Holmes Capital Limited v Marra HC Auckland CIV-2009-463-822

[2011] NZHC 1449

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-463-822

BETWEEN  HOLMES CAPITAL LIMITED Plaintiff

ANDPAUL HENRY MARRA Defendant

Hearing:         10-12 October 2011

Counsel:         S M Hunter for plaintiff

Mr Marra in person

Judgment:      27 October 2011 at 2:15 PM

JUDGMENT OF LANG J

This judgment was delivered by me on 27 October 2011 at 2.15 pm, pursuant to Rule

11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

HOLMES CAPITAL LTD V MARRA HC AK CIV-2009-463-822 27 October 2011

[1]      This  proceeding  arises  out  of  a  decision  by Mr Wayne  Holmes  and  the defendant, Mr Paul Marra, to invest funds in a company called King Island Milk Pty Limited (“King Island Milk”).  That company established a milk processing plant on King Island, just off the coast of Tasmania.

[2]      At the time they entered into the venture, the two men had a long-standing business and personal relationship.  Mr Marra had extensive operational experience in  the  field  of  milk  processing,  whilst  Mr  Holmes  had  been  involved  in  the packaging industry through his family company, H A Holmes & Company Limited. That company, which ultimately became the plaintiff in this proceeding, sold its business,  and  changed  its  name  to  Ashworth  Ventures   Limited  (“Ashworth Ventures”) as a result.  Mr Holmes then began looking for new projects into which Ashworth Ventures could invest the capital realised from the sale of its business.

[3]      Mr Marra alerted Mr Holmes to the opportunity to invest in King Island Milk, which was at that stage a start up venture.  After investigating the proposal they decided to invest in it. They then formed a company called Green Sky Holdings Limited (“Green Sky”) to acquire shares in King Island Milk.  It was initially agreed that Mr Holmes would own two-thirds of the shares in Green Sky, and Mr Marra would own the balance.  Mr Marra duly paid the cost of his one-third shareholding in Green Sky shortly after Green Sky acquired an initial parcel of one million shares in King Island Milk.

[4]      It soon became apparent that King Island Milk needed further capital.  Green Sky provided that capital, and in return acquired several further parcels of shares in King Island Milk.   Mr Marra did not have the ability to pay for his share of the further shares in King Island Milk that Green Sky acquired.   For that reason Mr Holmes agreed to meet that cost in the first instance.   It was always understood, however, that Mr Marra would reimburse Mr Holmes as and when he was able to do so.   Mr Marra honoured that arrangement to the extent that he repaid the sum of

$350,000 on 18 June 2002.

[5]      Unfortunately,  the investment  proved  to  be disastrous.   The venture was dogged with a variety of problems from the outset.  In late 2002 or early 2003 Mr

Marra agreed, with considerable reluctance, to shift to Melbourne in an effort to rectify the company‟s problems.   The problems continued, and by mid-2003 the company needed a significant cash injection if it was to survive.  Mr Holmes was the only investor prepared to provide further funding, and he arranged for Ashworth in inject the sum of approximately $ 2 million dollars directly into King Island Milk.

[6]      This was not sufficient to save the company, and it went into receivership in late 2003.   That occurred after Mr Holmes declined to provide further financial support, and resigned as a director.  The collapse of the company meant that both Mr Holmes and Mr Marra lost their entire investment in King Island Milk.

[7]      In mid-2004, Mr Holmes began to seek repayment of the advances made to Mr Marra.  This ultimately led to a written agreement (“the settlement agreement”) between  Ashworth  Ventures  and  Mr  Marra  dated  15  July  2005.    Under  this agreement, Mr Marra agreed to pay Ashworth Ventures the sum of $2 million on 1

July 2007.  The agreement also required Mr Marra to immediately transfer his boat to Ashworth Ventures. The boat was then to be sold, and the proceeds of sale applied to reduce the amount owing under the settlement agreement.

[8]      Mr Marra subsequently transferred the boat to Ashworth Ventures, and it was sold in 2006.  The sale proceeds were duly credited to the amount outstanding under the settlement agreement.   On 1 July 2007, however, he failed to pay the balance owing under the settlement agreement.

[9]      On 6 November 2011 Mr Marra signed a document varying the settlement agreement to provide Mr Marra with further time to pay the debt.   By that stage Ashworth Ventures had changed its name again, this time to Holmes Capital Limited.

[10]     Thereafter Mr Marra paid further instalments totalling $240,000, but he failed to pay the balance owing under the two agreements.  As a result, Holmes Capital Limited now seeks judgment against Mr Marra for the sum of $1,492,048 together with costs and interest.

[11]     At the commencement of the trial, Mr Marra applied for an adjournment.  He submitted that he was disadvantaged by being required to conduct the case on his own behalf, and contended that he should be permitted a further opportunity to instruct counsel.   Mr Marra advised me that he anticipates receiving funds in November 2011, and this will enable him to retain counsel.  He submitted that the proceeding should be adjourned until after that date.

[12]     Mr Marra also pointed out that he now lives in Melbourne, and this has limited his ability to gain access documents and files that are currently in storage. This means that he has had limited time to prepare for the trial.

[13]     Furthermore, Mr Marra advised me that his son-in-law is seriously ill, and that he needs to focus on that issue rather than the trial.

[14]    To a large extent the application for an adjournment mirrored a similar application that Mr Marra advanced before Associate Judge Sargisson on 3 October

2011.  The Associate Judge dismissed that application on the basis that the interests of justice favoured the trial proceeding on the allocated date, and did not favour the granting of an adjournment.

[15]     I reached the same conclusion.  Mr Marra agreed to accept the proposed trial date of 10 October 2011 at a telephone conference on 3 June 2011.   Both parties have proceeded since then on the basis that the trial would begin on that date.  Mr Marra says that he agreed to the fixture in the belief that he would be in a position to instruct counsel in sufficient time to accommodate it, but circumstances beyond his control have prevented him from doing so.

[16]     This is not an adequate explanation.  Mr Marra has had notice of the trial date for more than four months.  This has given him adequate time to instruct counsel and/or to prepare for trial.   In addition, the Court and Holmes Capital have been prepared to accommodate the fact that Mr Marra‟s evidence was served very late.

[17]     Moreover,  the factual  and  legal  issues  to  be determined  in  this  case are relatively straightforward, and are well understood by Mr Marra.   His ability to present his case is demonstrated by the fact that he was able to file and serve well- constructed  briefs  of  evidence  last  week.    He  is  clearly  a  person  with  a  good command of the English language, and an intimate understanding of the factual background to the case.  For that reason I did not consider that he would be unduly prejudiced by being required to represent himself.  That conclusion was ultimately borne out by the skill with which Mr Marra cross-examined Holmes Capital‟s witnesses, and by the clarity of his closing submissions.

[18]     On the other hand, an adjournment of the trial would represent a significant injustice for Holmes Capital.   It filed this proceeding on 20 November 2009, and narrowly failed in its application for summary judgment in August 2010.  Holmes Capital has been obliged to wait more than 12 months for the present fixture.   It would be wrong, in my view, to deny it the benefit of that fixture on the grounds that Mr Marra advances.

[19]     For these reasons I declined the application for an adjournment, and directed the trial to proceed.

The issues

[20]     Three issues need to be determined:

1.      Is Holmes Capital entitled to recover the sums advanced to Mr Marra?

2.Was  the  settlement  agreement  dated  15  July  2005  supported  by consideration?

3.      Did Mr Marra enter into the settlement agreement under duress?

[21]     Mr Marrra contends that Holmes Capital Limited cannot prove that Ashworth Ventures made the advances that enabled him to acquire shares in Green Sky.  He advanced the same argument successfully in opposition to Holmes Capital‟s application for summary judgment.

[22]     Holmes Capital has now adduced evidence on this point from Mr Holmes and from his accountant, Mr Ross Engert.  Their unchallenged evidence is that Ashworth Ventures provided the funds that enabled Green Sky to take up shares in King Island Milk.   That is not surprising, because only Ashworth Ventures had the capital to provide such funds.  This capital came from the proceeds of sale of its packaging business.

[23]     Ashworth  Ventures‟ bank  statements  show  that  it  converted  the  sum  of

$1,548,165.54 into Australian dollars in order to take up the initial tranche of one million shares in King Island Milk.  Mr Marra then reimbursed Ashworth Ventures by making deposits totalling $516,050.02 into the same account on 27 July and

16 August 2001.

[24]     When Green Sky acquired further shares in King Island Milk in May 2002, Mr Marra complied with a request by Mr Engert to pay his contribution of $350,000 into Ashworth Venture‟s bank account.

[25]     The evidence also suggests that Mr Marra was aware that Ashworth Ventures was providing the funds to enable the shares to be purchased.  In an email dated 11

July 2005, four days prior to the date upon which the parties signed the settlement agreement, Mr Marra told Mr Holmes that he “presume[d] the lending stream was from Ashworth”.

[26]     The matter is placed beyond doubt, in my view, by the circumstances that led to the execution of the settlement agreement.   Email communications between Mr Marra  and  Mr  Holmes  at  this  time  show  that  Mr  Marra  was  concerned  at  the prospect  of  signing  a  contractual  document  in  which  he  was  the  borrower  and

Ashworth Ventures Limited was the lender.   He explained his concerns in the following passage from the email dated 11 July 2005 referred to at [25]:

First issue …Lender.  At all times this was a personal arrangement between you and I and I have always understood that as such.  This arrangement was on a handshake and this has never deviated.  We may dispute some issues but we have reached the logical compromise that we have.

To subscribe As[h]worths as lender (and I understand this is because there is a tax setoff that Ross has done) opens two issues.  In writing off [an] amount against me you on your part can be deemed to have “gifted” that amount an[d] taxed accordingly.  On my part that could be deemed as income which I have not declared.  I can live with Ashworth as lender but I would need an indemnity in that.  If you Wayne were to at any time not hold 100% of that company personally then the debt is written off.  One way out of this may be for Ross to rejig the percentages in Green Sky [sic] to reflect an ownership on the basis we have now agreed and you then claim the write off there.  I presume the lending stream was from Ashworth.  This is tidier as it limits the exposure issues I have and the write off issues you have.  (Emphasis added)

[27]    This email led to the inclusion of a clause in the settlement agreement prohibiting the lender from making demand on Mr Marra in the event that Mr Holmes and/or his immediate family were to hold less than 50.1 per cent of all of the issued shares in Ashworth Ventures.[1]

[1] Set out at [72].

[28]     Taken as a whole, the evidence satisfies me that Ashworth Ventures provided the funds that enabled Mr Marra to acquire shares in Green Sky.   Mr Marra also agreed to enter into the settlement agreement dated 15 July 2005 in the knowledge that he was thereby entering into a contractual relationship with Ashworth Ventures, albeit with the protection of the clause referred to above.    For that reason Holmes Capital is now entitled to recover any monies presently owing under the settlement agreement.

2.       Was the settlement agreement supported by consideration?

[29]     When Ashworth Ventures and Mr Marra signed the settlement agreement, Ashworth Ventures was claiming the sum of approximately $3.9 million from Mr Marra.   It based that claim on Mr Holmes‟ belief that Mr Marra owned, and was required to pay for, 50 per cent of the shares in Green Sky.  Under the settlement

agreement Mr Marra was only required to pay to $2 million.  The agreement also

provided Mr Marra with further time to pay that amount.   Effectively, therefore, Ashworth   Ventures   agreed   to   forego   a   claim   for   immediate   payment   of approximately $1.9 million in return for Mr Marra‟s promise to pay the sum of $2 million on 1 July 2007.   The plaintiff therefore contends that it provided valuable consideration for Mr Marra‟s promise.

[30]     Mr Marra argues that he never agreed to acquire 50 per cent of the shares in Green  Sky.   Rather, he only agreed to own one-third of the company‟s  shares. Taking into account the payments he has made, the amount that he owed Mr Holmes as at 15 July 2005 was therefore less than $2 million.  As a result, Mr Marra argues that the settlement agreement was not truly a compromise at all.  Rather, it required him to pay more than he was already obliged to pay in terms of the shares that he owned.   He therefore submits that Ashworth Ventures did not provide any consideration for his promise to pay the sum of $2 million, and that it is not now entitled to enforce the settlement agreement.

[31]     The issue, therefore, is whether a concession to forego a disputed claim can amount to valid consideration.  In this context counsel for Holmes Capital refers me to the following passage from Couch v Branch Investments (1969) Ltd in which Richardson J adopted the following statement of principle by the learned authors of Corbin on Contracts: [2]

[2] Couch v Branch Investments (1969) Ltd [1980] 2 NZLR 314 at 327.

[The person foregoing the claim] must be asserting his claim

„in good faith‟;  but this does not mean that his suit can be won.    It  means  that  he  must  not  be  making  his  claim or threatening suit for purpose of vexation, or in order to realize on its „nuisance value‟.  And if there is no reasonable ground for  making  the  claim  this  fact  generally  justifies  (without going so far as to say that it requires) a finding that the claim was vexatious and made in bad faith.”

Applying  this  principle  to  the  present  case,  it  will  be  sufficient  for  Ashworth Ventures to demonstrate that it advanced its claim for repayment based on the 50/50 share split in good faith, and not in a vexatious manner.   Absence of reasonable grounds for making the claim will indicate that the claim has been made vexatiously

and in bad faith.

[32]     There is no dispute that the parties initially agreed that Mr Holmes was to own two-thirds of the shares in Green Sky, and that Mr Marra was to hold the remaining one-third.  This is consistent with instructions that Mr Holmes evidently gave to his accountants, Staples Rodway, when he sought advice about the corporate structure he should use for the venture.   In a letter dated 11 July 2001, Staples Rodway recorded that Mr Marra (referred to as “Person A”) was to have a one-third shareholding in a new company that was to be set up to acquire shares in the Tasmanian company.  The letter noted that the parties anticipated that “Person A is to eventually move to a 50 % interest in the joint venture”.

[33]     The original one-third/two-thirds share split is also consistent with the fact that Mr Marra reimbursed Ashworth Ventures for one-third of the amount that it had paid to acquire the initial tranche of shares in King Island Milk.

[34]     Mr Holmes says that he and Mr Marra later agreed that Mr Marra would increase his stake in Green Sky to 50 per cent.  Mr Holmes acknowledges that the change in shareholding was never formally documented, and says that this was because of the long-standing relationship between himself and Mr Marra.  He says, however, that the change was reflected in spreadsheets that Mr Engert regularly produced and provided to Mr Marra.  These showed the amount owing by Mr Marra to Ashworth Ventures at any given time.   Mr Engert updated the spreadsheets as Green Sky acquired further shares in King Island Milk.  The spreadsheets calculated Mr Marra‟s  indebtedness on the basis that he owned 50 per cent of the shares in Green Sky.

[35]     Mr Marra denies that he ever agreed to increase his shareholding in Green Sky to 50 per cent.  He relies upon the fact that there is no documentation recording the alleged alteration to the original shareholding arrangement, and points out that Mr Holmes generally took care to ensure that important decisions were appropriately documented.

[36]     I accept that there is no formal documentation confirming that Mr Marra agreed to increase his shareholding in Green Sky to 50 per cent.  There is, however, some support for Mr Holmes‟ stance that Mr Marra agreed to that arrangement at

some point after the acquisition of the initial tranche of one million shares in King

Island Milk.

[37]     This comes from notations that I am satisfied Mr Marra made on a letter dated  23  December  2002  that  he  received  from  Staples  Rodway.    Counsel  for Holmes Capital established during his cross-examination of Mr Marra that Mr Marra had included the letter in his affidavit of documents.   For that reason there is no doubt that he received it. The letter contained the following passage:

I have sent a director‟s consent form for Wayne to sign.  I have also sent to Wayne and Ross the share  transfer forms to transfer  the shares Ross is holding as nominee, 1/3rd to your trust and 2/3rds to Wayne‟s company. Once the share transfer form for your trust is received back I will forward it on to you for signing.

[38]     The letter has three handwritten notations on it.   Two of these are circles around “1/3rd” and “2/3ds” in the third line of the passage set out above.  The third is at the end of the paragraph set out above, and reads “50/50”.  It is clear that Mr Marra made these notations, because on 2 January 2003 he sent the following email to Mr Engert:

I have a letter and change of directors forms to sign from Staples Rodway. In the letter it states that you are holding shares on behalf of wayne and I in the proportions of 2/3 and 1/3rd  respectively.  I thought we had set this up

50/50. Am I missing something here. Regards Paul

[39]     Mr Engert responded on 5 January 2003 as follows:

No you are not missing anything.  The set up of greensky [sic] goes back over a year now at which stage you and Wayne had agreed the 1/3 2/3 split. During the course of the year the understanding changed to 50/50.  I simply need to advise Staples Rodway as they have not been informed.

[40]     Mr Marra sought to explain the wording of his email dated 2 January 2003 by saying that it reflected his cryptic way of asking Mr Engert whether the share split had changed to 50/50.  He denied that it suggested that he believed that he held 50 per cent of the shares in Green Sky.

[41]     I consider, however, that the notations and the email suggest that Mr Marra believed that he owned 50 per cent of the shares in Green Sky, and that the letter from  Staples  Rodway  stating  that  he  only  owned  one-third  of  the  shares  was

incorrect.   That is the only rational explanation for the notations he made on the Staples Rodway letter dated 23 December 2002, and the wording he used in his email dated 2 January 2003.  The response from Mr Engert makes it clear that he, too, believed that the initial arrangement had been altered and that Mr Marra now held 50 per cent of the shares in Green Sky.

[42]     The true position may be that, at some point after Green Sky acquired its initial tranche of shares in King Island Milk, Mr Marra told Mr Holmes that he wished to increase his shareholding to 50 per cent.   That would explain both the email  dated  2  January  2003  and  the  fact  that  Mr  Engert  began  producing spreadsheets based on a 50/50 share split.  At some point thereafter, however, Mr Marra concluded that he could not keep pace with the debt that he was incurring as Green Sky continued to acquire shares in King Island Milk. At that point he decided to revert to the original arrangement under which he only held 33 per cent of the shares in Green Sky.  In doing so, he justified his stance by pointing to the absence of any formal documentation varying the original arrangement.

[43]     It is not necessary to reach any conclusion on this point, because the real issue is whether Mr Holmes believed in good faith that Ashworth Ventures had a valid claim against Mr Marra based on a 50/50 share split.

[44]     I accept the evidence of Mr Holmes and Mr Engert on this point.   I am satisfied that as at 15 July 2005 Mr Holmes and Mr Engert genuinely believed that Mr Marra had agreed to increase his shareholding in Green Sky to 50 per cent, and that they calculated Mr Marra‟s indebtedness to Ashworth Ventures on that basis.  I find that there is objective support for that belief in the notations that Mr Marra made on the Staples Rodway letter dated 23 December 2002, and the email that he sent to Mr Engert on 2 January 2003.   Mr Engert‟s response on 5 January 2003 provides further support for the proposition that Mr Marra agreed to increase his shareholding in Green Sky to 50 per cent at some stage prior to 2 January 2003.

[45]     Furthermore, in October 2002 Ashworth Ventures credited Mr Marra with the sum of $285,500 following the sale of a parcel of shares in Green Sky to a company called Antipodes Consult Limited.  That sum represented one-half of the sale price

achieved in respect of the shares.  Mr Marra contends that Mr Holmes was the owner of that parcel and that, as a result, he was not entitled to receive any credit when the shares were sold.  That assertion is obviously to Mr Marra‟s detriment, because it denies him the benefit of the credit that Mr Holmes is prepared to give him in respect of the sale of the parcel of shares.  The fact that Mr Holmes was prepared to credit Mr Marra with 50 per cent of the sale proceeds confirms, however, that in October

2002 Mr Holmes believed that Mr Marra owned 50 per cent of the shares in Green

Sky.

[46]   The evidence also demonstrates that both parties viewed the settlement agreement as reflecting a compromise of their respective claims against each other. That is not surprising, because both Mr Holmes and Mr Marra raised a wide range of issues relating to Green Sky and the King Island Milk venture in the correspondence that led up the execution of the settlement agreement.  That fact is reflected in the opening clauses of the agreement, which provide:

BACKGROUND

A.     The parties have agreed on a compromise arrangement in settlement of all matters currently in dispute between them and in settlement of a debt owed by the Borrower to the Lender.

B.     The parties wish to record the terms of the compromise arrangement in this agreement. (Emphasis added)

[47]     Secondly, Mr Marra observed in the email dated 11 July 2005 that he and Mr Holmes “may dispute some issues but we have reached the logical compromise that we have”.  He also accepted in evidence that the settlement agreement represented a compromise of the respective stances that he and Mr Holmes held.

[48]     Moreover, on 25 June 2005 Mr Holmes sent Mr Marra an email setting out his understanding of the agreement that he and Mr Marra had reached at a meeting two days earlier. The letter contained the following passage:

A mutually agreed compromise of $2 million, reflective of your current difficulties and predicament has been agreed.  You accept and acknowledge this debt.

[49]     Mr Marra responded to this passage as follows:

Agreed and this is a best endeavours acknowledgement as we discussed.

[50]     For these reasons I do not accept that Ashworth Ventures advanced its claim based on a 50/50 share split on a vexatious or objectively unreasonable basis.  The settlement agreement reflects a compromise of genuine claims made by both parties. Both parties therefore provided valid consideration for the promises that each made in the settlement agreement.

3.       Did Mr Marra enter into the settlement agreement under duress?

[51]     Mr Marra explains that in or about 2001 the Serious Fraud Office (“SFO”) began investigating activities within the New Zealand dairy industry between 1997 and  2001.    At  that  time  Mr  Marra  was  working  for  a  dairy  company  that subsequently merged with other dairy companies to create the company now known as Fonterra.

[52]     In March 2004, Mr Marra was one of eight defendants charged by the SFO with criminal conspiracy charges in relation to allegedly illegal exports of dairy product.  The SFO investigation and subsequent prosecution, colloquially referred to as “Powdergate”, were widely reported in the media.  Mr Marra says he featured on numerous occasions on national television, and that he was referred to in many newspaper and magazine articles published about the case.

[53]     Mr Marra points out that when Mr Holmes began to seek repayment of the advances in mid-2004, media interest in the SFO prosecution was intense.   This placed Mr Marra under enormous stress, and he became fearful for his future and that of his family.   He says that he could not risk the claim entering the public domain, because it would inevitably lead to heightened media interest and result in further pressure being placed on his family.   For this reason he says that he endeavoured to stall Mr Holmes‟ claim for repayment for as long as possible.

[54]     Mr Marra and his co-defendants were committed for trial at a depositions hearing that concluded on 28 May 2005. This was just a few weeks before Mr Marra signed the settlement agreement.  Mr Marra says that the committal hearing attracted substantial media interest.  As a result, he was under very significant pressure at the

time that he negotiated the terms of the settlement agreement.  He says, in fact, that he cannot now remember any of the details of the discussions that he and Mr Holmes held before they eventually signed the agreement.

[55]     Mr  Marra  believes  that  Mr  Holmes  deliberately  timed  his  claim  for repayment so as to maximise the collateral advantage that he was able to obtain as a result of the media pressure on Mr Marra flowing from the criminal prosecution.  Mr Marra says that he eventually concluded that he had no option but to enter into the settlement  agreement,  and  thereby  remove  the  possibility that  the  claim  by Mr Holmes‟ claim might find its way into the media.   He contends that he therefore signed the settlement agreement in circumstances that amounted to duress.

[56]     The law in relation to duress is relatively straightforward.   It involves two essential elements.  First, one party to the contract must exert illegitimate pressure on another.  Second, the imposition of that pressure must have induced or compelled the other party to enter into the contract.[3]

[3] McIntyre v Nemesis DBK Ltd [2010] 1 NZLR 463 at [20].

[57]     It is essential that the pressure in question be illegitimate.  A threat to exert existing  legal  rights,  including  the  right  to  issue  Court  proceedings,  will  not generally amount to illegitimate pressure.   Nor will the fact that the institution of proceedings is likely to attract publicity, because Court proceedings are by their nature generally open to the public.

[58]     When determining both of these issues, the Court is entitled to have regard to all of the circumstances leading up to and following the formation of the contract.

Events leading up to the settlement agreement

[59]     Mr Holmes says that he was acutely aware of the pressure that Mr Marra was under as a result of the criminal prosecution.  For that reason, he did not immediately seek repayment of the advances following the collapse of King Island Milk in late

2003.   Eventually, however, he was required to meet his obligation to Ashworth

Venture‟s shareholders, namely his family, to ensure that steps were taken to recover

the debt.  This motivated him to initiate contact with Mr Marra in mid-2004.   He says that negotiations then continued periodically over the next year.

[60]     Mr   Holmes   acknowledges   that   Mr   Marra   would   have   been   under considerable  stress  during  the  period  immediately prior  to  the  execution  of  the settlement agreement.   He says, however, that the compromise contained in the agreement took into account the difficulties that Mr Marra was facing at that time. Mr Holmes flatly denies that he deliberately timed his approach to Mr Marra so as to take advantage of the pressure that Mr Marra was already under as a result of the criminal prosecution.

[61]     On  this  point,  I accept  Mr  Holmes‟ evidence.    There  is  no  independent evidence to support Mr Marra‟s assertion that Mr Holmes deliberately sought to take advantage of Mr Marra‟s misfortune in the way that Mr Marra alleges.  I accept that Mr Holmes deliberately stayed his hand following the collapse of King Island Milk because he knew that Mr Marra was under significant pressure at that time as a result of the criminal proceedings.  I also accept that Mr Holmes ultimately took steps to recover the debt because he genuinely believed that he had an obligation to his family to recover at least some of the funds lost in the Tasmanian venture.

[62]     The path that the pre-contractual negotiations took is also significant.   Mr Marra and Mr Holmes first met on or about 25 May 2004 to discuss the outstanding debt.  During the meeting, Mr Marra agreed to co-operate in providing information regarding his financial position to Mr Holmes‟ accountant in Melbourne, Mr Damian Kelly.

[63]     Mr Marra subsequently wrote to Mr Holmes on 27 May 2004 setting out several concerns that he held regarding the King Island Milk venture.  He concluded the letter by saying:

I now have the current issues with this bloody SFO thing that is now only exacerbating the position further.  I am attempting under these conditions to establish a business that will not only give me some future earnings but allow me to retire debt in some way.   That may necessitate me moving offshore as I cannot see me being able to operate in NZ anymore.

As I said at the meeting if I can get myself in a position to accumulate some value I can then undertake to pay you some money back.  At the moment I have borrowed to get things moving I don‟t have the surplus assets to spring to fund such an undertaking at the moment.

I am happy to work though with Damien [Kelly] in terms of my position. The issues above a real to me and in analysis in percentage terms I have lost more than anybody.

Friendship is important to me  also, we have  been thru  [sic] hard times together.  I have a process to go thru [sic] at the moment where it gets to who knows, but one thing is for sure it has and will have a long term effect on my life.

[64]     Mr Holmes responded on 1 June 2004 by saying:

Thanks for your 27th May response.

I understand your position.  That is the reason I am following the approach of devising a way forward that recognize‟s (sic) the substantial setback and suffering we have both endured as a result of K.I.M.  I too have issues as a consequence of K.I.M.

However,  for  this  approach  to  work  it  is  essential  that  we  are  both completely open and honest.

I have spoken and corresponded with Damian.  He will contact you shortly.

I will be offshore for five weeks on a consultancy engagement in the packaging industry from next Monday.

[65]     There was then a delay until 14 December 2004, when Mr Kelly contacted Mr Marra seeking information about his financial position so as “to assist in the orderly settlement of matters outstanding with Wayne Holmes/Ashworth Ventures Limited”.  Mr Marra did not respond to that letter, so Mr Kelly sent a follow up letter on 28 January 2005.  The letter concluded by advising Mr Marra that, if he did not provide  the  requested  information  before  4  February  2005,  “Wayne Holmes/Ashworth Ventures Limited intends instructing a barrister to act to collect the outstanding debt”.

[66]     Mr Marra did not respond to this letter either.  Matters then appear to have drifted again until 17 June 2004.  On that date Mr Howard Keyte QC wrote to Mr Marra advising him that he had been instructed to represent Ashworth Ventures and Mr Holmes to issue proceedings to recover the total sum of $3,972,253.89 together with accrued interest.  Mr Keyte concluded his letter by advising Mr Marra that he

was authorised to enter into negotiations to find a solution that might be acceptable to both Mr Marra and Mr Holmes.  He indicated, however, that proceedings would be issued unless that occurred within two weeks.

[67]     Mr Keyte‟s letter galvanised Mr Marra into action.  He and Mr Holmes met approximately a week later, on 23 June 2005, at Sky City Hotel in Auckland. At that meeting they negotiated a settlement of all outstanding issues.  Mr Holmes explained his understanding of the agreement they had reached in an email that he sent to Mr Marra on 25 June 2005.

[68]     Mr Marra responded by returning the email to Mr Holmes with his comments attached to the end of each paragraph.  The email that accompanied the return of the document stated “we are agreed”.  Included in Mr Marrra‟s response to Mr Holmes‟ letter dated 25 June 2005 was the following passage:

Wayne, you agreed that I had advised you several times that I could not keep pace with the buying of shares you initiated.  The 50/50 was a driver from you not agreed on my part.  I had raised this with you and Ross a number of times.  If we are going to sign off on things this aspect along with my cost of moving to Melbourne needs to be also acknowledged.

[69]     Mr Holmes responded to this passage on 28 June 2005 as follows:

Without wishing to create difficulties, I do not accept your position on the

50:50 issue or on anything other than the fact that we are each 50% owners in our share of Greensky [sic]..  The fact that I and my family have foregone nearly $1 million of capital in recognition of your endeavours in Australia and your difficulties with the S.F.O. should tell you that we are very understanding of your position.  In addition, the last $2.5 million I injected into King Island was my own money – not ours.  Let‟s not keep banging on about things we can‟t change.

[70]     On 7 July 2005 Mr Holmes‟ solicitor, Mr Firth, sent Mr Marra a draft deed of settlement.  Mr Marra responded to the draft deed in a detailed email that he sent to Mr Holmes on 8 July 2005.   The email commenced by saying “It looks like the lawyers can‟t help themselves”.

[71]     In the email Mr Marra objected to the insertion of Ashworth Ventures Limited as lender in the draft agreement.  Mr Firth responded to these comments in an email he sent to Mr Marra later the same day. This included the following passage:

The money advanced to you was advanced by Ashworth Ventures Limited which is a company owned and entirely controlled by Wayne.  It would be prejudicial to Wayne if the settlement arrangement was not made with that company.   The obligations of the parties are dictated by the settlement arrangement not by the nature of the lending entity.   Ashworth Ventures Limited must remain as the Lender.

[72] Mr Marra replied on 11 July 2005 as set out above at [26]. Mr Firth responded on the same day by sending Mr Marra an amended agreement that contained the following clause:

10.      In the event that, before the Settlement Amount is paid in full, the shareholding in the Lender held by Wayne Douglas Holmes or his immediate family being Wendy Joanne Holmes, Eileen Holmes, Martin Wayne Holmes, Ryan  Joseph  Ashworth  Holmes,  Sarah  Louise  Lunn  and  Joy  Louise Shipgood  or  by  the  Trustees  of  any  associated  Trust  of  which  Wayne Douglas Holmes or his immediate family shall be a beneficiary falls below

50.1% of all the Lender‟s issued shares the Lender will not make demand on the  Borrower  or  the  Borrower‟s  estate  for  the  difference  between  the

Settlement Amount and the proceeds of sale of the Vessel.

[73]     Mr Marra objected to several aspects of the amended agreement.  He sent it back to Mr Firth by facsimile on 15 July 2005 with several handwritten deletions and additions noted thereon.   The final form of the agreement that the parties signed on

15 July 2005 reflected virtually all of the variations that Mr Marra had sought.

[74]     Several comments can be made about the circumstances leading up to the execution  of  the  agreement.     First,  there  is  no  suggestion  in  any  of  the correspondence that Mr Holmes was placing illegitimate pressure on Mr Marra. Rather, it appears that he was sensitive to the fact that Mr Marra was under pressure, and he was anxious to accommodate Mr Marra‟s circumstances so far as possible.

[75] Second, the settlement agreement was the culmination of extensive and reasonably protracted negotiations in which Mr Marra forcefully raised points that he believed to be important to the negotiations. Importantly, he recognised the difficulties that might arise in the event that Mr Holmes or his family elected not to retain control of Ashworth Ventures Limited. This led to concessions by Mr Holmes, including the insertion of the clause set out above at [72].

[76]     Third, the email exchanges between the parties make it clear that they were involved in arm‟s length commercial negotiations that led to the compromise of several significant areas of dispute.   On this point I accept Mr Marra‟s evidence that he did not have the means to instruct a solicitor to assist him in his negotiations with Mr Holmes.  I do not consider, however, that this placed him at a disadvantage.  His business experience had equipped him well for negotiating an agreement of this type. The end result was, in essence, a simple agreement that had as its essential element Mr Marra‟s acknowledgement that he would pay a reduced sum in two years time.

[77]     The only contentious legal aspect of the agreement related to Mr Marra‟s position if Mr Holmes and/or his family were to relinquish control of Ashworth Ventures.  In that event Mr Marra would be exposed to the possibility that the new owner of the company would require him to repay the debt in full.  Mr Marra was alert to this possibility, and succeeded in having cl 10 inserted into the agreement to protect his position in this eventuality.

[78]     It is also unlikely that the assistance of a solicitor would have provided Mr Marra with greater protection against the consequences in the event that he defaulted in making the payment due on 1 July 2007.  In that event, the settlement agreement did not entitle Ashworth Ventures to impose any particular sanction on him.   The agreement did not even permit it to commence charging interest on the outstanding amount.  Instead, it provided only that Ashworth Ventures would “review Mr Marra‟s circumstances” again in the event that he defaulted in his obligations.

[79]     The  correspondence  suggests  that  Mr  Marra  was  fully  in  control  of  the situation during his negotiations with Mr Holmes and Mr Firth, and that he was determined to produce an outcome that was acceptable to him.   The terms of the settlement agreement reflect that determination.  They do not suggest that Mr Marra entered into the settlement agreement in circumstances where he was subject to illegitimate pressure from Mr Holmes, or where he was compelled to enter into an agreement that he would not otherwise have entered into.

Events following execution of the agreement

[80]     The events that followed the execution of the settlement agreement provide no hint that Mr Marra regretted signing it.  He duly handed over his boat in August

2005, and Mr Holmes then took steps to sell it.  The sale was finalised in October

2006, and realised the net sum of $267,952.00.  On 16 February 2007 Mr Holmes wrote to Mr Marra advising him that the amount that he was due to pay by 1 July

2007 had been reduced to $1,732,048.00.

[81]     By May 2007 Mr Marra obviously had concerns regarding his ability to make the payment due on 1 July.  He contacted Mr Holmes to discuss this issue, and on 24

May 2007 Mr Holmes sent him an email containing the following comment:

I‟m happy to meet with you to discuss a way forward; remembering that I reached a reduced compromise with you and then delayed settlement substantially to accommodate your S.F.O case.

Either way, I want to reach a final conclusion this time round so we can both move on and put [King Island] behind us, finally.

[82]     During June 2007 Mr Marra and Mr Holmes exchanged emails regarding alternative ways in which Mr Marra might be able to meet the outstanding debt.  On

23  June  2007  Mr  Marra  sent  Mr  Holmes  an  email  containing  the  following statements:

I firmly believe and David concurs that we have turned the corner on this. We have significant orders coming in and will continue to do so over the next 2-3 years.

If I can get a lump sum in you will get that.   Otherwise the strategy we discussed in Rotorua is achievable, tough but doable.

I have appreciated the support from you and others believe you me I can count that on one hand.  It always amazes me how short peoples memory is. There have been a lot of people and Companies who have come to me in the past for a help out. All duly given in fairness but sadly not returned over the last episode in my life.

[83]     Three days after Mr Marra defaulted in making the payment due on 1 July

2007, Mr Holmes‟ solicitors formally demanded payment of the outstanding balance of $1,732.048.  They concluded their letter by advising Mr Marra that, if he did not

pay  the  amount  outstanding  by  9  July  2007,  they  were  instructed  to  issue proceedings immediately.

[84]     Further emails then passed between Mr Marra and Mr Holmes‟ solicitors in early  November  2007.    This  led  to  Mr  Holmes‟ solicitors  preparing  a  further agreement that Mr Marra signed on 6 November 2007.  This provided for Mr Marra to pay the outstanding debt as follows:

a)      The sum of $100,000 by noon on 9 November 2007;

b)12  equal  calendar  monthly  payments  of  $20,000  each  over  the following 12 months commencing with a payment on 9 January 2008;

c)      The sum of $1,392,018 on 9 December 2008.

[85]     Mr Marra made the payment of $100,000 that was due on 9 November 2007, and he also made seven further payments of $20,000 each.   This meant that he reduced the debt by a total sum of $240,000.  In the second half of 2008, however, he fell behind in his monthly payments.  On 15 October 2008 he wrote to Mr Holmes and said:

With the current economic downturn over the last 5 months our cash flow has  been  severely affected  as  manufacturers  have pushed out forecasted orders as far as they can and have wound their current stocks to a minimum. This has unfortunately made it impossible to make the last two payments.

…

I remain committed to honouring the agreement as I have always done but need more time to stabilise under these economic conditions.  I am confident the underlying value in the business will enable us to get to the outcome in the future.

[86]     All  of  the  dealings  between  the  parties  following  the  execution  of  the settlement agreement on 15 July 2005 suggest that Mr Marra continued to accept his obligations to meet the sum payable under the settlement agreement.   He did not challenge the validity of that agreement in any way until Holms Capital issued this proceeding.  In particular, Mr Marra did not raise any allegation relating to duress

until he filed his affidavit in opposition to Holmes Capital‟s application for summary judgment.

[87]     These factors persuade me that Mr Marra did not enter into the settlement agreement under circumstances that amounted to duress.   Rather, he deliberately elected to compromise a commercial dispute in a manner that produced positive benefits for him.  It was not until he was unable to meet his obligations under the agreement that he took refuge in the allegation of duress.

Other matters

[88]     During the hearing, Mr Marra candidly acknowledged that he is seeking to use  the  present  proceeding  to  obtain  a  further  opportunity  to  renegotiate  the agreement that he reached with Mr Holmes in July 2005.   If given the chance, he will raise several issues, including the circumstances in which he agreed to re-locate to Melbourne in late 2002 or early 2003 in an effort to save King Island Milk.

[89]     In particular, Mr Marra believes that Mr Holmes has failed to honour an undertaking that he gave Mr Marra at that time.   This was to the effect that Mr Holmes would ensure that Mr Marra did not suffer financially as a result of his re- location to Australia.  Mr Marra believes that Mr Holmes has failed to make good financial losses that Mr Marra suffered on two fronts.  First, King Island Milk did not pay Mr Marra the salary to which he was entitled in the final months before the company  collapsed.    Secondly,  Mr  Marra  suffered  a  significant  financial  loss because he was forced to abandon lucrative contracts when he left New Zealand.

[90]     Mr Marra also considers that the settlement agreement does not adequately recognise the “sweat equity” that he contributed to the venture.   In addition, he believes that Mr Holmes and Mr Engert deliberately structured the King Island Milk venture in a manner that enabled Mr Holmes to claim significant tax losses whilst other investors could not.

[91]     As I advised Mr Marra during the hearing, it is not possible for me to have regard to those matters in determining the present proceeding.   They involve Mr

Marra and Mr Holmes (and possibly Green Sky).   They do not involve Holmes

Capital.

[92]     Even if they did involve Holmes Capital, the issues that Mr Marra now wishes to raise were expressly discussed in the negotiations that led to the execution of the settlement agreement.  For that reason, it is arguable that they were effectively compromised once the parties entered into the settlement agreement.  Given the fact that the claims relate to events that occurred in 2002 and 2003, it is also arguable that they are now barred by the provisions of the Limitation Act 1950.

Result

[93]     I enter judgment in favour of Holmes Capital in the sum of $1,492,048, together with interest in accordance with the provisions of the Judicature Act 1908 in respect of the period between 22 December 2008 and the date of judgment.

Costs

[94]   The plaintiff is entitled to costs on a Category 2B basis together with disbursements as fixed by the Registrar.

Lang J

Solicitors:

Gilbert Walker, Auckland

Copy to: Defendant