prosecution against Mr Coffey, in the course of which counsel for theCommissioner asked Mr Walker if he had undertaken due diligence when he wasconsidering buying the businesses. Mr Walker's reply was:My accountant looked over things, um. Yes. The information that [Mr Coffey] gave us I passed to the accountant.[54] Counsel then asked Mr Walker if he spent any time walking through thebusiness with Mr Coffey, sitting in the business prior to actually paying the money.Mr Walker's response was "no".[55] Mr Coffey said that the companies were then using Quickbooks accountingsoftware, and it would have been no trouble to run reports for Mr Walker andMr Bertelsen if they had asked for them. Mr Coffey said that nothing was hidden.[56] Mr Coffey said that he was assured by Mr Walker that he could bring 1,000new connections to IMS within the following 12 months. If he had done that, thatwould have increased IMS's profitability by up to $30,000 a month and would haveincreased its value significantly. He said that he would not have sold the shares at theprice they were sold to Wynsfield if he had not thought that Mr Walker would relievehim of the management burden and at the same time grow the business.[57] Mr Coffey attached full financial statements for Alligator and IMS for the yearending 31 March 2009. He had obtained them from the District Court file in the taxprosecution. The 2008 comparative figures in the financial statements showed that theaverage monthly revenue of IMS had been correctly stated for the year to 31 March2008, and its revenue forecast for the March 2009 year was exceeded by a substantialmargin, as it was for Alligator. The sales were supported by genuine long-termcontracts that were expected to continue (and in most cases did continue).[58] Mr Coffey rejected Mr Walker's claim that he had lied to him about thecompanies' liabilities. He acknowledged that he had an accounting background, butreferred to Mr Bertelsen's involvement as both an accountant and as a trustee ofWynsfield.[59] Mr Coffey noted that the figures in the accounts as at 31 March 2008 showedthe values for plant, equipment and stock for the two companies at slightly less than$250,000. He said that he had no reason to believe the figures were not accurate.[60] In response to the allegations relating to his personal expenses allegedly paidfor by the companies, Mr Coffey said that entertainment, travel and accommodationexpenses reflected the need to pursue sales, and they were incurred both by himselfand Mr Walker. The two of them agreed to try to get the best tax advantages theycould from the company structure, with any adjustments that had to be made forpersonal use items to be made at the end of the financial year. He did not accept thatmany of the expenditure items referred to by Mr Walker were for his personal benefit,but to the extent they were, they would have been adjusted for in the 2009 accounts.[61] Mr Coffey confirmed that no interest was charged on the $63,333 paid for byWynsfield for 30 per cent of the companies' stock, plant and equipment. He said thatthe $63,333 had nothing to do with any debts the companies might have had at thetime.[62] Mr Coffey confirmed that the companies could not afford to pay any dividendsonce they had incurred the additional cost of employing Mr Walker. That was largelybecause Mr Walker did not introduce the "thousands of connections" he had said hewould bring to the table for IMS. Mr Walker brought in only $75,000 of sales duringthe first year of his employment, contributing about $15,000 to profits. In addition,Mr Walker increased both of the salaries paid to him and Mr Coffey, by instructing thepayroll staff to add both of them to the PAYE schedule and to pay their agreedindividual salaries net of tax.[63] In response to Mr Walker's contention that he never received an employmentagreement, Mr Coffey produced a signed copy of an employment agreement betweenAlligator and Mr Walker. The employment contract described Mr Walker'sresponsibilities as:Day to day management and responsibility for business and the retention ofexisting business for us and for [IMS].[64] Mr Coffey generally denied the allegations about his business associates andhis former (relationship) partner. He said that his ex-partner was a key employee ofthe companies, and that there was nothing irregular about the terms and conditions ofher employment, given her role.[65] Mr Coffey denied being secretive, or deliberately withholding financialinformation from Mr Walker. Mr Walker did not raise any concerns about access toinformation at the time, and he worked in the Auckland office, where the accountingfunctions were handled. Both parties understood that Mr Walker was a director, withthe same rights to information about the companies that any director would have.[66] Mr Coffey said he was not aware of cash flow issues arising soon afterMr Walker commenced his employment, but agreed that cashflow issues aroseeventually. He said that was inevitable given the additional cost burden Mr Walkerrepresented, and his failure to bring in additional revenue.[67] Mr Coffey said that he did not put pressure on Mr Walker to pay the interestpayment that was missed in December 2008 — he was still hopeful that things wouldwork out. In fact, Mr Coffey made no demand for interest or repayment until 2015,when he engaged Debtworks to take recovery action.[68] In the meetings with Mr Walker in mid-2009, Mr Coffey said that he raisedwith Mr Walker the fact that Mr Walker had not made enough sales, and that he wouldhave to turn that around so that the companies could afford to pay him. Mr Walkerchose to leave instead. When Mr Walker left, Coffey was willing to either repurchaseWynsfield's shares or arrange for that to occur at a later date, but Mr Walker did notpursue the matter. It was allowed to drift. Mr Coffey acknowledged that Mr Walkersuggested that Wynsfield's obligations under the sale agreement should be forgiven,but Mr Coffey never agreed to do that. He did not take any action to enforce the saleagreement while Mr Walker was at ASB, simply because that would have createdserious problems for the companies' relationships with ASB.[69] Mr Walker did not raise any issues with Mr Coffey about allegedmisrepresentations in 2009, and he never raised those allegations subsequently, at leastuntil Mr Coffey sought repayment of the loan in 2015.[70] Mr Coffey produced notes of meetings he held with Mr Walker on 27 June2011 and 12 July 2011. The notes record that Mr Walker said he would support anydecision Mr Coffey made about a sale of the companies, and that Mr Coffey shouldproceed as he saw fit (or words to that effect).[71] Mr Coffey's notes recorded a further meeting on 3 August 2011, when thecompanies had just been put into receivership. Mr Walker asked Mr Coffey why hehad not been consulted about the receivership. That aspect appears not to have beendiscussed further, but the notes do record that Mr Walker suggested that any futureobligations in respect of the shares should be forgiven. Mr Walker explained that heleft the company in the interests of both parties, and that Coffey should be amicableabout it. Mr Coffey replied that there was a lot of money at stake, and that he wouldseek advice from legal counsel and financial advisers. The note recorded that the issuehad been discussed before, and Mr Coffey did not see any movement from his originalstance.[72] At the time of the meeting, it appears that ASB was involved in a tenderprocess, and Mr Coffey or an entity associated with him was or would be a tenderer.The note records that Mr Coffey said that if he forgave Wynsfield's future obligationsrelating to the shares it could be construed as a bribe, and he was not prepared to godown that track during the tender process. Mr Coffey decided not to contactMr Walker after that, as it might have prejudiced the tender process.Supplementary affidavits[73] Both parties provided supplementary affidavits. Neither party objected tothese affidavits.[74] Mr Coffey provided a further affidavit on 13 August 2019. He attached a copyof a notice served on Wynsfield on September 2015, notifying a default under cl 3.7of the sale agreement.[75] Mr Walker swore a supplementary affidavit on 26 August 2019. Attached tothe affidavit were certain profit and loss and budget documents for IMS and Alligatorthat Mr Walker had omitted from his first affidavit. The attachments comprised profitand loss accounts for IMS for the period June 2007 to January 2008, a profit and lossbudget overview for IMS for April 2008 to March 2009, a profit and loss account forAlligator for the period August 2007 to January 2008, and a profit and loss statementfor Alligator for the period April 2007 to March 2008.Plaintiffs' summary judgment applications — legal principles[76] Rule 12.2(1) of the High Court Rules 2016 provides:12.2 Judgment when there is no defence or when no cause of action cansucceed(1) The court may give judgment against a defendant if the plaintiffsatisfies the court that the defendant has no defence to a cause ofaction in the statement of claim or to a particular part of any suchcause of action.[77] The principles applied on r 12.2(1) applications were summarised by the Courtof Appeal in Krukziener v Hanover Finance Ltd as follows:2[26] The principles are well settled. The question on a summary judgmentapplication is whether the defendant has no defence to the claim; that is, thatthere is no real question to be tried. The Court must be left without any realdoubt or uncertainty. The onus is on the plaintiff, but where its evidence issufficient to show there is no defence, the defendant will have to respond ifthe application is to be defeated. The Court will not normally resolve materialconflicts of evidence or assess the credibility of deponents. But it need not2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26] – [27].accept uncritically evidence that is inherently lacking in credibility, as forexample where the evidence is inconsistent with undisputed contemporarydocuments or other statements by the same deponent, or is inherentlyimprobable. In the end the Court's assessment of the evidence is a matter ofjudgment. The Court may take a robust and realistic approach where the factswarrant it.[27] [T]he defendant need not file a statement of defence. The onusremains on the plaintiff, and summary judgment will be denied if on thehearing of the application it appears that there is an issue worthy of trial.(citations omitted)Counsel's submissionsWynsfield[78] As the matter was argued, Mr Clark put the case for Wynsfield as follows:(a) Coffey made misrepresentations as to the financial position of thecompanies, and Wynsfield was induced by those representations toenter into the sale agreement (including the shareholders' agreement).(b) Coffey breached the sale agreement (including the shareholders'agreement) in the following respects:(i) ceasing to issue dividends;(ii) ceasing salary payments to Mr Walker;(iii) using the companies' funds for Mr Coffey's personalexpenditure;(iv) entering into major transactions without obtaining Wynsfield'sconsent;(v) selling the companies' businesses at an under-value; and(vi) not acting in good faith.(c) The misrepresentations and breaches of contract entitled Wynsfield tocancel the sale agreement (including the shareholders' agreement).Wynsfield effectively did that by Mr Walker leaving the companies inJune 2009.(d) Coffey's claim, or at least part of it, is barred by the Limitation Act1950. The first default in paying interest instalments occurred inDecember 2008, well outside the six year limitation period prescribedby s 4 of that Act.[79] Wynsfield contends that there was intentional concealment by Coffey,particularly as to the extent of the companies' indebtedness at the time the saleagreement was entered into.[80] The effect of Coffey's misrepresentations or breaches of contract were tosubstantially reduce the benefit of the sale agreement (and shareholders' agreement)to Wynsfield.[81] To the extent that the sale agreement contained provisions excluding relianceby Wynsfield on any misrepresentations made by Coffey before the sale agreementwas entered into, s 50 of the Contract and Commercial Law Act 2017 provides theCourt with a discretion to decline to give effect to such provisions. In this case, thefactors favouring Wynsfield on the exercise of that discretion include the high valuenature of the transaction, the substantial reduction in benefits to Wynsfield caused byCoffey's misrepresentations and breaches, the fact that Coffey had greater bargainingstrength (particularly through Mr Coffey's knowledge and experience of thecompanies' businesses and financial positions), and the fact that Wynsfield was notrepresented by a lawyer.Coffey[82] For Coffey, Mr Slevin submitted that the companies' financial positions werenot misrepresented before the parties entered into the sale agreement.[83] Discontinuance of Mr Walker's salary might have justified an employmentclaim against Alligator, the company who employed him, but any such claim wouldnot affect Coffey's rights under the sale agreement, and in any event would now be outof time.[84] The companies' losses were not caused by mismanagement by Mr Coffey, butby Mr Walker's failure to achieve any significant additional sales. But even if theywere, any mismanagement by Mr Coffey would not have affected Wynsfield's liability.At best, it might have had a minority shareholder's claim under s 174 of the CompaniesAct 1993, but any such claim would now be out of time.[85] There was no agreement that the additional amount paid by Wynsfield forfixtures, plant and stock was a net amount, intended to include part or all of thecompanies' debts.[86] Mr Coffey did not misappropriate company funds for his own benefit. Buteven if he had, any claim would belong to one or both of the companies, not Wynsfield.Also, any such claim would now be statute-barred.[87] Even if Wynsfield did have some claim against Coffey (denied), the claimcould not be set off against the claim for the amount of the loan and interest thereon.Clause 2.3 of the sale agreement provided that all payments to be made by any partyunder the sale agreement would be made:2.3.2 Free from any deduction, withholding, set-off, counterclaim,restriction or condition.[88] Wynsfield has not produced any evidence that the companies' contracts werenot reliable sources of income. Nor is there anything in the argument that thecompanies' businesses were sold at an undervalue. The sale of the businesses was onlyeffected at about the same time the companies were put into receivership andliquidation, and by then any value in Wynsfield's shares had been irretrievably lost.The sales could not have caused any loss to Wynsfield. In any event, any claim relatingto an alleged under-value sale would now be time-barred.[89] Coffey's claims are not time-barred. The loan was not due for repayment until1 June 2013,3 and the present proceeding was commenced on 8 May 2019, within thesix year time limit. Nor is the claim for interest in respect of the period before 8 May2013 statute-barred. Clause 3.5 of the sale agreement provided:3.5 [Wynsfield] will repay the Loan and any unpaid interest on the Loanin full at the end of the term set out in clause 3.2.[90] Clause 3.5 created a separate payment obligation that was independent ofWynsfield's obligation in the sale agreement to pay interest at six monthly intervals,and no notice was given by Coffey under cl 3.10 of the sale agreement prior to 1 June2013 calling up the loan and interest on the basis of default by Wynsfield.[91] Wynsfield has signalled a possible counterclaim for the $263,333 paid by itunder the sale agreement and the separate agreement relating to the plant fixtures andstock, but any such claim is not supported by the evidence, and would in any event bestatute-barred.Discussion and conclusions[92] In the end, I think the result of the application must turn on whether it isreasonably arguable for Wynsfield that there was a valid cancellation of the saleagreement in or about June 2009 as Wynsfield alleges. I do not consider Wynsfieldwas entitled to set off any claimed damages against the loan repayments, and anydamages claim would in any event now be statute-barred. I have considered whetherthere may have been an implied agreement to abandon the sale agreement, but in myview there is no sufficient foundation in the evidence for me to find that there mightbe an arguable abandonment defence.[93] If there was a valid cancellation, the effect would have been that, to the extentthe contract remained unperformed at the time of cancellation, no party was obligedor entitled to perform it any further. Also, no party would, by reason only of thecancellation, be divested of any property transferred or money paid under the3 Wynsfield says that the completion date under the sale agreement was 1 June 2008, and Coffeyaccepts that date.contract.4 For the reasons that follow, I consider that if there was a valid cancellationthe case would not be suitable for determination on a summary judgment application.The terms of the sale agreement[94] There was initially some question over the content of the agreements betweenthe parties, in particular over the missing schedule that should have contained theagreed form of shareholders' agreement. In the end, nothing turned on that. Wynsfielditself sought to invoke certain provisions of the form of shareholders' agreementproduced by Mr Coffey (including a provision imposing an obligation on both partiesto act in good faith and in the best interests of the relevant company).5 There was alsoinitially some disagreement over the reason for the payment by Wynsfield of theadditional $63,333, but Mr Walker himself said that the figure represented 30 per centof a total sum of $211,110, made up of specified amounts for plant, fixtures and fittingsfor each company, and stock. Neither in the breakdown provided by Mr Walker norin the relevant part of the sale agreement that was deleted was there any suggestionthat liabilities should be deducted from the figures adopted for plant, fittings, andstock.[95] There was an argument raised by Mr Walker, which I did not understandMr Clark to push strongly at the hearing, that Wynsfield's obligations to make the loanrepayments were dependent on the receipt of dividends from the companies. I agreewith Mr Slevin that that is not what the sale agreement said. All it did was impose onWynsfield an obligation to apply at least 80 per cent of any dividends and distributionsit might receive from the companies, in reduction of the loan. The sale agreement didnot guarantee that any dividends or distributions would be made; indeed, the form ofshareholders' agreement made it perfectly clear that the declaration and payment ofany dividends, including interim dividends, would be a matter for the discretion of theboard. Clause 7 of the shareholders' agreement did record the shareholders' intentionthat the company would pay substantially all of its net profits as dividends toshareholders, but payment under that provision was obviously dependent on thecompanies making net profits. It was also expressly made dependent on the judgment4 Contract and Commercial Law Act 2017, s 42(1).5 Shareholders' draft agreement, cl 2.1.of the board as to whether the dividends could be paid without prejudicing thecompanies' cashflow requirements and any capital demands, as determined by theboard.6[96] In the end, I do not think that any uncertainty over the terms of the agreementsstands as a bar to the summary judgment application. It is common ground that acommercial agreement was entered into and acted upon by both parties for over a year,and any areas of uncertainty over the terms do not affect the outcome.Did Coffey misrepresent the companies' financial positions?[97] In my view, Wynsfield's strongest argument is its argument that there werepre-contractual misrepresentation as to the extent of the companies' liabilities.Mr Walker said in his evidence that Mr Coffey verbally informed him in or aboutMarch 2008 that the companies' debtors and creditors were approximately equal, andthat there was no need to show him full financial accounts for the companies, or toprint out a list of debtors and creditors. Mr Coffey is alleged to have said that therewere no other assets or liabilities of any significance, and that no capital accountsexisted or were required. Mr Walker said that he accepted Mr Coffey's assurances inthat regard, but now believes that there were full financial accounts that Coffey didnot disclose.[98] Mr Coffey was not able to provide a definite rebuttal of that evidence given byMr Walker. In his reply affidavit he said:6. I do not recall ever saying to Mr Walker that there was no need toshow him full financial accounts or a print-out of creditors and debtorsand I doubt that I would have said that. I couldn't give him fullfinancial statements for the companies when we were negotiating thesale because none existed at that time. I recall that we supplied himwith profit and loss accounts, a balance sheet, lists of creditors, anddebtors, fixed assets and stock schedules. All of this information waspresumably reviewed by [Wynsfield's] accountant Alan Bertelsen,who was also a purchaser as the other trustee of [Wynsfield]. Iunderstand he was then a senior partner with the charteredaccountancy practice Smith Chilcott Bertelsen Harry Limited.6 Shareholders' agreement, cl 7.[99] The March 2009 statements of financial position for the two companies,showing comparative figures for the March 2008 year, were produced by Mr Coffeywith his reply affidavit. The statement of financial position for IMS as at 31 March2008 shows that it then had accounts receivable of $54,892. Accounts Payable werelisted at $100,614, and in addition there were "Sundry Payables" of $22,648, a taxliability of $55,138, and shareholders' current accounts totalling $441,840. Totalcurrent liabilities were $628,535, and the corresponding "current assets" figure was$140,934. There were non-current assets (property, plant and equipment) shown at$86,990, but a non-current liability (a term loan from the bank) of $300,000. On anyview of it, IMS's debtors and creditors were not "approximately equal" as at 31 March2008, and the statement that there were no other significant liabilities, if it was made,would have been incorrect. It seems unlikely that the position in those respects wouldhave been materially different roughly six weeks later when the sale agreement wassigned.[100] IMS's net assets were shown in the March 2008 statement of financial positionat $79,363, but that figure was largely dependent on an amount of $779,974 includedfor goodwill. If the real figure for goodwill was less than that by any significantamount, IMS's liabilities could have exceeded its assets by a substantial margin.7[101] Alligator's statement of financial position as at 31 March 2008 did not provideany better picture, although the figures for accounts receivable ($301,724) andaccounts payable ($309,332) were roughly equal. But total current liabilities($523,393) still substantially exceeded total current assets ($394,859). The differenceappears to have been made up largely by debts of approximately $144,000 owing toWestpac Bank on overdraft and Mastercard accounts, and an intercompany debt of$65,764 owing to IMS. The statement of financial position for Alligator showednegative shareholders' funds of $58,744 as at 31 March 2008.7 The financial statements for IMS themselves raise at least a question over whether the $779,974goodwill figure was a "real" figure. The statements of financial performance for IMS for each ofthe years ended 31 March 2008 and 31 March 2009 contained "amortisation of goodwill" figuresof $33,912 and $40,694 respectively. In circumstances where Wynsfield agreed to pay $700,000for 30 per cent of the total goodwill of the two companies (suggesting a figure of roughly$2,333,300 for 100 per cent of the goodwill), one might have expected to see some explanationfor the amortisation figures. None was provided.[102] The positions disclosed by the statements of financial position as at 31 March2008 do not look any better when one considers the statements of financialperformance for the two companies to that date. Alligator posted a small loss ($4,672)after depreciation, and there were further deductions (total approximately $54,000) forentertainment expenses and legal fees that were treated as non-deductible for taxpurposes. IMS posted a profit of $135,185 before tax, but with its substantial debtsand a relatively short trading history it is difficult to see how performance at that level,coupled with Alligator's roughly "break-even" result, could have justified a goodwillvaluation for the two companies of over $2.3 million.[103] Mr Walker was provided with a copy of what appears to be a "management"profit and loss statement for Alligator for the full year to 31 March 2008, printed on21 April 2008. It showed total sales of $1,276,230, but the expenses were high; thestatement showed a net loss of $83,602. He was also provided with a "management"profit and loss statement for IMS printed on 25 February 2008, showing IMS'sperformance in the eight month "start-up" period from June 2007 to January 2008.This statement showed a total net income for the period of $141,328 (on average,approximately $17,600 per month), suggesting that a net profit somewhere in the orderof $176,500 could have been expected for the 10 months to 31 March 2008. Theactual net profit report in the completed financial statements for that period showed anet profit before tax of $135,185, roughly 24 per cent lower than the projectedyear-end figure.[104] Mr Coffey said in his evidence that he provided Mr Walker with a balancesheet or balance sheets for the companies, but that is disputed. Whether or not he didcannot be determined on a summary judgment application.[105] In the circumstances just described, I do not think it can be said that Wynsfieldhas no reasonably arguable case that the financial positions of the companies were ormay have been misrepresented to it prior to the sale agreement. It is true that thefigures as at March 2008 were not current when the sale agreement was entered into,but it seems unlikely that there would have been any significant change in the picturebetween 31 March 2008 and 14 May 2008. If balance sheets were not provided toMr Walker, and if Mr Coffey told Mr Walker that debtors and creditors wereapproximately equal, that there were no other significant assets or liabilities, and/orthat there was no need for Mr Walker to see full financial statements for the companies,I think it is clearly arguable for Wynsfield that there were material misrepresentations.Alligator's position might not have seemed much better or worse if full accounts hadbeen provided, but I do not think that can be said about IMS. If Mr Walker andMr Bertelsen had had a full statement of financial position for IMS as at 31 March2008 they would have immediately seen that current liabilities significantly exceededcurrent assets, and that Wynsfield was being asked to pay for its stake in the companieson the basis of a combined goodwill figure that would have seemed difficult to justify.If there were misrepresentations, is it arguable for Wynsfield that themisrepresentations justified cancellation of the sale agreement?[106] There could be difficult issues of causation for Wynsfield to address given thatMr Walker was assisted at the time by a senior chartered accountant who was also atrustee of Wynsfield. Mr Bertelsen would have been well aware of the importance ofgetting accurate figures for existing assets and liabilities, and the impression given bythe notes of the interview conducted by Inland Revenue investigators is thatMr Bertelsen probably did sound some warning bells with Mr Walker, but Mr Walkerdecided to proceed anyway. But those are ultimately trial questions. In the context ofa summary judgment application, I have evidence supporting the allegation that certainverbal statements were made by Mr Coffey which, if made, would appear to have beenmaterially incorrect, and it is impossible to safely conclude that, if made, they did notinduce Wynsfield to enter into the sale agreement. Given the actual position of thetwo companies as shown by the March 2008 financial statements, it must also bereasonably arguable for Wynsfield that the effect of any such misrepresentationswould have been to substantially reduce the benefit of the sale agreement to Wynsfield.I conclude that Wynsfield has raised a sufficient argument that circumstances existedthat would have entitled it to cancel the sale agreement for misrepresentation.[107] It is true that the sale agreement did contain "entire agreement" provisions,intended to preclude Wynsfield from relying on any pre-contractualmisrepresentations. But s 50(2) of the Contract and Commercial Law Act providesthat the Court is not prevented by such provisions from inquiring into the question ofwhether pre-contractual statements were made and/or relied upon, unless the Courtconsiders that it is fair and reasonable that the provision should be treated asconclusive between the parties, having regard to the matters set out in s 50(3). Thematters set out in s 50(3) include the parties' respective bargain strengths, the natureand value of the transaction, and whether or not any party was advised by a lawyer atthe time of the negotiations. In this case, Wynsfield did not have legal advice beforeit entered into the sale agreement, and the bargaining strength arguably lay withCoffey, because of its greater knowledge of the companies. Wynsfield was taking onvery substantial obligations. In those circumstances it is not possible to conclude ona summary judgment application that, on account of the "entire agreement" provisions,the Court would decline to inquire into the questions of whether Coffey made materialmisrepresentations, and if so, whether they induced Wynsfield to enter into the saleagreement.Did Wynsfield cancel?[108] The rules about cancellation are clear enough, at least for most situations. First,a cancellation by a party does not take effect before it is made known to the otherparty.8 The cancellation may be made known by words or by conduct showing anintention to cancel, or both, and it is not necessary to use any particular form of words,so long as the intention to cancel is made known.9 Secondly, a party with a right tocancel may lose that right if that party, with full knowledge of the repudiation,misrepresentation, or breach that would entitle it to cancel, affirms the contract.10[109] Turning to the facts of this case, Mr Walker described a meeting withMr Coffey in Auckland in June 2009, in the course of which they agreed that it wouldbe necessary for Mr Walker to find alternative employment, and that something wouldneed to be done about Wynsfield's shareholding in the companies.[110] On 17 June 2009 ,Mr Walker sent an email to Mr Coffey in which he confirmedthat he was "seeking to conclude" his involvement with Alligator and IMS, as soon aspracticable. He said that he was looking to take up a newly created security positionwith ASB, and that would preclude him from having any financial investment in either8 Contract and Commercial Law Act 2017, s 41(1)(a).9 Section 41(2).10 Section 38.Alligator or IMS given the contractual relationships between the parties. Mr Walkersaid that he was "totally committed to the future success of both Alligator and IMS",and that he was acutely aware of "our current cashflow difficulties we areexperiencing". He said that, in the interests of lessening the financial outgoings andburden, he was willing to discuss the option of lowering or ceasing his drawings, witha view to relying on his investigative and consultancy endeavours as his main sourceof income. He said that he would be happy to discuss that further with Mr Coffey.Mr Walker went on to propose that he would sell his 30 per cent of the shares, assetsand stock to Coffey at a fair value, with the "financial position with regards currentaccount and interest owed to you for unpaid shares" to be determined. He would resignhis directorships of Alligator and IMS, and "housekeeping" issues would be amicablyconcluded.[111] Mr Walker wrote again to Mr Coffey on 15 July 2019. It appears that the emailhad been preceded by earlier emails, but they were not produced in evidence.Mr Walker set out in the 15 July 2009 email his "thoughts on how we might concludemy involvement in Alligator and IMS in a fair and reasonable manner". He said thathe was open minded on how the partnership might be resolved. He then set out afurther proposal for Mr Coffey's consideration.[112] The proposal involved Mr Walker resigning as a director with effect from30 June 2009, and receiving no further salary payments after that date. The value ofAlligator and IMS, and Wynsfield's shareholding therein, would be determined as at30 June 2009, after which the parties would explore the options for settlement in a fairand workable manner. Mr Walker went on to refer to "reaching a mutually acceptableagreement". In the interim, he would assign his shareholding in IMS and Alligator toMr Coffey's trust or other nominated entity. He said that it was important that he beable to illustrate to ASB that he had totally severed his relationship with Alligator andIMS, "even though the financial settlement may not have been settled". Mr Walkerconcluded by seeking interim agreement for Alligator or IMS to meet his monthlyvehicle repayment fees, "until we have been able to reach an agreement on mydeparture".[113] Mr Walker produced an undated reply email from Mr Coffey. Mr Coffeyagreed that the business should be valued at 30 June 2009, noting that Mr Walker hadbeen conducting investigative work in a personal capacity, and had had meetings withASB which had resulted in an offer of employment with an almost immediate start.He described as understandable the urgency of addressing the conflict of interest issueraised by the bank.[114] Mr Coffey then listed his own options, which he said were (i) purchasingWynsfield's shareholding, (ii) declining the offer to purchase, or (iii) sellingWynsfield's shareholding to some other party. He said that he did not wish to incurcostly professional advice, given the financial constraints Coffey was under.Mr Coffey suggested that management accounts be made available at the earliestopportunity, with Mr Walker to put forward a price thereafter for the sale ofWynsfield's shares, with supporting documentation as to the formulae/methodologyused to arrive at his sale figure. Mr Coffey suggested that if the proposal for sale byWynsfield could not be achieved in the short term, a heads of agreement should beformulated under which the parties would agree a valuation process for Wynsfield'sinterest. In the meantime, Wynsfield would assign the shares to Coffey and Mr Walkercould start his new job with ASB.[115] Those were the only emails produced from the June/July 2009 period, andMr Walker said in his evidence that it had been clear to him by June 2009 that thecompanies had been misrepresented to him by Coffey. Mr Walker said that he hadsome regret that his email dated 17 June 2009 to Mr Coffey had expressed gratitudefor Mr Coffey's support. At the time, Mr Walker was looking for a clean exit and hehoped that his email would appeal to Mr Coffey's better nature. His goal at that stagewas to be restored to his original position, minus the payments of $263,333. At thattime, he was prepared to let the $263,333 go.[116] After Mr Walker's 15 July 2009 email and Mr Coffey's reply there were somediscussions, but it is common ground that nothing came of them. Mr Walker said inhis evidence that Mr Coffey was fully aware of the issues that had developed andMr Walker's view of Mr Coffey's responsibility, especially in relation to the taxobligations and the bank debt, and any refusal and inability to repay the balance of theshare purchase price.[117] In his evidence, Mr Coffey agreed that Mr Walker's return to ASB in a seniormanagement role involving bank security did create serious problems, because ASBwas a major client, and Wynsfield's ongoing shareholding would create a conflict ofinterest that affected both Mr Walker and Coffey. Mr Coffey said that he was notcomfortable with that situation, and he wanted to avoid any conflict issues arising inthe future. For that reason, he was willing to either repurchase the shares or arrangefor that to occur at a later date by an agreed process. However, Mr Walker did notpursue the matter, and it was allowed to drift. Mr Coffey said that Mr Walker didsuggest that the obligations under the loan agreement be forgiven, but Mr Coffey neveragreed to that.[118] I think it would be dangerous to conclude on a summary application, where theparties have not had the benefit of discovery and there has been no cross-examinationof witnesses, that Mr Walker's communications to Mr Coffey in mid-2009 did notconvey Wynsfield's intention to bring the sale agreement to an end. Both parties wereaware that Mr Walker would be moving to a new role where he could no longer havefinancial ties with Coffey, and Mr Walker said in his evidence that Mr Coffey wasaware of Mr Walker's views on the issues between the parties, including his views onMr Coffey's alleged responsibility for the debts, and any "refusal and inability" byWynsfield to pay the balance of the share purchase price. In circumstances where theevents in question took place over 10 years ago, and it seems clear that not all of theemails have been produced, I do not consider that Coffey has sufficiently shown thatthe communication of (i) Mr Walker's departure from the companies and (ii)Wynsfield's inability and refusal to pay the balance of the share purchase price, didnot together constitute a cancellation of the sale agreement.[119] The correspondence that followed the initial communications in mid-2009 isnot in my view inconsistent with the sale agreement having been cancelled. Theexchanges between Mr Walker and Mr Coffey followed Mr Walker's advice that hewas seeking to quit his financial investments in Alligator and IMS and Mr Coffey'sapparent acceptance of the need for a split. Mr Coffey proposed steps that appear tohave been designed to bring about an "unwinding" of the parties' relationships,including a valuation and assignment of Wynsfield's shareholding.[120] The fact that negotiations on the orderly winding up of the parties' relationshipappear to have been allowed to drift after mid-2009 is not necessarily inconsistent withboth parties treating the sale agreement as being at an end from that point. Mr Walkersaid in his evidence that he was prepared to let Wynsfield's investment in IMS andAlligator go, and Coffey made no demand for, or apparently even asked about, theinterest payments falling due at six-monthly intervals from 1 December 2009. And in2011 Mr Coffey executed the GSA over both companies, without any prior referenceto Mr Walker. He then entered into a sale agreement, and put the companies intoreceivership, again without reference to Mr Walker.[121] Mr Coffey gave evidence in reply about certain meetings between him andMr Walker in 2011, but I think it would be unfair to put any significant weight on themgiven that the evidence was not given in Mr Coffey's first affidavit and Mr Walker didnot have the opportunity to respond to it. And in any event I do not think the evidencecould affect the "cancellation or no cancellation" issue. Either the sale agreement hadbeen cancelled two years earlier or it had not, and discussions in 2011 could not affectthe answer to that question. And if there was a cancellation in 2009, there still neededto be an "unwinding" of the links between the parties — Wynsfield remained theregistered owner of the shares, Coffey still had a claim for the loan, and Wynsfieldwould still have had an arguable claim that it had been misled in entering into the saleagreement.[122] I conclude on this issue that Coffey has failed to show that Wynsfield has noarguable defence that it validly cancelled the sale agreement in mid-2009. That beingthe case, the question of relief under the Contract and Commercial Law Act will needto be determined, and that is not in my view an exercise that can properly be carriedout on a summary judgment application. All of the evidence should be before theCourt.No need to consider the breach of contract allegations[123] Having regard to my finding that Wynsfield has a reasonably arguable case thatit was entitled to cancel and that it did cancel on the basis of misrepresentations byCoffey, there is no need to consider the various breaches of contract alleged byWynsfield — if there was a right to cancel on one ground, Wynsfield's position on thecancellation issue will not be improved if other grounds also existed.Was the sale agreement abandoned?[124] In view of my conclusion that Coffey has failed to show that Wynsfield has nodefence on the basis of cancellation of the sale agreement, it is not strictly necessaryto address this issue. However, I will make some observations on the possibility ofsuch a defence, in case the matter should go further.[125] The authors of Burrows, Finn and Todd on the Law of Contract in New Zealandacknowledge a category of difficult cases that may arise where it is argued that thecontract has been implicitly abandoned by conduct.11 The issue in such cases iswhether the parties have tacitly abandoned the agreement. The possibility of mutualabandonment of contractual obligations was recognised by the House of Lords in PaalWilson & Co A/S v Partenreederei Hannah Blumenthal where Lord Brandon identifiedtwo ways in which implicit abandonment might be shown:12The first way is by showing that the conduct of each party, as evinced to theother party and acted on by him, leads necessarily to the inference of animplied agreement between them to abandon the contract. The second methodis by showing that the conduct of B, as evinced towards A, has been such asto lead A reasonably to believe that B has abandoned the contract even thoughit has not in fact been B's intention to do so, and that A has significantly alteredhis position in reliance on that belief.[126] The authors of Burrows, Finn and Todd note that it is usually not easy to provean agreement to abandon a contract in the absence of express words. However, theCourt found that the contract had been abandoned in one New Zealand case,Christchurch City Council v Link Co Ltd.13 In that case, Chisholm J found that the11 Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contractin New Zealand (6th ed, Lexis Nexis, Wellington, 2018) at [19.2.1].12 Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854 (HL) at 914.13 Christchurch City Council v Link Co Ltd, HC Christchurch CIV-2005-409-966, 13 February 2008.second method of agreement to abandon referred to by Lord Brandon inPartenreederei Hannah Blumenthal had been established: the Council hadencouraged a belief that certain swap agreements were at an end, by entering intonegotiations for a new deal which would be totally incompatible with the swapagreements remaining in force. The Court found that there was an impliedabandonment.[127] The issue of abandonment was not pleaded by Wynsfield in its notice ofopposition, but it was raised by Mr Walker in his affidavit. Mr Walker did not pointto anything communicated to him by Coffey evidencing Coffey's intention to treat theparties' contractual obligations as having been discharged, and no evidence has beenput forward to suggest that Wynsfield may have altered its position to its detriment inreliance on any assurance by Coffey that it would not enforce its rights.[128] In my understanding of the concept, abandonment of a contract involvesexpress or tacit agreement between the parties that all obligations, rights and liabilitiesof the parties will be at an end. There is no evidence of that in this case. If it had beennecessary, I would have held that Wynsfield has not raised an arguable case that therewas an agreement to abandon.Does Wynsfield have a damages claim to set off against the amount due under theloan, or a counterclaim?[129] In case the matter should go further, I will state briefly my view on this topic.[130] If there had been no cancellation, Wynsfield would still, subject to the terms ofthe sale agreement, have had a right to claim damages for misrepresentation or breach.But the problem for Wynsfield is that the sale agreement provided (at cl 2.3.2) that anydamages claim could not be set off against the payments due on the loan. Furthermore,Wynsfield had sufficient knowledge of the various matters on which it might haveclaimed damages well before 8 May 2013 (the date six years before the presentproceeding was filed), and under s 4 of the Limitation Act 1950 any damages claimhad to be brought within six years after the cause of action had accrued. Section 30of the Limitation Act 1950, relating to counterclaims, could not have assistedWynsfield. It provided that any counterclaim filed by a defendant was deemed to havebeen filed on the same day the plaintiff filed its proceeding. It would not have availedWynsfield on the limitation issue if any counterclaim it might have wished to file weredeemed to have been filed on 8 May 2019 — the counterclaim would still be outsidethe six year time limit.Result[131] Coffey has failed to prove, to the standard required to justify the entry ofsummary judgment, that Wynsfield has no defence to its claims. The application forsummary judgment is refused accordingly.[132] In accordance with usual practice where a plaintiff's application for summaryjudgment is refused, costs are reserved.[133] Wynsfield is to file and serve its statement of defence within 15 working daysof the date of this judgment. Any reply is to be filed and served within 15 workingdays of service of Wynsfield's statement of defence. The registrar is to allocate a casemanagement conference for the first practicable date after 21 February 2020.Associate Judge Smith