Jacquet v Yarrow
[2015] NZHC 2873
•18 November 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-665 [2015] NZHC 2873
BETWEEN JEAN PHILLIPPE THADDEE JACQUET AND ESTHER TCHOUA JACQUET AS TRUSTEES OF THE ESTHER
JACQUET FAMILY TRUST AND JEAN PHILLIPPE THADDEE JACQUET AND TREVOR KEITH BOSS AS TRUSTEES OF THE JEAN PHILLIPPE THADDEE JACQUET FAMILY TRUST AND JEAN PHILLIPPE THADDEE JACQUET AND ESTHER TCHOUA JACQUET PERSONALLY
First Plaintiffs
TREVOR KEITH BOSS AND BRIAN ERSKINE-SHAW AS TRUSTEES OF THE TREVOR BOSS FAMILY TRUST Second Plaintiffs
Continued over
Hearing: 30 September 2015 Appearances:
G J Judd QC for Plaintiffs
B J Mills for DefendantsJudgment:
18 November 2015
JUDGMENT OF M PETERS J
This judgment was delivered by Justice M Peters on 18 November 2015 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ...................................
JACQUET v YARROW [2015] NZHC 2873 [18 November 2015]
ANDPAUL STEVEN YARROW First Defendant
PAUL STEVEN YARROW, MICHAEL CHANEL FINNIGAN AND SALVATORE RUSSO AS TRUSTEES OF THE PS YARROW FAMILY TRUST (NO 2)
Second Defendants
The application
[1] The Plaintiffs seek summary judgment in respect of sums said to be due from the Defendants pursuant to a Deed of Guarantee and Indemnity dated 25 August
2006 (“guarantee”).1
[2] Only Mr Yarrow, the First Defendant and the first named of the Second Defendants (sued as trustees of the PS Yarrow Family Trust (No 2) – “trust”), has opposed the substance of the Plaintiffs’ application.
[3] The Plaintiffs have discontinued against Mr Russo, one of the Second
Defendants.
[4] Mr Finnigan, another of the Second Defendants, has applied to have the proceeding against him struck out on the ground that any liability he might have is limited to the net assets of the trust in his hands and that he no longer holds any such assets.2 Mr Yarrow has not disputed Mr Finnigan’s evidence on this issue. Accordingly, and subject to matters referred to in counsel’s submissions dated
7 September 2015, I grant Mr Finnigan’s application but reserve the matter of costs.3
[5] High Court Rules, r 12.2(1) provides:
12.2Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[6] In Krukziener v Hanover Finance Ltd guidance was given as to how the
Court is to determine an application for summary judgment by a plaintiff:4
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried:
1 Notice of Interlocutory Application by Plaintiffs for Order for Summary Judgment dated
12 March 2015, and Affidavit of T K Boss sworn 12 March 2015 at Exhibit “E”.
2 Notice of Interlocutory Application on Notice by the Second-Named Second Defendant dated
31 July 2015.
3 Submissions in support of Summary Judgment Application and in opposition to Mr Finnigan’s
Application to Strike Out dated 7 September 2015 at [44].
4 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11
PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
Summary
[7] The Plaintiffs hold redeemable preference shares (“RPS”) in Gilles Bakery Limited (“GBL”). There is no dispute that in August 2012 they gave notice to GBL to redeem the RPS, that they were entitled to give notice as they did and that GBL did not redeem. The issue is whether Mr Yarrow, personally and as trustee of the trust, is liable to the Plaintiffs under the guarantee for the sum otherwise due from GBL.
[8] Mr Yarrow submits that he has several arguable defences to the Plaintiffs’
claim, both as First and Second Defendant.
Background
[9] Prior to 2001, Jean Phillippe Thaddee Jacquet and Trevor Keith Boss (“Mr Jacquet” and “Mr Boss”, two of the Plaintiffs) were the sole directors and shareholders of GBL. GBL was a commercial bakery, baking bread under contract for Yarrows (The Bakers) Limited (“YTB”).
[10] In or about 2001, Mr Jacquet and Mr Boss sold 75 per cent of the shares in GBL to YTB. Thereafter Mr Jacquet and Mr Boss continued as directors of GBL and operated the business as they had previously.
[11] As of 2006 the Plaintiffs, which are interests associated with Mr and Mrs Jacquet and Mr Boss, held the remaining 25 per cent of the shares in GBL. They agreed to sell these shares to GBL on the terms of an “Agreement for Sale and
Purchase of Shares and to Issue Redeemable Preference Shares in Gilles Bakery Limited” dated 30 June 2006 between the Plaintiffs as vendors, GBL as purchaser and YTB as Majority Shareholder (“agreement”).5
[12] The agreed price was $2,250,000, to be satisfied by GBL issuing 2,250,000
RPS at $1 each to the Plaintiffs, credited as fully paid.
[13] GBL subsequently issued the RPS, of which the Plaintiffs were entitled to redeem up to 700,000 after 1 July 2006 and the balance after 1 July 2012.
Guarantee
[14] It was a term of the agreement that, on or prior to the date of settlement
(31 August 2006), YTB would:6
3.4... procure a valid and enforceable guarantee of [GBL’s] obligations in respect of redemptions of the RPS to be executed in favour of the Vendors by all of:
Paul Steven Yarrow
...
The trustees of the P.S. Yarrow Family Trust (No. 2) ...
[15] That guarantee (being the guarantee on which the Plaintiffs rely), was obtained not only from Mr Yarrow and the then trustees, but also from YTB and several related entities (together the “guarantors”). By the terms of the guarantee, each guarantor agreed to pay the Plaintiffs the sum due from GBL if GBL failed to redeem as required. This liability was joint and several and arose immediately on
demand.7
Deed
[16] In 2007 the parties restructured part of the earlier transaction by a “Deed of
Settlement of Claims for Relief under the Contractual Mistakes Act 1977 and
Section 56 of the Companies Act 1993” dated 10 April 2007 (“deed”).8
5 Affidavit of T K Boss, above n 1, Exhibit “A”.
6 At [3.4].
7 At Exhibit “E” at [1.3], [2.1], [2.2] and [2.3].
8 Affidavit of T K Boss in reply sworn 30 July 2015 at Exhibit “A”.
[17] The effect of the deed was first to “unwind” the Plaintiffs’ sale of their shares to GBL; secondly to substitute a sale to YTB for $2,250,000 with GBL making an advance of that amount to YTB; and thirdly for the Plaintiffs to apply the $2,250,000 to acquire the RPS.
[18] The parties to the deed also “ratified and confirmed and validated” the issue and paying up of the RPS; the terms of issue; and the redemption of 670,000 of the RPS which had already taken place.9 The parties also “ratified and confirmed and validated … and expressly affirmed” the guarantee.10
Notices to redeem
[19] By notices dated 3 August 2012, each of the Plaintiffs gave notice to GBL to redeem the balance of their RPS at a value of $1.1621734 per RPS as of 1 August
2012.11 GBL did not redeem.
[20] By letter dated 11 July 2014, the Plaintiffs made demand of Mr Yarrow and the trustees under the guarantee for the sums due from GBL.12 The demand was not met.
Discussion
[21] As I have said, the Plaintiffs’ case is that Mr Yarrow is liable to them under the guarantee for the sum due from GBL to redeem the RPS. In particular, the Plaintiffs’ case is that the sum due from GBL on redemption of the RPS constitutes “Guaranteed Indebtedness” under the guarantee, the payment of which Mr Yarrow “unconditionally and irrevocably” guaranteed.13 Guaranteed Indebtedness is defined in the guarantee as follows, where the Lender and Debtor are the Plaintiffs and GBL respectively:14
“Guaranteed Indebtedness” means any indebtedness of the Debtor owed now or at any future time to any one or more of the persons comprising the Lender in respect of any amount then validly due for the redemption of any
9 At [3.5].
10 At [3.6].
11 Affidavit of T K Boss, above n 1, at Exhibit “F”.
12 At Exhibit “G”.
13 At Exhibit “E” at [2.1].
14 At Exhibit “E” at [1.1].
of 2,250,000 RPS issued by the Debtor to the persons comprising the Lender in or about August 2006.
[22] I accept the Plaintiffs’ submission as a matter of principle, and turn now to
the matters raised in Mr Yarrow’s notice of opposition.15
Actions of Mr Finnigan
[23] Mr Finnigan, to whom I have referred at the beginning of this judgment, executed the agreement, guarantee and deed on Mr Yarrow’s behalf pursuant to a Power of Attorney dated 20 September 2000 (“power”).16 Mr Finnigan, an accountant, was a director or YTB and other YTB Group companies, and was closely involved in YTB’s affairs for many years.
[24] Mr Yarrow submits that, in executing the documents to which I have referred, Mr Finnigan was perpetrating “a systematic fraud” on Mr Yarrow, the trustees and the Plaintiffs, and thus the guarantee is unenforceable by reason of the maxim “fraud unravels all”.17
[25] Mr Finnigan denies perpetrating any fraud on Mr Yarrow at any time and in any capacity whatsoever. The important point for present circumstances, however, is that there is no suggestion that the Plaintiffs were on notice of the fraud that Mr Yarrow alleges. In those circumstances, I accept the Plaintiffs’ submission that any dispute between Mr Yarrow and Mr Finnigan is irrelevant to Mr Yarrow’s liability to the Plaintiffs.
RPS transaction declared void
[26] The next ground on which Mr Yarrow relies is as follows:18
(c) There can be no liability under the RPS transaction because the parties declared it to be void [by the deed]: see Gilles Bakery Limited & Ors v Gillespie & Ors.
15 Amended Notice of Opposition to Plaintiff ’s Application for Summary Judgment dated
11 August 2015.
16 Affidavit of P S Yarrow sworn 17 July 2015 at “PSY 1”.
17 Amended Notice of Opposition to Plaintiff ’s Application for Summary Judgment, above n 15, at
[2](b).
18 At 2(c) and (d) (footnotes omitted).
(d) The transaction for which the plaintiffs seek recovery under the guarantee is not the RPS transaction but instead a new transaction.
[27] Gilles Bakery Limited & Ors v Gillespie & Ors was a proceeding brought by GBL and the (present) Plaintiffs against directors of YTB and others in respect of security given to YTB’s bank. Associate Judge Abbott entered summary judgment for the defendants, against which GBL and the Plaintiffs appealed unsuccessfully.19
[28] In the course of describing the transactions as between the Plaintiffs, GBL
and YTB, the Court of Appeal said:20
[9] On 10 April 2007, the parties [entered] into a Deed of Settlement to address a potential tax liability resulting from the 30 June 2006 sale to Gilles of the remaining 25 per cent shareholding. The deed declared that sale void and substituted a sale to Yarrows on the same terms. Thus, Yarrows became the holder of all the ordinary shares in Gilles.
[29] Nothing turns on that statement in the present case. As the Plaintiffs submit, the issue is whether the sum due from GBL to the Plaintiffs constitutes “Guaranteed Indebtedness” under the guarantee and, if so, whether Mr Yarrow continues to be liable under the guarantee in the capacities in which he is sued. The grounds relied on by Mr Yarrow in [2](c) and (d) of the Notice of Opposition do not bear on that point.
Clause 3.13 of the deed
[30] Mr Yarrow also relies on clause 3.13 of the deed which provides:21
3.13Deed does not bind any party until executed by each and every party
This Deed does not bind any party until executed by or on behalf of each and every named party.
[31] Counsel for Mr Yarrow submits that the deed did not take effect because it was not (validly) executed by YTB.
19 Gilles Bakery Ltd & Ors v Gillespie & Ors [2015] NZCA 93, [2015] NZCCLR 9.
20 At [9].
21 Affidavit of T K Boss in reply, above n 8, Exhibit “A” at [3.13].
[32] YTB was able to enter into the deed by the signature of two of its directors. It appears from the execution page of the deed that Mr Finnigan has signed for YTB; that pursuant to the power Mr Finnigan has signed for Mr Yarrow who was also a director of YTB (it being conceded that such execution could not bind YTB); and that a Mr Duncan, also a director of YTB, has executed the deed at the place for execution for YTB. Mr Duncan swore an affidavit in the earlier proceeding to which
I have referred in which he discusses the execution of the deed.22 Without more I
propose to proceed on the basis that Mr Duncan’s signature, coupled with
Mr Finnigan’s, was effective to bind YTB.
[33] But in any event, I am not persuaded that this point assists Mr Yarrow. If the deed did not take effect, the agreement would subsist and likewise Mr Yarrow’s liability under the guarantee.
Proper exercise of power
[34] The next ground on which Mr Yarrow relies goes to his liability as trustee. Mr Yarrow contends:23
(j) … there is no or insufficient evidence to support the contention that [Mr Yarrow] was out of New Zealand at the time [Mr] Finnigan exercised the [power] under which he purported to sign the [guarantee].
[35] The terms of the power permitted Mr Finnigan to execute a document for
Mr Yarrow as trustee only if Mr Yarrow were out of New Zealand.
[36] Counsel submits it is possible that Mr Yarrow was in New Zealand when the guarantee was executed and, if so, Mr Finnigan’s execution might then be void as against the Plaintiffs. In support of this submission, counsel referred me to the word processing “footer” on the guarantee, which suggests that the document was edited
or printed on 22 August 2006. Mr Yarrow left New Zealand on 24 August 2006.24
The (executed) guarantee is dated 25 August 2006.
22 Affidavit of T K Boss Arising from Amended Notice of Opposition of First Defendant sworn
1 September 2015 at [4].
23 Amended Notice of Opposition to Plaintiff ’s Application for Summary Judgment, above n 15, at
[2](j).
24 Affidavit of P S Yarrow, above n 16, at [9].
[37] I did not hear submissions as to whether Mr Yarrow’s liability under the guarantee as trustee might be affected if he were able to establish that he was in New Zealand at the date the guarantee was executed. On the evidence before me, however, the guarantee was executed on 25 August 2006. I do not propose to question whether it was indeed executed on that date in the absence of evidence suggesting it may have been. It has been open to Mr Yarrow to make further enquiries on this point if he wished and there is no evidence that he has done so.
Authorisation of the RPS transaction
[38] The final ground relied upon in Mr Yarrow’s notice of opposition is:25
(k) There is no or insufficient evidence to establish that the relevant RPS transaction was properly authorised. Such authorisations as are recorded in the relevant agreement relate to the first, avoided transaction. The defendants are strangers to the second transaction and did not guarantee it.
[39] I do not consider there is anything in this point. On the face of the documents the issue of the RPS was effective. No submission was made as to why it may not have been.
Residual discretion
[40] Lastly, Mr Yarrow submitted that I should decline to enter judgment in the exercise of residual discretion because of the allegations of fraud made against (and denied by) Mr Finnigan and because the Defendants “are not aware of all documents and matters that may be relevant”.
[41] As I have said, any dispute between Mr Yarrow and Mr Finnigan is irrelevant to such liability as Mr Yarrow may have to the Plaintiffs. Moreover, there is no evidence that Mr Yarrow has sought, let alone been denied, access to documents and records which may be relevant to the Plaintiffs’ claim against him. Being satisfied the Plaintiffs’ claim is made out, I decline to exercise such discretion as I may have
(if any) to decline the Plaintiffs’ application.
25 Amended Notice of Opposition to Plaintiff ’s Application for Summary Judgment, above n 15, at
[2](k).
Judgment
[42] In their statement of claim the Plaintiffs seek judgment as follows:26
(a) The value of the [RPS] as set out in the attached schedule totalling [as to the First Plaintiffs $1,828,498.25 and as to the Second Plaintiffs $647,256.02] as at 31 March 2014.
(b) Imputed dividends from 31 March 2014, in accordance with clause 3 of the [agreement].
(c) Interest accumulating from 31 March 2014 to the date of settlement or payment.
[43] At the conclusion of the hearing, counsel for the Plaintiffs submitted that I should enter judgment in these amounts, with quantum to be fixed by the Court in the absence of agreement.
[44] The agreement contains detailed provisions as to the calculation of the sum due from GBL on redemption. There is no evidence before me as to the manner in which the Plaintiffs have calculated the sums in (a) above, nor the precise provision within clause 3 of the agreement relied upon in respect of dividends. Nor is it apparent whether interest is sought under the agreement or the Judicature Act 1908. Once those matters are addressed it will be necessary to ensure that Mr Yarrow’s liability under the guarantee is commensurate with GBL’s in all respects, and to ensure that all formal steps required on redemption are undertaken on receipt of payment.
[45] For these reasons, I enter judgment for the Plaintiffs as to liability only.
[46] Counsel are to liaise as to quantum and file a consent memorandum as to the same or, in the absence of agreement, memoranda setting out their respective positions and identifying precisely the provisions of the contractual documents on which they rely. The memorandum or memoranda are to be filed and served no later
than 3 pm, 2 December 2015.
26 Statement of Claim dated 12 March 2015 at 7 and 8.
Costs
[47] The Plaintiffs are to have costs from Mr Yarrow on a 2B basis, together with all necessary disbursements, to be fixed by the Registrar in the event of dispute.
[48] I expect the Plaintiffs and Mr Finnigan will be able to agree the matter of costs but they may file brief submissions if they are unable to do so, again by 3 pm,
2 December 2015.
..................................................................
M Peters J
Solicitors: Ken J Patterson, Tauranga
Dukeson Business Law, Auckland
Counsel: G J Judd QC, Auckland
B J Mills, Auckland