Coffey v Walker [2020] NZCA 621 (4 December 2020)

Last Updated: 8 December 2020

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA206/2020 [2020] NZCA 621

	BETWEEN	PAUL CORNEL COFFEY AND WILLIS STREET TRUSTEE SERVICES LIMITED AS TRUSTEES OF THE PC COFFEY TRUST Appellants
	AND	MARK ALAN WALKER AS TRUSTEE OF THE WYNSFIELD FAMILY TRUST Respondent

Hearing:	10 November 2020
Court:	Courtney, Woolford and Mander JJ
Counsel:	G E Slevin for Appellants D J Clark and E Z Caro for Respondent
Judgment:	4 December 2020 at 2 pm

JUDGMENT OF THE COURT

1. The appeal is dismissed.
2. The respondent is entitled to costs for a standard appeal on a band A basis, plus usual disbursements.

___________________________________________________________________

REASONS OF THE COURT

(Given by Courtney J)

• [1] This appeal concerns the sale of shares in two companies, Alligator Ltd (Alligator) and Independent Monitoring Services Ltd (IMS), which provided security and alarm monitoring services. The shares in both companies were owned by the trustees of the PC Coffey Trust of which Paul Coffey was a trustee. In May 2008 Mr Coffey negotiated the sale of 30 per cent of the shares in each company to the trustees of the Wynsfield Family Trust, Mr Walker and Mr Bertelsen.^[1] Mr Walker was a long-time acquaintance of Mr Coffey. He held a senior position with the ASB Bank (ASB), which was a client of both companies.
• [2] The purchase price for the shares was $700,000, to be paid by one instalment of $200,000 due immediately with the balance left in as a loan that fell due in June 2013. The parties also entered into a shareholders’ agreement.^[2] The parties agreed that Mr Walker would leave his employment and work fulltime in the business. He paid the $200,000, left the ASB and began work for Alligator and IMS.
• [3] Within a short time Mr Walker could see there were financial problems. In particular, substantial sums were owing to the Inland Revenue Department (IRD) for PAYE and GST. By June 2009 Mr Walker had resigned as a director of both companies. He secured another job with the ASB, which would require him to sever his association with the companies. There were communications between Mr Walker and Mr Coffey about this, though no formal agreement was entered into.
• [4] Following Mr Walker’s resignation, Mr Coffey tried, unsuccessfully, to resolve matters with the IRD. In 2011 both companies were placed in liquidation. Mr Coffey was prosecuted by the IRD for failing to ensure that the companies paid the GST and PAYE owing. He was convicted and sentenced to a term of home detention.
• [5] The date for repayment of the $500,000 balance provided for under the share sale agreement came and went. Mr Walker did not pay the $500,000. Mr Coffey did not demand payment. In 2015, however, Mr Coffey (through debt collectors) made demand for the $500,000 together with contractual interest. Mr Walker did not accept that he was under any obligation to pay. Nothing further happened until 2019 when Mr Coffey issued proceedings against Mr Walker, seeking summary judgment.
• [6] Associate Judge Smith refused the summary judgment application on the ground that it was reasonably arguable that Mr Coffey had misrepresented the extent of the companies’ liabilities and that Mr Walker had cancelled the share sale agreement for that reason, thus relieving him of any further obligations under the agreement.^[3]
• [7] Mr Coffey appeals the decision. The 11 grounds of appeal, as argued, can fairly be summarised as being that the judgment was wrong because:

(a) the issue of cancellation was not properly raised as a defence in either the notice of opposition or Mr Walker’s evidence and therefore should not have been considered;

(b) the evidence did not support the finding that there was a reasonable possibility that Mr Walker had cancelled the agreement; and

(c) Mr Walker had affirmed the agreement in June 2009 and August 2011 with full knowledge of the alleged misrepresentations (which were denied).

Failure to raise the issue of cancellation

• [8] The notice of opposition to the summary judgment application asserted that Mr Walker had a defence to the proceeding and identified 14 aspects of the sale said to entitle him to remedies under ss 35 and 37 of the Contract and Commercial Law Act 2017 (CCLA), the Fair Trading Act 1986 and “the normal principles relating to a breach of contract”. It is unnecessary to record all the alleged misrepresentations. For present purposes the relevant complaint was that Mr Coffey had misrepresented that the companies’ debtors and creditors were about equal and there were no liabilities other than monthly accounts incurred in the normal course of business. In fact, there were overdue obligations for income tax, GST, PAYE, bank debt and other liabilities that were known to Mr Coffey and which materially affected the value of the shares and the financial viability of the companies.^[4] Mr Walker also asserted a right of set off and/or counterclaim based on the various misrepresentations to the extent of $263,333.
• [9] In his affidavit in opposition, Mr Walker canvassed the background to the share sale agreement from his perspective.^[5] He described beginning work with the companies, discovering that suppliers were not being paid, that credit cards were being used to buy work related equipment and that the IRD was chasing the companies for unpaid PAYE and GST. He said that some time in June 2009 Mr Coffey told Mr Walker that the companies could no longer pay his salary; they agreed that Mr Walker would have to find alternative employment and that “something would need to be done about my shareholding in the companies”.
• [10] Mr Walker returned to his previous employment with the ASB. He emailed Mr Coffey confirming that he was “seeking to conclude my involvement within Alligator Ltd, and Independent Monitoring Services Ltd, as soon as is practicable”. He went on to identify steps that would need to be taken to divest himself of his shareholding in both companies.
• [11] The parties’ counsel exchanged submissions prior to the summary judgment hearing on 3 September 2019. Mr Coffey’s submissions addressed each specific complaint raised in the notice of opposition, including the factual question of the companies’ liabilities and claimed that Mr Coffey had produced accounts for the year ended 31 March 2009 showing that the liabilities had not been misrepresented.
• [12] The submissions filed on behalf of Mr Walker in response summarised the position as being that Mr Coffey had induced him to enter the agreement by misrepresenting the financial position of the companies and had breached the share agreement and the shareholders’ agreement in various ways, and that:

The above breaches entitled [Mr Walker] to cancel the Share Agreement which he effectively did by leaving the companies in June 2009.

[Mr Coffey] failed to take any action against the Defendant until now; the reason being that [Mr Coffey] knew that [he] had no grounds to issue proceedings because [he] accepted the termination of the Share Agreement in 2009.

• [13] It appears that there was no complaint made about the issue of cancellation being raised in this way at the hearing of the summary judgment application. Before us, Mr Slevin, for Mr Coffey, explained that he had not sought an adjournment because he did not consider that cancellation could be raised for the first time in submissions. He did, however, raise the issue at the later hearing of Mr Coffey’s application for leave to appeal.^[6] The Associate Judge rejected the submission that cancellation had not been sufficiently raised before the hearing of the substantive appeal. He considered that the reference in the notice of opposition to remedies under the CCLA and the normal principles relating to a breach of contract coupled with Mr Walker’s affidavit constituted sufficient notice to the plaintiff that the defendant would be arguing cancellation. He noted the issue of cancellation was raised in the written submissions served before the hearing and that there was no challenge at the hearing itself to the issue being raised by way of defence.^[7]
• [14] In our view the issue of cancellation as a defence was adequately raised and the Associate Judge was right to deal with it. The notice of opposition was not as clear as it could have been, but the foundation for cancellation as a defence was nevertheless laid in the reference to s 37 of the CCLA, which entitles a party to cancel for misrepresentation. We do not accept Mr Slevin’s argument that the reference in the notice of opposition to Mr Walker being entitled to those remedies ought to be viewed as asserting a current right as opposed to a past exercise of that right. Nor do we accept that Mr Walker’s failure to expressly say he had cancelled the agreement is significant. Mr Walker acted throughout without legal advice. Where it is said that cancellation occurred through conduct, it is sufficient to provide evidence of the conduct relied on. Whether the conduct constituted cancellation is a question of law to be addressed in submissions.
• [15] Mr Walker’s evidence laid an adequate evidential foundation for the later submission that the contract had been cancelled. The submission that cancellation was relied on as a defence could not have been clearer. There was adequate time for Mr Coffey to appreciate the implications of Mr Walker’s evidence with the benefit of the submissions.

Cancellation or affirmation?

• [16] The Associate Judge considered that the application for summary judgment turned on whether it was reasonably arguable that there had been a valid cancellation of the agreement in or around June 2009.^[8] If so, the case would be unsuitable for summary judgment; a valid cancellation would have the effect of relieving the parties of future obligations.^[9]
• [17] The Associate Judge reviewed the substance of Mr Walker’s argument regarding misrepresentation and considered that:^[10]

On any view of it, IMS’s debtors and creditors were not “approximately equal” as at 31 March 2008, 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 would have been materially different roughly six weeks later when the sale agreement was signed.

• [18] The Associate Judge noted that “Alligator’s statement of financial position as at 31 March 2008 did not provide any better picture”.^[11] In these circumstances the Associate Judge found that “it is clearly arguable for [Mr Walker] that there were material misrepresentations”.^[12]
• [19] This left the questions whether such misrepresentations would have justified cancellation and whether Mr Walker did, in fact, cancel. As to the first, the Associate Judge noted possible issues of causation given that Mr Walker had received advice from a chartered accountant but considered that, viewed against the assertion of oral statements made by Mr Coffey that may have induced Mr Walker to enter the agreement, it was a matter for trial.^[13] Nor did the Judge see the “entire agreement” provision in the share sale agreement as necessarily precluding cancellation, given the effect of s 50(2) of the CCLA, the fact that Mr Coffey had greater knowledge of the companies and the fact that Mr Walker did not have legal advice before entering the agreement.^[14]
• [20] The critical issue in the case, and the focus of the appeal, was whether it was reasonably arguable that Mr Walker had in fact cancelled the agreement. No issue was taken with the Associate Judge’s statement of the requirements for cancellation:^[15]

[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 other party. The cancellation may be made known by words or by conduct showing an intention 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. Secondly, a party with a right to cancel 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.

(Footnotes omitted.)

• [21] The ground of appeal is that the evidence did not support the Associate Judge’s conclusion that it was reasonably arguable that Mr Walker had cancelled the agreement. Specifically, cancellation requires a positive act and Mr Walker’s conduct reflected affirmation rather than cancellation. These submissions require a review of the evidence.
• [22] In his first affirmation Mr Coffey described Mr Walker’s exit from the company only briefly:

By June 2009 the companies were suffering from a lack of effective administration and we were experiencing cash-flow issues, at which point Mr Walker decided to leave so that he could return to a position with ASB. An email he sent, me conveying his wish to withdraw from the businesses, is at page 77 of the exhibit.

We subsequently had some discussions about the matters raised in his email but nothing came of them insofar as his wish to sell his shares back to me was concerned. He resigned as a director and ceased working for the companies on or about the same date as he sent this email, as I recall. ...

• [23] In response, Mr Walker said that by June 2009 it was clear to him that Mr Coffey had misrepresented the companies’ financial position and that he would not have agreed to buy the shares had he known the extent of the companies’ liabilities. In June 2009 his salary from IMS was no longer being paid. It was essential that he secured a reliable income and he therefore returned to a new role with the ASB. Mr Walker gave evidence of a meeting he had with Mr Coffey in June 2009, describing it as a “frank discussion”. He said that:

My immediate focus was the discontinuation of my wages and [Mr Coffey] responded by blaming me for a lack of new sales. We both agreed that it was necessary for me to find alternative employment and that something would need to be done about my shareholding in the companies.

• [24] Mr Walker followed up that meeting with an email to Mr Coffey in which he said:

Further to our recent discussions, I confirm that I am seeking to conclude my involvement with Alligator Ltd, and Independent Monitoring Services Ltd, as soon as is practicable.

As conveyed to you, I am seeking to be appointed to a newly created position within ASB Bank, and if successful, that would preclude me from having any financial investment in either Alligator or I.M.S., given the contractual relationship that currently exist[s] between those entities. ...

If I am unsuccessful in acquiring the “National Security Manager” role for ASB Group, then I intend continuing to operate within the Investigative and Security areas of business, and would welcome the opportunity in formulating an association and agreement with yourself, whereby we might be able to mutually benefit from each others’ business interests? ...

I am totally committed to the future success of both Alligator and I.M.S. and am acutely aware of our current cash flow difficulties we are experiencing. In the interests of lessoning [sic] the financial outgoings and burden, I am willing to discuss the option of lowering or ceasing my drawings, with a view to relying on my investigative and consultancy endeavours as my main income source. ...

Accordingly, I seek for the following to be addressed at our earliest convenience:

• Sell my 30% shareholding in Alligator Ltd and I.M.S. to yourself, at a fair commensurate value.
• Sell my 30% share of assets and stock to yourself at value.
• Determine financial position with regards Current Account and interest owed to you for unpaid shares.
• Resign my directorship of both Alligator Ltd, and I.M.S Ltd.
• Amicably conclude any ‘housekeeping’ issues like Insurance policies, guarantee’s [sic], on-going client relationships, etc

I thank you for the total commitment and support you have given me over the past year, and I assure you I will do my utmost to contribute to the future success of both Alligator and I.M.S.

• [25] This email is notable because it signals Mr Walker’s intention to withdraw from the company, refers to the amount still owing under the share sale agreement and expresses gratitude to Mr Coffey for his support. Mr Walker offered an explanation for his expression of gratitude. Such ex post facto rationalisation has no probative value and, although the Associate Judge referred to it he appears not to have taken it into account in reaching his decision.
• [26] Mr Walker secured a position with the ASB. On 15 July 2009 he emailed Mr Coffey:

Further to our earlier emails, and discussion of Monday, I forward you my thoughts on how we might conclude my involvement in Alligator & I.M.S. in a fair and reasonable manner. ...

I propose the following:

• I am willing to resign as a director of Alligator and I.M.S. as of 30 June 2009
• I accept that I should receive no further salary payments from the company from 30 June 2009.
• I am actively pursuing a newly created role at ASB, and understand the commencement date for that role is within the next 4–6 weeks.
• In order to meet my current financial commitments I intend to continue undertaking Investigative and Security Consultancy work for the client companies I have had long standing relationships with. It is my desire to continue that work irrespective of my proposed involvement with ASB, however that will be a matter that will be determined after further discussions with ASB management.
• I suggest that the value of Alligator and I.M.S., and my shareholding therein be determined as at 30 June [2009], after which we explore the options available in settling this aspect, in a manner that is both fair and workable. As discussed with you, I am open minded and flexible, however have significant commitments that I need to meet.
• Upon we [sic] reaching a mutually acceptable agreement, I will assign my shareholding in both companies to your trust, or to any other entity that is taking ownership of those shares. It is important that I am able to illustrate to ASB that I have totally severed my relationship with Alligator and I.M.S. even though the financial settlement may not have been settled.
• In the interim, and until we have been able to reach an agreement on my departure, I would be grateful if the company was able to meet my monthly vehicle repayment fee in order to alleviate some of my current financial pressures.

...

• [27] This email had a somewhat different tone to the previous email. In particular there was no mention of the balance owing under the share sale agreement. The mention of financial commitments is non-specific; given that Mr Walker no longer had a salary from any source (his role with the ASB did not begin for over a month) there is no basis for assuming that he had the balance of share price in mind as opposed to day-to-day financial commitments. Nor is there any indication of gratitude.
• [28] Mr Coffey’s response came in an undated email:

Thanks for your note 15 July 2009 concerning your exit from the company. At this time the situation is difficult for ... a number of reasons including the current state of the economy and difficult trading times, the now apparent speed in which this transaction has to be effected together with the extra levels of the effort we are both exerting to ensure the ongoing success of our business and personal lives.

...

I am ... in agreement that the business be valued as at 30 June 2009.

I note that you have been conducting investigative work in a personal capacity and conducting meetings with ASB Bank which has resulted in the offer of employment with all but immediate start. As stated by you prior and naturally this is understandable that the matter of addressing the conflict of interest as raised by the Bank is time contingent.

We have mentioned verbally prior that the options open to me...are to;

A Purchase your shareholding

B Decline the offer to purchase

C Sell your shareholding to some other third party.

...

Accordingly to address the situation I suggest we make the management accounts available to as at the nominated date at the earliest opportunity and you (perhaps in consultation with your advisers) formulate a price you wish to sell the shares at and naturally attaching some supporting documentation as to the formulae/methodology you have used in arriving at this figure for my consideration.

In conclusion I reaffirm the time issue and the fact that matter needs to be addressed expediently. Perhaps if the proposed scenario is not achievable in the short time [in] order for you to commence immediate employment with the Bank we should formulate a heads of agreement whereby we agree on a valuation process that will be to the benefit of both parties at some finite future date and in the interim you will assign the shares in question back to my trust.

...

• [29] This email is notable for the fact that there is no reference to the balance owing under the share sale agreement.
• [30] Mr Walker says that there were further discussions but nothing was agreed:

There were some discussions between us but as [Mr Coffey] has said, nothing came of the discussions. [Mr Coffey] was however fully aware of the issues that had developed and my view of his responsibility, especially in relation to the tax obligations and the bank debt, and any refusal and inability to repay the balance of the share purchase price.

• [31] In his reply affirmation Mr Coffey rejected any wrongdoing on his part but did not specifically address the assertion by Mr Walker that he (Mr Coffey) was fully aware of the issues that had developed and of Mr Walker’s view of Mr Coffey’s responsibility:

Mr Walker’s return to ASB in a senior management role involving bank security created serious problems for me because ASB was a major client and his ongoing shareholding created a conflict of interest that affected us both. It was certainly not something I was comfortable with and I wanted to avoid any conflict issues arising in the future, so I was willing to either repurchase the shares or arrange for that to occur at a later date by an agreed process. I offered to do so but he didn’t pursue the matter, as I recall, and it was allowed to drift.

He did suggest that I should forgive his obligations under the loan agreement at one stage but I never agreed to that. I didn’t take any action to enforce the loan agreement while he was at ASB simply because that would have created serious problems for the companies and ASB. I had several meetings with him in 2011 after I started to think about selling the businesses ...

• [32] Mr Coffey also produced an undated file note of a meeting of a meeting on 3 August 2011 recording a discussion about the receivership and Mr Walker’s request that his future liability in relation to the shares be forgiven. The file note included:

Immediately asked why I had not consulted him re placing the company in receivership, replied met twice over the last three weeks, he implicitly advised me that he didn’t want to discuss business affairs due to the potential conflict of interest. Also reiterated his stance that I should do whats [sic] best for the company and given my majority shareholding if it was good for me it must be good for him hence he would back any decision that I made. He agreed.

Suggested that I forgive him for any future obligation to me in respect of the share liability, explained that he left the company in the interests of us both and I should be amicable, explained that there was a lot of money at stake, would seek advice from my legal counsel and financial advisers but it had been discussed before and I didn’t see any movement from our original stance.

...

... [H]e advised that he had a meeting with his direct report at 1600 hours the next day at which time he had to advise them of his position, to which I replied I think you tell them that there is no financial tie up, our business interests are in the process of being dissolved and the new entity of which the both of us don’t have any financial interest will negate any conflict issues.

• [33] Mr Slevin submitted that the note was cogent evidence that the contract had not been cancelled bur rather showed unequivocally that Mr Walker knew he had ongoing obligations under the contract, acknowledged those obligations and was seeking to be released from them. The Associate Judge did not place any weight on this note because, given that it appeared in Mr Coffey’s reply evidence, it had not been the subject of comment by Mr Walker.^[16]
• [34] Mr Slevin pointed out that Mr Walker did in fact file a second affidavit after receipt of the reply evidence in which he could have commented had he wished. We do not accept that. The second affidavit was solely for the purpose of producing documents referred to in his first affidavit but inadvertently not annexed. The filing of a substantive affidavit commenting on the reply evidence would have required leave. In any event, it is a reasonable assumption from the fact that opposition to the summary judgment application continued, that Mr Walker does not accept Mr Coffey’s assertions.
• [35] The Associate Judge concluded that:

[118] I think it would be dangerous to conclude on a summary application, where the parties have not had the benefit of discovery and there has been no cross-examination of witnesses, that Mr Walker’s communications to Mr Coffey in mid-2009 did not convey Wynsfield’s intention to bring the sale agreement to an end. Both parties were aware that Mr Walker would be moving to a new role where he could no longer have financial ties with Coffey, and Mr Walker said in his evidence that Mr Coffey was aware of Mr Walker’s views on the issues between the parties, including his views on Mr Coffey’s alleged responsibility for the debts, and any “refusal and inability” by Wynsfield to pay the balance of the share purchase price. In circumstances where the events in question took place over 10 years ago, and it seems clear that not all of the emails have been produced, I do not consider that Coffey has sufficiently shown that the 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, did not together constitute a cancellation of the sale agreement.

• [36] Mr Slevin submitted that the evidence did not show a positive act that would constitute cancellation or the fact of cancellation being communicated to the other party but rather that it showed affirmation by Mr Walker or, at least, allowing the matter to simply run on, which amounted to the same thing. We do not accept these submissions.
• [37] What emerges from the evidence is that there are a number of important factual issues in dispute regarding what was said between the parties in 2009 and 2011 and that there is evidence on which it could reasonably be argued that Mr Walker had taken steps that conveyed cancellation of the agreement. Some of the recorded communications are consistent with either cancellation or affirmation. But it is significant that there are a number of pieces of evidence that are consistent with cancellation.
• [38] These include the lack of any reference in the email of 15 July 2009 to the balance owing for the shares, Mr Walker’s failure to repay the balance when it fell due and Mr Coffey’s failure to do anything in response to that failure (we acknowledge that Mr Coffey has an explanation for this but it is of course untested). Further, Mr Coffey’s actions after Mr Walker resigned as a director are consistent with the agreement having been cancelled: Mr Coffey advanced some $300,000 to the companies to deal with the IRD, he procured a general security agreement which would have required a shareholders’ resolution but the matter was never raised with Mr Walker. The receivers’ report indicates that the business was sold to a party related to the Coffey Trust but the sale was never discussed with Mr Walker. Nor was Mr Walker consulted in relation to the receivership and liquidation of the companies. Mr Slevin’s response is that Mr Coffey’s conduct is properly characterised as breach of the shareholders’ agreement entered into at the same time as the share sale agreement rather than indicative of the agreement having been cancelled. That is a matter for submission. These questions are not amenable to resolution on the affidavit evidence and cannot be determined until there has been discovery and cross‑examination.
• [39] Given the state of the evidence, we see no error in the Associate Judge’s conclusion.

Result

• [40] The appeal is dismissed.
• [41] The respondent is entitled to costs for a standard appeal on a band A basis, plus usual disbursements.

Solicitors:
Maude & Miller, Wellington for Appellants
Wilson McKay, Auckland for Respondent

---

^[1] Mr Bertelsen is no longer a trustee.

^[2] The signed shareholders’ agreement was no longer available but a draft was produced, which both parties accepted reflected the agreement entered into.

^[3] Coffey v Walker [2019] NZHC 2795 [Decision under appeal].

^[4] Mr Walker also relied on the Limitation Act 2010, which is not relevant to the appeal.

^[5] Mr Walker filed a second affidavit which simply annexed financial statements for IMS and Alligator inadvertently omitted from the first affidavit.

^[6] Coffey v Walker [2020] NZHC 605 [Leave decision].

^[7] At [30]–[33].

^[8] Decision under appeal, above n 3, at [92].

^[9] At [93].

^[10] At [99].

^[11] At [101].

^[12] At [105].

^[13] At [106]. This conclusion is not accepted but is not an issue in the appeal.

^[14] At [107].

^[15] Decision under appeal, above n 3 (footnotes omitted).

^[16] At [121].