Six years after private investigator Mark Walker left Alligator Security alleging business colleague Paul Coffey had misrepresented Alligator’s financial position, Coffey sued claiming Walker still owed $500,000 for his purchase of a thirty per cent stake. The Court of Appeal ruled Walker owed nothing; the manner of his departure amounted to cancellation of their agreement.
The two had known each other since the late 1980s when Mr Walker operated as a private investigator. In May 2008, Mr Walker left his then job with ASB to buy into Mr Coffey’s existing security and alarm monitoring business: Alligator Security. Mr Walker was not provided with any detailed financials. He agreed to buy in at $700,000 without getting legal advice. He paid Mr Coffey $200,000 up front for a thirty per cent stake, promising the balance of $500,000 would be paid in five years. Mr Walker left a little over a year later after Mr Coffey said the business was not earning enough to pay salaries.
In 2015, Mr Coffey demanded payment of the promised $500,000, plus interest for late payment. In the interim, Mr Coffey had been convicted of numerous tax offences; sentenced to ten months’ home detention and fined $20,000.
Defending Mr Coffey’s $500,000 claim, Mr Walker said their agreement came to an end because of Mr Coffey’s misrepresentations. Mr Coffey misrepresented Alligator’s financial viability, in particular Mr Coffey failed to disclose the extent of its borrowings and its unpaid tax debts, he said. Mr Coffey’s use of company cash to fund a lavish lifestyle amounted to personal spending written off as a tax expense, he alleged.
In the Court of Appeal, legal argument centred on whether the contract to pay $500,000 was cancelled. Lawyers typically ensure cancellation is made by formal written notice. In this case, Mr Walker simply walked away from the business. There was some email communication with Mr Coffey by Mr Walker seeking a buy-back of his thirty per cent stake together with soothing suggestions that they might be able to work together some time in the future. Nothing came of these negotiations. The conduct of both Mr Walker and Mr Coffey made it clear the contract was cancelled, the court ruled. Mr Walker left and resigned as a director of the business; Mr Coffey made no mention of $500,000 still being due while he personally pumped another $300,000 into the company in an attempt to fend off Inland Revenue.
Mr Coffey took security over company assets in return for his injection of this $300,000. Evidence was given that Mr Coffey used this security to seize company assets, days before the business was forced into liquidation by Inland Revenue. It was alleged these business assets were then sold at an undervalue to Mr Coffey’s long-term girlfriend.
Coffey v. Walker – High Court (31.10.19) & Court of Appeal (4.12.20)
21.009