Cayman Spectrum (NZ) Company v Spark New Zealand Trading Ltd

• Jurisdiction: New Zealand
• Court: High Court
• Judge: Lang J
• Judgment Date: 19 February 2024
• Neutral Citation: [2024] NZHC 107
• Docket Number: CIV-2018-404-002687

Between

Cayman Spectrum (NZ) Co

First Plaintiff/Counterclaim First Defendant

Everest Wireless Partners I LP

Second Plaintiff/Counterclaim Second Defendant

and

Spark New Zealand Trading Limited

Defendant/Counterclaim Plaintiff

[2024] NZHC 107

CIV-2018-404-002687

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

COMMERCIAL PANEL

Contract, Equity — application for orders requiring the defendant to disgorge any profits it had derived through use of unauthorised rights — dispute between entities involved in the telecommunications industry — duty of directors to act in good faith and in the best interests of the company — knowing receipt — providing dishonest assistance — fiduciary obligations — wilful blindness — affirmative defences — quantum meruit — Companies Act 1993 — Radiocommunications Act 1989

Appearances:

A F Pilditch KC, M B Wigley and N M Foulis for Plaintiffs

Z G Kennedy and M D Toulmin for the Defendant

JUDGMENT OF Lang J

This judgment was delivered by Justice Lang On 8 February 2024 at11.30 am Pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:…………………………

CONTENTS

PART A: INTRODUCTION	[1]
Summary of conclusions	[6]
The radio frequency spectrum regime	[9]
Events leading to the present disputes	[15]
The NSA and the GBA	[36]
The claims, defences and counterclaim	[43]
PART B: CAYMAN'S CLAIMS AGAINST SPARK	[49]
Legal principles	[49]
The cause of action based in knowing receipt	[49]
The cause of action based on providing dishonest assistance	[51]
Did the NSA and the GBA provide Spark with a benefit at Cayman's expense in relation to the ASP's that it entered into with Woosh and Craig Wireless for the purchase of the 2.3 spectrum?	[60]
Did the NSA and the GBA enable Woosh and Craig Wireless to obtain a sale of the rights for the 2.3 spectrum on more advantageous terms than would otherwise have been the case?	[67]
Were Craig Wireless and Woosh able to secure a sale of the rights to the 2.3 spectrum when this would not have happened but for the NSA and the GBA?	[69]
Conclusion	[96]
Did Mr Craig breach his fiduciary obligations to Cayman when he caused it to enter into the NSA and the GBA?	[100]
Did Mr Craig have the authority to cause Cayman to enter into the NSA and the GBA?	[106]
Did Mr Craig withhold information from, and mislead, Everest?	[109]
Did Mr Craig and/or his companies profit from his dealings with Cayman's assets?	[111]
Did Mr Craig act on Cayman's behalf in circumstances where he had a conflict of interest or where there was a risk that his interests may conflict with Cayman's interests?	[114]
Did Mr Craig breach his obligation of loyalty to Cayman by failing to act in good faith and in Cayman's best interests?	[116]
Did Spark know, or was it wilfully blind to the possibility, that Mr Craig was breaching his fiduciary duty to Cayman when he caused it to enter into the NSA and GBA?	[146]
The knowledge Spark gained about Mr Craig's character during the negotiation process	[148]
The text message Mr Craig sent to Mr Cowley on 26 November 2015	[154]
The requests that Mr Craig provide evidence of his authority to act on Cayman's behalf	[158]
Subsequent events	[168]
PART C: SPARK'S AFFIRMATIVE DEFENCES	[181]
Change of position	[182]
Bona fide purchaser for value	[185]
Ratification	[187]
Estoppel	[190]
Exclusion or limitation of liability under the NSA	[193]
PART D: SPARK'S COUNTERCLAIMS AGAINST CAYMAN	[197]
Breach of contract	[197]
Principles relevant to a claim of a director's apparent authority	[202]
Quantum meruit	[217]
Result	[220]
Costs	[222]

PART A: INTRODUCTION

1 This proceeding involves disputes between entities involved in the telecommunications industry. The disputes arise out of transactions involving the purchase, use and sale of radio spectrum.

2 The first plaintiff, Cayman Spectrum (NZ) Co (Cayman), alleges that the defendant, Spark New Zealand Trading Co Ltd (Spark), acquired valuable contractual rights from it following negotiations that Spark undertook with one of Cayman's two directors, Mr Boyd Craig. It says Mr Craig had no authority to grant Spark these rights and that he breached his fiduciary obligations to Cayman in doing so.

3 Cayman alleges that Spark knew or was wilfully blind to the fact Mr Craig was breaching his fiduciary duties when he caused Cayman to grant the rights in favour of Spark. It therefore says it would be unconscionable for Spark to retain the benefit of those rights. Cayman seeks orders requiring Spark to disgorge any profits it has derived through use of the rights.

4 Spark advances several positive defences to Cayman's claims. It also advances a counterclaim seeking to enforce the rights that Cayman granted to it. In the alternative, Spark seeks compensation for the services it provided in exchange for receiving those rights.

5 This judgment determines only the issue of liability on Cayman's claims. If Cayman is successful in establishing any of its claims a further hearing will be required to determine the relief to be granted. Spark seeks immediate judgment on the first of its counterclaims. If this is not successful it seeks judgment as to liability on its alternative counterclaim. In that event a further hearing will be necessary to determine the compensation to be paid on its alternative counterclaim.

Summary of conclusions

6 For the reasons that follow I have reached the following conclusions in relation to Cayman's claims against Spark:

• (a) Mr Craig did not breach his fiduciary obligations to Cayman in his dealings with Spark;

• (b) if this conclusion is incorrect, I find that Spark did not know of, and was not wilfully blind to, any breach of fiduciary duty on the part of Mr Craig; and

• (c) it would not in any event be unconscionable for Spark to retain the benefit of the contractual arrangements it entered into with Cayman.

7 These conclusions mean that Cayman has failed to establish either of its claims against Spark.

8 For the reasons that follow I have reached the following conclusions in relation to Spark's counterclaims against Cayman:

• (a) Spark has failed to establish its claim based on breach of contract because Mr Craig did not have actual or ostensible authority to enter into the arrangements with Spark on Cayman's behalf; but

• (b) Spark has succeeded in establishing its alternative counterclaim against Cayman based on quantum meruit.

The radio frequency spectrum regime

9 The long title to the Radiocommunications Act 1989 (the Act) states that it is “[a]n Act to provide for the management of the radio frequency spectrum”. The Act creates a property regime similar to the Torrens system of property rights now embodied in the Land Transfer Act 2017. The registered owner of proprietary rights under the Act enjoys protection of those rights against unregistered interests.

10 The Act provides for the establishment of a Register of Radio Frequencies 1 and the registration of management rights and related instruments on the Register. 2

Management rights set the frequency boundaries and boundary conditions for the management rights. These may be subject to a limit specifying the maximum power of transmissions permitted so as to mitigate the risk of interference between bands. Such limits are commonly referred to as guard bands.

11 The owner of management rights may issue spectrum licences that permit the use of frequencies within the boundaries of those rights. 3 A spectrum licence establishes the right to transmit and/or receive radio communications free from harmful interference. Records of management rights kept on the Register must specify, among other things, any emission limits applying to the frequencies to which the record of management rights relates together with any variation or removal of those limits.

12 The Crown allocated management rights for radio spectrum to the private sector in 2007. It did so by auctioning the management rights for blocks of spectrum within specified bands. At that time the dominant entities in the telecommunications industry were Telecom New Zealand Ltd (Telecom), Vodafone New Zealand Ltd and (to a lesser extent) 2degrees Wireless Ltd (2degrees). Telecom changed its name to Spark in 2014.

13 Successful bidders for spectrum were required to enter into a deed with the Crown. This set out their rights and obligations in relation to the use of the spectrum. Management rights are transferable, but this requires the consent of both the Commerce Commission and the Ministry of Business, Immigration and Employment (MBIE). MBIE is the agency responsible for administering the Act.

14 The deed that owners of management rights entered into with the Crown required them to use their best endeavours to negotiate agreements with those holding management rights to adjacent spectrum. Owners of management rights were also required to co-ordinate the use of frequencies so as to maximise technical efficiency and minimise interference risks in a fair and objective spirit through discussion. This meant that the owners of management rights were free to reach agreement with those

who owned adjoining blocks of spectrum to modify or remove any restriction on the use of their spectrum.

Events leading to the present disputes

15 As its name suggests, Cayman is incorporated in the Cayman Islands. It acquired the management rights for two blocks of spectrum in the 2.5 to 2.7 GHz range (the 2.5 spectrum). The shareholders in Cayman were the second plaintiff, Everest Wireless Partnership I LP, and Craig Wireless Systems Ltd...