Spark is chasing backhanders totalling $3.5 million paid by Sean Bryan’s Victory IT Ltd, being secret commissions rewarding a Spark contractor for putting work its way.
Telco Spark says it overpaid for services received, following years of invoices padded with under the table commissions paid without its knowledge or approval.
Court of Appeal ruled Mr Bryan personally liable to pay Spark $1.72 million for backhanders paid from 2016; a further court hearing is needed to deal with Limitation Act defences over liability for $1.8 million paid prior to 2016.
The court was told a corrupt arrangement to make secret payments was negotiated in 2013 between Mr Bryan and a Spark contractor. This contractor currently has name suppression; part of an ongoing Secret Commissions Act prosecution.
The contractor negotiated a profit-sharing arrangement with Mr Bryan in which a significant share of Victory profits earned on its Spark contract was handed back to the contractor.
Spark awarded a contract in 2013 for a major upgrade to its customer services digital platform. The successful contractor had ultimate responsibility for all testing services required by Spark, plus an active role in selecting third-party providers.
The court was told Spark was encouraged by this contractor to retain Victory as a testing service provider, despite its rates being significantly higher than competitors. The contractor having name suppression justified approval to Spark of these premium rates on grounds Victory’s testing services were superior.
Unbeknown to Spark, this contractor would be getting a slice; kickbacks from Victory.
Over a three year period, the contractor received kickbacks totalling $3.5 million.
Invoicing inconsistences through 2015 led to questions by Spark. Suspicions mounted with both Mr Bryan and the contractor refusing to provide adequate explanations or to disclose relevant information.
It took court orders to force disclosure of bank records.
In 2021, their invoicing dispute went to arbitration.
The arbitrator ruled Victory had acted dishonestly in paying backhanders to the contractor and that Mr Bryan had knowingly participated in the unlawful scheme.
The arbitrator dismissed explanations for the corrupt payments as being ‘a complete fabrication.’
With Victory IT Ltd in liquidation, Spark looked to recover these corrupt payments from Mr Bryan personally.
In the Court of Appeal, Mr Bryan said the arbitration ruling was not enforceable against him personally; it was against his company Victory. Spark could recover only from Victory, he said.
The central principle of company law is that an incorporated company is a separate legal entity from its shareholders and its directors.
It is the company that is liable for actions carried out in its name.
There is an exception where management benefit directly from their company’s dishonesty; management can be sued.
As sole director and shareholder, Mr Bryan was Victory’s ‘alter ego,’ the court ruled.
He had complete control of the company. He was the direct beneficiary of Victory’s dishonest financial arrangement.
The Court of Appeal ruled Mr Bryan personally was liable to compensate Spark for the amount paid in backhanders.
The Limitation Act bars recovery of compensation for wrongdoing more than six years prior to court action being filed.
Mr Bryan is liable to pay Spark the $1.72 million secret commissions handed over during this six year period, the Court of Appeal ruled.
Credit was given for an unpaid Victory invoice of $1.08 million, leaving Mr Bryan immediately liable to pay a net amount of some $650,000.
Mr Bryan’s liability for the remaining $1.8 million paid in backhanders requires proof at a subsequent court hearing that Spark had ‘late knowledge’ of its right to sue. Spark claims delays in taking legal action were caused by the fraudsters unhelpful and evasive responses to earlier requests for information.
The Court of Appeal was told Spark is also taking legal action against the Spark contractor receiving these backhanders.
Spark New Zealand Ltd v. Bryan – Court of Appeal (8.05.25)
25.124