Cool Cars (Wholesale) Limited (In Liquidation) v Sharma a.k.a Kumar DC Hamilton CIV-2011-019-179 [2012] NZDC 518 (3 April 2012)

Last Updated: 27 September 2016

IN THE DISTRICT COURT AT HAMILTON

_{CIV-2011-019-000179}

BETWEEN COOL CARS (WHOLESALE) LIMITED (IN LIQUIDATION)

NICHOLAS HAYES Plaintiffs

AND IRENE REENITA SHARMA (AKA) IRENE KUMAR

Defendant

Hearing: 10 February 2012

Appearances: D Hayes for the Plaintiffs

Defendant appears in person

Judgment: 3 April 2012 at 3.00 pm

RESERVED JUDGMENT OF JUDGE R G MARSHALL [Regarding Default of Contract on Sale and Purchase Agreement]

Introduction

Plaintiff ’s claim

[1] The plaintiff makes demand of the defendant for $81,145.11. That represents the amount of the judgment the plaintiff obtained against No 1 Motors Ltd (“No 1”) in the Hamilton District Court on 20 September 2010.

[2] The plaintiff’s claim is that the defendant, Ms Kumar, as director of No 1, signed an agreement for sale and purchase on or about 1 September 2007 with the

_{plaintiff company.}

COOL CARS (WHOLESALE) LIMITED (IN LIQUIDATION) V IRENE REENITA SHARMA (AKA) IRENE KUMAR DC HAM CIV-2011-019-000179 [3 April 2012]

[3] The plaintiff company was the vendor and the defendant a director of the purchasing company. The plaintiff claims it was an unconditional agreement for sale and purchase for $790,000.00 plus GST.

[4] At the time of the signing of the agreement, the plaintiff alleges the defendant, as director of No 1, had limited assets, had not arranged finance and was not in a position to finance the transaction.

[5] On settlement date of 12 March 2008, the vendor No 1 failed to settle the purchase. Subsequently the agreement was cancelled for non-performance as the purchaser was unable to settle.

[6] The plaintiff claims that the parties were in trade in terms of the Fair Trading Act 1986. Further, the plaintiff claims that the actions of the defendant were misleading and deceptive.

[7] No 1 has since been placed into liquidation on 30 September 2010 and the judgment debt of $81,145.11 remains unsatisfied.

The defendant’s position

[8] The defendant does not dispute that she was the director of No 1 at the material time and signed the agreement for sale and purchase as director of the purchasing company.

[9] The defendant says the agreement was conditional because: (a) It was conditional upon a tenancy being in place;

(b) The sale was to be that of a going concern and zero rated for GST; (c) That vendor finance of $90,000.00 was to be provided.

[10] The defendant denies that her conduct was misleading or deceptive.

[11] The defendant also maintains the property on resale was sold below valuation.

[12] The final point raised by the defendant is that the director of the plaintiff company, Heather Jacobs had a prior criminal conviction which disqualified her from being a director at the time the agreement for sale and purchase was signed by her as director of the plaintiff company.

Facts not in dispute

[13] At the time the agreement for sale and purchase was entered into, the property, being 30-32 Avalon Drive Hamilton, was a commercial premises but vacant.

[14] Heather Jacobs was contacted by a tax agent, Mr Mulligan who advised that a

Mr Kumar was interested in leasing or purchasing the yard and buildings at 30-32

Avalon Drive Hamilton. Subsequently there appeared to be a meeting between Ms Jacobs, Mr Mulligan (who appeared to be a tax agent for both the Kumars and Ms Jacobs), Mr Kumar and Mrs Kumar.

[15] That led to an agreement for sale and purchase being prepared by a solicitor, Mr Patel.

[16] On or about 1 September 2007 that agreement was signed by Ms Jacobs on behalf of Cool Cars (Wholesale) Limited as vendor and Ms Kumar as director of No

1 as purchaser.

[17] The agreement for sale and purchase was prepared on the standard Auckland

District Law Society form, Eight Edition 2006.

[18] It provided that the purchase price was $790,000.00 and settlement was 12

March 2008. It also recorded that it was subject to a tenancy, namely No 1 Automart

Ltd (on a monthly basis).

[19] Clause 12 of the standard form dealt with the Goods and Services Tax provisions and 12.2 provided that if the supply under this agreement is a taxable supply, the vendor will deliver a tax invoice to the purchaser on or before the GST date or such earlier date as the purchaser is entitled to delivery of an invoice under the GST Act. GST was to be paid by the purchaser to the vendor in one sum on the GST date.

[20] There were a further five special conditions inserted by way of clause 15.0,

16.0, 17.0, 18.0, 19.0 and 20.0. They are set out as follows:

[15.0] The Vendor in consideration of the Purchaser into this Agreement and duly and punctually complying with and completing this sale agrees to provide vendor’s finance in the sum of $90,000.00 on inter alia the following terms and conditions to be secured by way of a second registered mortgage over CTS SA 56D/843 and SA 707/1 with a personal guarantee of the Directors of the purchaser (using ADLS Loan and Mortgage forms):

Term of Loan: 12 months (11 March 2009) Interest Rate: 10 % (Penalty 12%pa)

Prepayment: The interest component shall be paid by the

Purchaser to the Vendor on settlement date.

[16.0] The Purchaser shall continue to secure and guarantee the subject properties being leased to a company approved by the vendor at a monthly rent of $5,000.00 plus GST and outgoings for a term one (1) day after the date of settlement and the Purchaser shall be responsible for the performance of all obligations of the Lessee and its liability.

[17.0] The vendor shall on a lease to purchase basis until settlement date permit the purchaser the use of the following items:

17.1 all furniture, fixtures, fittings, and fax machine contained on the subject property.

17.2 the Lead Generator (with the telephone and other connections to be paid by the purchaser including cost of service and maintenance thereof) with the vendor assisting the purchaser whenever required by the purchaser prior to settlement date in the operation of this system.

[18.0] Leasing herein if any provided it has not commenced at an earlier date shall start from 1 September 2007 and the Purchaser shall pay to the Vendor two (2) months rent in advance.

[19.0] The Purchaser shall be responsible for the payment of the Hire Purchase or leasing charges relative to the items permitted by the Vendor to be used by the Purchaser or otherwise let out to it therein during the period that the Purchaser has possession of the said items.

[20.0] The parties agree that the sale herein is that of a going concern and the transaction herein shall accordingly be zero rated for GST purposes (excluding the leasing features).

[21] The agreement for sale and purchase appears on pages 15 through to 25 of the Bundle of Documents.

[22] Clause 16 clearly provides that the purchaser shall continue to secure and guarantee the properties being leased to a company approved by the vendor and clause 18 provides that the lease shall commence from 1 September 2007 and the purchaser is to pay the vendor two months rent in advance.

[23] It is not in dispute that the vendor paid two months rent in advance on behalf of No 1 Automart Ltd.

[24] It is further not in dispute that No 1 Automart Ltd is a company in which the defendant’s mother is the major shareholder and which the defendant at paragraph [10] of her brief of evidence states that she is employed by No 1 Automart Ltd.

[25] In the bundle of documents at page [26] Ms Jacobs sent on 12 February 2008 a letter to the defendant and her husband, referring to the unconditional date of the purchase of 30-32 Avalon Drive Hamilton. The letter is a demand for six months rent due by No 1 Automart Ltd and a request to clear that matter up and complete the scheduled agreement.

[26] The defendant acknowledges that a cheque was delivered to the plaintiff but was subsequently cancelled due to the actions of a repossession agent engaged on behalf of the plaintiff. The plaintiff maintains that the cheque bounced and that no repossession action was taken until after the agreement for sale and purchase was cancelled. In any event the short point not in dispute is that a cheque was forwarded from the defendant to the plaintiff, which was subsequently dishonoured.

[27] Page 27 and 28 sets out a settlement statement for the proposed settlement on

12 March 2008, forwarded from Mr Patel to Mr Anthony Nolan, a solicitor who had been engaged by No 1. That settlement statement provided for vendor finance of

$90,000.00 as per the agreement for sale and purchase.

[28] On 13 March 2008, the day after settlement, Mr Patel sent a fax to Mr Nolan, noting that settlement had not occurred and referring to Mr Nolan’s telephone message that the purchaser would not be able to settle the transaction until Wednesday 19 March 2008. Mr Patel reserved the plaintiff’s right to remedies in claiming interest; and reserved the right to withdraw the conditional facility to the purchaser regarding vendor finance (refer to document page 29).

[29] On 20 March 2008 Mr Nolan wrote to Mr Patel, stating that he had instructions to act on behalf of the purchaser, but that the company was not in a position to complete settlement of the purchase due to the fact that the bank required “further accounting information before it will provide the funding for the purchase”. He advised that he was not in a position to say how long that would take but would advise accordingly.

[30] Mr Patel responded on the same day by fax (document 31) advising that the cheque issued by No 1 Automart Ltd for part-payment of the rent had been dishonoured and because of defaults under the agreement for sale and purchase, his clients’ instructions were that the conditional vendor finance facility was withdrawn and settlement of the whole amount was required by way of clear funds. A settlement notice (document 32) was attached to document 31. That required settlement within 12 working days after the date of service of the notice.

[31] On 18 April 2008 Mr Patel sent a fax to Mr Nolan that as the purchaser had failed to settle the transaction in terms of the settlement notice, the vendor had instructed him to notify cancellation of the agreement for sale and purchase, reserving the vendor’s remedies. That correspondence appears in document 33.

[32] On 18 April 2008 the plaintiff entered into a further agreement with a purchaser and sold the property for $769,000.00.

Plaintiff ’s case

[33] Mr Hayes was the first witness to give evidence as liquidator of the plaintiff company. Mr Patel then gave evidence that he was the solicitor acting for the plaintiff company and prepared the agreement for sale and purchase.

[34] Finally Ms Jacobs gave evidence on behalf of the plaintiff company. Her clear understanding of the agreement was that it was an unconditional agreement. After signing the agreement, she advised that the key was handed over to, it appears Mr and Mrs Kumar, who then shifted into the vacant yard. Her understanding was that Mr Kumar owned the tenant company, No 1 Automart Ltd.

[35] Further, her clear understanding was that the purchaser, No 1 was responsible for all matters relating to the tenancy and securing and guaranteeing a tenancy. She denied that she considered that the plaintiff company was under any obligation as vendor to arrange a formal lease with No 1 Automart Ltd or any other tenant.

[36] Both Ms Jacobs and Mr Patel denied that they had received any requests in any event for a formal lease from the defendant or any of the companies associated with the defendant.

Defendant’s case

[37] Ms Kumar gave evidence that No 1 would have completed the contract if they had been provided a copy of the lease between No 1 Automart Ltd and the plaintiff. Her position was that there was no misleading or deceptive conduct on her part as finance was arranged. The only impediment really was the lack of a formal lease between the plaintiff and No 1 Automart Ltd. Her position was that she considered that this was the responsibility of the plaintiff.

[38] She further gave evidence in paragraph 11 of her brief of evidence as to how settlement was to be completed. Purchase price $790,000.00 zero rated. 66 percent was to be provided by finance provider Star Finance in Auckland, arranging funds of

$525,000.00; vendor finance $90,000.00; assistance from her parents $100,000.00; Vikom Finance Ltd to provide $75,000.00; making a total of $790,000.00.

[39] As finance was conditional upon there being a tenancy in place and the lack of a formal lease, then the transaction could not be zero rated.

[40] In the absence of a formal lease agreement, Ms Kumar stated that No 1’s

financial provider would not be satisfied that the loan could be serviced.

[41] Her position was that No 1 could have completed the agreement if the documents requested, namely the formal lease, had been provided.

[42] During the course of cross-examination, Ms Kumar complained that Mr Patel had been acting for both her and the vendor at the time the agreement was prepared and subsequent to that. This was a matter denied by Mr Patel.

[43] Further, Ms Kumar said that formal lease documents had been requested of the plaintiff company and of Mr Patel. In cross-examination however she was unable to point to any correspondence that she had sent to either Mr Patel or the plaintiff company, requesting formal lease documents. Further, it was put to her in cross-examination that in any correspondence sent by Mr Nolan, particularly document 30, no request for a formal lease document was sought from the plaintiff. Further, that the only reference to any outstanding documentation appeared to be the fact that the purchaser’s bank required “further accounting information before it will provide the funding for the purchase”.

[44] The defendant maintained that the lending institutions would not provide the funding because of the lack of the formal lease. Being cross-examined on this point, she stated that she did not have correspondence from the bank directly because she

was dealing with the broker. She also had no documentation or correspondence from the broker concerning the issue of lack of formal lease being an impediment to finance.

[45] She further in cross-examination referred to $100,000.00 assistance that she was to get financially from her parents. Her mother was not able to provide any evidence of that proposed loan as her mother was overseas at the time but had a property in Australia with equity.

[46] The defendant was also cross-examined about Vikom Finance Ltd that was to provide $75,000.00. She confirmed that that was by way of a verbal agreement and Vikom Finance Ltd was a subsidiary of Auto Enterprise, which was owned by her husband. He was also not to give evidence.

[47] In cross-examination Ms Kumar confirmed that at the time that the purchaser entered into the agreement, they did not have any assets but she as director of the company was going to raise finances and be guarantor for that. She agreed that as the company had no assets, it was dependent on complying with its obligations by assistance from elsewhere.

[48] It was put to her that there was no finance arranged at any time and any finance that was tried to be arranged was at the last moment. She denied that that was the position and maintained once again the only impediment was the lack of a formal lease agreement.

[49] Mr Mulligan also gave evidence for the defendant but really could add little. Although he was a tax accountant, he seemed to have little personal hands on involvement in any of these transactions, apart from arranging the initial meeting. All his understanding really came from his discussions with the defendant and he had no knowledge of Star Finance or any of the documentation that Ms Kumar referred to in her evidence as coming from the various financial institutions she was dealing with.

Factual findings

[50] I am of the clear view that the agreement for sale and purchase was an unconditional agreement for sale and purchase. Further, that clause 16 clearly placed the contractual obligation on the purchaser to secure and guarantee the property being leased to a company approved by the vendor at a monthly rental and to be responsible for the performance of all obligations of the lessee and its liability.

[51] Clearly the responsibility was with the purchaser to arrange any formal lease which it was entitled to do with any tenant and accordingly provide that to any financial institution for the purposes of arranging finance.

[52] It seems abundantly clear to me from Ms Kumar’s evidence that at the time the agreement for sale and purchase was entered into, her husband and herself required extra yard space to store and display motor vehicles. The plaintiff’s premises seemed ideal for this. Further, that no thought was given at that time about arranging finance for what was a very substantial financial transaction.

[53] I was unconvinced by Ms Kumar’s evidence as to the fact that all that was needed for finance to be settled on was a formal lease document. No evidence was provided whatsoever of any correspondence between Star Finance, the defendant and any banking institution. If finance had been genuinely and actively sought then there would have been a document trail and ample documentary evidence of the defendant’s steps to obtain finance. Apart from the major proposed loan of

$525,000.00, there was nothing further to substantiate any other source of financial provision by the other proposed financiers, being her parents and Vikom Finance Ltd. I also point to the compelling fact that nowhere in Mr Nolan’s correspondence with the plaintiff ’s solicitor does he request a formal lease document to be provided by the plaintiff. Also Mr Nolan does not state anywhere in the correspondence that his clients or himself are of the view that the agreement is in any way conditional.

[54] As a somewhat subsidiary matter, Ms Kumar states that the tenancy of No 1

Automart Ltd was prematurely terminated as repossession agents had entered into the premises prior to the settlement. This seems contrary to Ms Jacob’s letter to Ms Kumar of 26 April 2009, being document 48, which is a reference to chattels taken by the defendant but well after the agreement was cancelled. I am not at all convinced that the actions of any repossession agents jeopardised any tenancy.

Decision

[55] Trade is defined in s 2 of the Fair Trading Act 1986 as meaning:

Any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.

[56] Obviously it is the latter part of the definition, being the disposition or acquisition of any interest in land that has application in this case.

[57] Section 9 of the Act further provides:

No person shall, in trade, engage in conduct that is misleading or deceptive or that is likely to mislead or deceive.

[58] Obviously this is an objective test. The word “deceive” which is disjunctive to mislead, is a stronger term. In Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 SLR 191, Gibbs CJ said of misleading and deceptive at page 198:

Those words are on any view tautologises. One meaning which the words

‘mislead’ and ‘deceive’ share in common is to ‘lead into error’. If the word

‘deceptive’ in Sec 52 stood alone, it would be a question whether it was used in a bad sense, with a connotation of graft or overreaching, but ‘misleading’ carries no such flavour, and the use of the word appears to render ‘deceptive’ redundant.

[59] Accordingly it seems common sense to adopt a common sense meaning of the words to be “led into error”. It is further obvious from the wording of the section that the use of the word “likely” means that the other party or parties need not in fact be misled or deceived.

[60] A central issue in this case is whether the purchaser can be said to be in trade on the basis of a single transaction. The evidence even on the part of Ms Jacobs was that the yard had been vacant since 2006. Cashmore v Sands (2007) 8 NZBLC 101,

879, Clifford J considered this issue in circumstances of sale of land. There had been some conflicting authority and different interpretations, particularly where there had been a one-off transaction and a capital asset had been sold sometimes with and sometimes without a business. His Honour noted that a clear line delineating the circumstances when the sale of land will be “in trade” and those where it will not, has not yet to be drawn in New Zealand. He considered matters that should be included in assessment as to whether sales are “in trade” are the character of the parties involved, whether the vendors have engaged or are about to engage in commercial activities and whether the transaction was motivated by business as distinct from personal reasons. Hence the commercial nature of a one-off transaction was important. In Hill v Juzwa (20/9/05, HC Auckland, CIV-2004-463-840) Courtney J held that the defendants were not “in trade” when they agreed to sell their residential home to the plaintiff. Justice Courtney emphasised three factors:

(a) The property was personally owned by the defendants who derived their main source of income from employment;

(b) The property was not part of any commercial activities such as commercial property development;

(c) The agreement was in the context of a trusted family relationship.

[61] Here it is obvious that although the plaintiff company was not actively in business at the time, it did have a commercial saleyard and premises for sale. The purchaser and by admission the defendant as director saw the vacant property as a convenient place to store cars and conduct business there through various family company entities, including tenancies.

[62] I am firmly of the view that the purchase and vendor regarded this as a commercial transaction and that for the purposes of the Fair Trading Act, this was trade relating to the disposition or acquisition in land.

[63] In order for the plaintiff to prove its claim however, I must then be satisfied that the plaintiff has established on the balance of probabilities that the defendant engaged in conduct that was misleading or deceptive or was likely to be misleading or deceptive.

[64] I have no doubt after having heard the evidence of Ms Kumar that her conduct was in fact misleading or deceptive and was certainly likely to mislead or deceive.

[65] It was obvious that the purchaser company had no assets at the time Ms

Kumar signed the agreement for sale and purchase as director for No 1.

[66] I am further satisfied that no steps at the time an unconditional agreement was entered into by the defendant had been taken towards arranging any finance. I am further satisfied that she would have been well aware by the terms and conditions of the agreement that it was an unconditional agreement.

[67] I am further satisfied that Ms Jacobs would have understood that the purchaser was an unconditional purchaser and readily assumed that the purchaser had arranged or had access to finance to complete the agreement on settlement date, being 12 March 2008.

[68] It is clear that the actions of the defendant did mislead and deceive the plaintiff into thinking that finance in the sum of $790,000.00 had been arranged. Certainly the plaintiff would have been entitled to rely on the fact that the purchaser would not have entered into such an agreement as an unconditional agreement but made it subject to finance, if finance had not in fact been arranged.

[69] I am satisfied on the balance of probabilities therefore that the plaintiff was misled and deceived by the defendant, or at the very least, was likely to have been misled or deceived by the defendant.

[70] The only remaining issue to be determined is the issue raised by Ms Kumar that the plaintiff, due to a conviction at the time she entered the agreement for sale and purchase, was at law not entitled to be a director of the company. I consider this to be very much a side issue as Ms Jacobs in her evidence said that she did not receive notification of the fact that she was not entitled to remain a director until after the agreement for sale and purchase was signed. In any event I do not consider that the actions of Ms Jacobs, as signing as director at that time, was such as to render the contract illegal on that basis. She still remained a director on the public record at that time and I am of the view that for all intents and purposes, it was a legally binding contract on both the purchaser and vendor.

[71] Accordingly there will be judgment in favour of the plaintiff in the sum of

$81,145.11 and costs according to scale 2B.

R G Marshall

District Court Judge