Olliver v Mulholland
[2013] NZHC 3334
•12 December 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2013-404-004285 [2013] NZHC 3334
BETWEEN ANDREW JOHN OLLIVER
TINA ANNE MARIA OLLIVER Appellants
AND
WILLIAM FREDERICK MULHOLLAND Respondent
Hearing: 5 December 2013 Appearances:
P J Kennelly for the Appellants
S H Barter for the RespondentJudgment:
12 December 2013
JUDGMENT OF GILBERT J
This judgment is delivered by me on 12 December 2013 at 12.00 pm pursuant to Rule 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
Date: …………………..
OLLIVER v MULHOLLAND [2013] NZHC 3334 [12 December 2013]
Introduction
[1] Mr Olliver appeals against a decision of Judge B A Gibson in the District Court at North Shore entering judgment against him in favour of Mr Mulholland for $100,000 plus interest being the amount due under a signed loan agreement.1 The Judge rejected Mr Olliver’s defences of total failure of consideration and duress. Mr Mulholland cross-appeals against the interest award. Mr and Mrs Olliver also appeal against the Judge’s dismissal of their counterclaims
that Mr Mulholland is indebted to them under two share purchase option agreements allegedly exercised by Mr Mulholland in 2003.
[2] The dispute arises out of the parties’ participation as shareholders of various companies that were established to provide funds management, mortgage broking, and related financial services. Mr and Mrs Olliver incorporated the first of these companies, Midland Funds Management Limited (MFM), in March 2002 with the intention of managing funds on behalf of investors. Mr and Mrs Olliver each held
500 shares in MFM on incorporation.
[3] Mr Mulholland purchased 100 shares in MFM for $80,000 in July 2002 and at the same time entered into a share option agreement entitling him to purchase a further 100 shares at $1,000 per share at any time before 1 August 2003. In November 2002, Mr Mulholland purchased an additional 100 shares in MFM for
$80,000 and entered into a second share option agreement for another 100 shares at
$1,000 per share, exercisable before 4 November 2003.
[4] Other companies in the group were: Midland Services Limited (MSL), incorporated on 16 August 2002 as a service company to fund various payments for MFM; New Zealand Home Loans Albany Limited (NZHL), established on
20 January 2003 to provide home loans; and Midland Funds Management Nominees
Limited, formed on 10 November 2004 to act as a nominee company lender.
[5] The original intention was that a unit trust would be registered to enable
MFM to act as a fund manager for members of the public who wished to invest.
1 Mulholland v Olliver DC North Shore CIV-2009-044-001099 & CIV-2009-044-001688, 27 August
2013.
This did not occur and although significant resources were committed to it, MFM was not ultimately successful. MSL was not intended as a profit making venture, merely a service company. The only company in the group that did perform well was NZHL which earned a margin on mortgage lending funded by Sovereign Financial Services.
[6] The relationship between Mr Olliver and Mr Mulholland soured in late 2005 and they agreed to separate their interests on terms agreed at a meeting held at the offices of the Ollivers’ accountant on 12 July 2006. Mr Mulholland and his family trust agreed to purchase the shares held by the Ollivers and their family trust in all four companies and assume all liabilities in return for a payment of $155,000. This figure was arrived at by applying an agreed value to the shares in NZHL, assessing the liabilities to be assumed by Mr Mulholland, and taking into account advances made by the Ollivers and the drawings they had received. The resulting figure of
$155,000 was based on draft financial statements for the year ended 31 March 2006 prepared by the Ollivers’ accountant. The agreement was subject to there being no major variations between the draft and the final accounts.
[7] Final accounts were prepared by the Ollivers’ accountant which showed that
the amount due to Mr Olliver on his loan account with MSL was $20,200, not
$136,289 as shown in the draft accounts. As a result of this, the parties agreed to reduce the purchase price by a similar amount from $115,000 to $40,000. This was insufficient to enable Mr Olliver to establish his new factoring business and accordingly Mr Mulholland agreed to lend him the sum of $100,000 for a term of eight months from 16 August 2006 on terms set out in a loan agreement which they both signed.
[8] Mr Olliver made proposals for repayment of the loan in early 2007 and again in early 2008 but nothing came of these. Mr Mulholland therefore issued proceedings in the North Shore District Court in April 2009 claiming $100,000 plus interest. Mr Olliver responded with a counterclaim for $100,000 plus interest alleging that Mr Mulholland had exercised the share option agreements in 2003. Mrs Olliver commenced a separate proceeding claiming the balance of $100,000 allegedly due under those agreements. Separate claims were made reflecting the fact
that Mr and Mrs Olliver were both parties to each of the share option agreements and the intention was that half of the shares would come from each of them.
[9] After a three day hearing in the District Court at North Shore, the Judge entered judgment for Mr Mulholland on the loan agreement in the sum of $100,000. However, the Judge found that the interest provision in the loan agreement was void for uncertainty and he accordingly awarded interest at the rate prescribed by the District Courts Act 1947 from the date of commencement of the proceeding. The Judge also found that Mr Mulholland had not exercised his option under either of the share option agreements and he therefore entered judgment for Mr Mulholland on the Ollivers’ claims.
[10] The issues to be determined on this appeal are whether the Judge erred in finding that:
(a) Mr Mulholland did not exercise the share options; (b) there was consideration for the loan agreement;
(c) Mr Olliver’s duress defence was not available; and
(d)the interest provision in the loan agreement was void for uncertainty and for that reason interest should be awarded at the rate prescribed under the District Courts Act from the date of commencement of proceeding.
Approach on appeal
[11] To succeed with their appeal, the Ollivers must show that the judgment is wrong. They do not suggest that the Judge made any error of law; their appeal is solely against factual findings. The Judge had the advantage of hearing the evidence and his judgment is partly based on credibility findings. I should therefore exercise caution before disturbing his findings.
[12] Having said that, the appeal is to be approached in the manner directed by the
Supreme Court in Austin v Nichols & Co Inc v Stichting Lodestar:2
Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate Court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate Court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ.
Points on appeal
[13] The Ollivers’ principal ground of appeal is that the Judge overlooked that the shareholding in all companies in the group was determined by the number of shares held by each of the parties in MFM. Mr Kennelly argues that the “jewel in the crown” was NZHL and that by exercising the options for shares in MFM, Mr Mulholland was entitled to the same number of shares in all other companies in the group. This is not correct. NZHL was not incorporated at the time the share option agreements were entered into on 24 July and 4 November 2002. The option agreements related to shares in MFM, not any other company. MFM did not hold shares in NZHL or MSL, only the nominee company. Mr Mulholland’s acquisition of shares in MFM did not entitle him to the same number of shares in all other companies in the group.
[14] In their notice of appeal, the Ollivers contend that the Judge made 23 other errors in his judgment. Many of these points on appeal are repetitive because the list was assembled by working through the judgment paragraph by paragraph and identifying anything the Ollivers disagree with and anything they consider the Judge overlooked or gave insufficient weight to. The Ollivers raised these points of appeal in support of their overall contention that the Judge should have preferred their evidence to that of Mr Mulholland rather than as a focused attack on the essential findings that determined the outcome of the proceedings. For example, the Ollivers complain that the Judge overlooked or gave insufficient weight to the following asserted facts: MFM was a start-up company that they also contributed capital to;
NZHL was performing well; Mr Olliver went to the United Kingdom with
2 Austin v Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103; [2008] 2 NZLR 141, at [16].
Mr Mulholland’s consent in late 2005 at a time when the companies were “in reasonable shape”; Mr Mulholland mismanaged the companies in Mr Olliver’s absence and made it impossible for him to remain in the business; and Mr Mulholland’s conduct in engaging debt collectors when he attempted to recover the amount owed under the loan showed “what he was capable of”.
[15] I have considered all of these points but do not need to address each of them separately in this judgment. I only address them to the extent that they are relevant to: whether Mr Mulholland exercised share options in 2003; whether there was consideration for the loan agreement in August 2006; whether the loan agreement was signed under duress; or whether Mr Olliver affirmed the loan agreement.
Did the Judge err in finding that Mr Mulholland did not exercise the share options?
[16] There are significant difficulties with the Ollivers’ claim that Mr Mulholland exercised his option under the share option agreements. For the reasons that follow, I consider that the Judge was correct to dismiss this claim.
[17] Mr and Mrs Olliver’s difficulties in proving this claim started with their inability to plead when Mr Mulholland allegedly exercised the options:
(a) in their original claim dated 20 August 2009 they contended that both
options were exercised “in September 2003”;
(b)in their first amended claim dated 20 May 2010, they contended that the first option was exercised “by August 2003”and the second “in or about September 2003”;
(c) in their second amended claim dated 12 August 2010, they contended that the first option was exercised “before 1 August 2003” and the second “prior to 16 September 2003”;
(d) in their third amended claim dated 10 February 2011, they contended
that both options were exercised orally “in early to mid 2003 and in
July and August 2003” in meetings between Mr Olliver and
Mr Mulholland at the company’s offices; and
(e) in their fourth amended claim dated 15 September 2011, they abandoned their attempt to specify the date of the alleged exercise of the options. They simply pleaded that Mr Mulholland “said he would be exercising the options under both agreements during discussions in early to mid-2003 and in July and August 2003” in meetings at the company’s offices between Mr Mulholland and Mr Olliver and that the “option agreements were given effect” by Mr Mulholland signing the share transfer on or before 16 September 2003.
[18] The Ollivers’ difficulty in pleading when Mr Mulholland allegedly exercised the options persisted in their evidence. It is common ground that Mr Mulholland did not exercise the options in writing. Mr Olliver’s evidence was that Mr Mulholland said on a number of occasions from about mid-2003 that he intended to exercise the options but he did not go further and say that he actually did so. No other witness was able to give direct evidence on this issue other than Mr Mulholland who denied exercising the options and gave convincing reasons why he did not do so.
[19] Given that the Ollivers had the onus of proving that Mr Mulholland exercised the options, their failure to plead or prove that he did so was a major impediment to their claim. They were also unable to explain satisfactorily why it took them until July 2008 to demand payment of the $200,000 that would have been due to them in
2003 if these options had been exercised. It is implausible that they would not have demanded payment earlier had they truly believed that the money was owed given:
(a) the time for payment under the share option agreements was of the essence;
(b)the relationship between the Ollivers and Mr Mulholland broke down in late 2005 so there was no continuing reason not to demand payment of any monies owed;
(c) the Ollivers were under financial pressure at that stage and would have wanted to collect any debts due to them;
(d) the 12 July 2006 agreement records that Mr Mulholland will pay
$155,000 to the Ollivers for their shares but makes no reference to the
$200,000 allegedly outstanding for earlier share purchases;
(e) Mr Olliver sent an email to Mr Mulholland on 12 July 2006 saying “I will exit NZHL/MFM/MS for the sum of $155,000 as full and final payment. In doing so you will assume full control [of] the before mentioned companies there (sic) liabilities and there (sic) assets”. Mr Olliver is unlikely to have referred to the expected payment of
$155,000 from Mr Mulholland as a “full and final payment” for his
exit from the companies if he believed he was entitled to receive
$355,000; and
(f) Mr Olliver signed a loan agreement on 16 August 2006 recording that he had borrowed $100,000 from Mr Mulholland. It is unlikely that he would have signed this agreement if he considered that Mr Mulholland already owed him and his wife $200,000.
[20] The Ollivers did not claim the amount allegedly owed under the share purchase agreements until their solicitor wrote to Mr Mulholland on 21 July 2008 claiming that the options were exercised in 2003. This claim was clearly made in response to Mr Mulholland’s claim under the loan agreement and would not
otherwise have been made. Mr Olliver confirmed this in his evidence:3
I am only in Court because he filed and forced us to look to defend ourselves and it now gave us the reason to look to recover the monies that were due and owing to us.
[21] There are no documents to support the Ollivers’ claim other than a share transfer form dated 1 September 2003 prepared by their accountant and signed by Mrs Olliver transferring 200 shares in MFM to Mr Mulholland. However, this
document tends to support Mr Mulholland’s evidence that he was to receive these
3 Mr Olliver’s amended brief of evidence dated 5 March 2013 at [109].
shares in consideration for advances to MFM, MSL and NZHL to fund its continuing operations. Mr Mulholland advanced $338,200 to MFM, MSL and NZHL between
14 May 2003 and 15 March 2004. By the time the share transfer was signed on
16 September 2003, Mr Mulholland had contributed a total of $186,500 comprising
$91,500 to MFM, $50,000 to MSL, and $45,000 to NZHL. Mr Mulholland’s account explains why the consideration section of the share transfer form was left blank. If, as the Ollivers contend, the shares were transferred following the exercise by Mr Mulholland of the options, it is likely that their accountant would have noted on the share transfer form that the consideration for the transfer was $200,000.
[22] Mr Mulholland’s evidence that he did not exercise the options is also supported by the fact that MFM had significant negative equity in September 2003 and its financial position was deteriorating. He had to make the capital advances to enable the companies to continue to operate. It is unlikely that he would have exercised options triggering an obligation to pay $200,000 to Mr and Mrs Olliver, rather than benefiting the companies, for shares that had little or no value at that stage.
[23] For all of these reasons, the Judge preferred Mr Mulholland’s evidence that he did not exercise either of the options. He found that the Ollivers had failed to discharge the onus of proving that Mr Mulholland exercised the options. In my view, this conclusion was inevitable on the evidence.
Did the Judge err in finding that there was consideration for the loan agreement?
[24] Mr Olliver pleaded that there was no consideration to support the loan agreement. He alleged that there was “no proper basis for a loan between the parties” because Mr Mulholland was required to pay $155,000 for the shares. He contended that this agreement, which was recorded in a signed directors’ minute prepared by the Ollivers’ accountant, was not varied or cancelled following completion of the financial statements. Mr Olliver alleged that despite this, Mr Mulholland was only prepared to pay $40,000 for the shares and required Mr Olliver to sign the loan agreement before he would pay a further $100,000.
Mr Olliver says that he was “coerced” into signing the loan agreement because he could not continue to work in the companies and needed the money for another business.
[25] The Judge correctly rejected Mr Olliver’s defence that there was no consideration for the loan agreement. It is quite clear that the price for the shares was adjusted by $115,000, from $155,000 to $40,000, to reflect the similar reduction in the amount owed by MSL to Mr Olliver from $136,289, as shown in the draft accounts, to $20,200, as confirmed in the final accounts. Mr Olliver signed a directors’ minute, also prepared by the Ollivers’ accountant, confirming that the agreed consideration for the shares was reduced to $40,000. This amount was insufficient for Mr Olliver to establish his new business and Mr Mulholland therefore agreed to lend him $100,000. This amount was not the balance owing for the shares.
[26] Mr Olliver signed the loan agreement on 16 August 2006 for $100,000 and Mr Mulholland advanced the money that day as well as paying $40,000 for the shares. There was clearly consideration for the loan. This ground of appeal must also fail.
Did the Judge err in rejecting Mr Olliver’s defence of duress?
[27] There was no basis for any defence based on duress. There was nothing illegitimate about Mr Mulholland’s refusal to pay more than $40,000 for the shares. Nor was there anything illegitimate about his insistence on a signed loan agreement before advancing $100,000. This defence therefore fails at the first hurdle.
[28] In any event, Mr Olliver affirmed the loan agreement and this was also fatal to any defence based on duress.
[29] The Judge found that Mr Olliver made a payment of $2,500 to Mr Mulholland in part payment of the principal and interest due under the loan agreement some three weeks after it was signed. The Judge rejected Mr Olliver’s claim that this was a loan he made to Mr Mulholland. The Judge found that
Mr Mulholland did not need to borrow any such sum from Mr Olliver and that the only plausible explanation for Mr Olliver’s payment was that it was in reduction of the loan Mr Mulholland had made to him.
[30] Mr Olliver sent an email to Mr Mulholland on 13 February 2007 confirming his verbal proposal for repayment of the loan:
Hi William,
Yes as discussed the $100K will be covered via sale of paintings. Regards
Andrew
[31] Mr Olliver again affirmed the loan agreement in an email to Mr Mulholland and his brother on 1 January 2008:
Hi William and John,
…
… (The loan between me and William is to come out of my split – NZ$100K
+ interest)…
…
Regards
Andrew
[32] The duress claim was not raised until Mr Olliver’s solicitor wrote to Mr Mulholland’s solicitor on 22 August 2008. No details were supplied to support this claim and no attempt was made to avoid the agreement on the basis of duress.
[33] The asserted defence of duress never had any prospect of succeeding. This ground of appeal must also be dismissed.
Did the Judge err in making his interest award?
[34] The loan agreement contained the following provision for the payment of interest:
The loan shall bear interest and at a rate to be determined by the Lender which will not exceed the “prescribed interest rate” for fringe benefit tax. Interest is to be payable one month in arrears.
[35] In his letter dated 7 September 2007, Mr Mulholland’s solicitor demanded payment of interest at the rate of 13.5 per cent per annum asserting that this was the prescribed interest rate for fringe benefit tax. Mr Olliver claimed this rate of interest for the entire period of the loan.
[36] Mr Olliver did not contest this aspect of the claim in his statement of defence or in his evidence. However, the Judge declined to award interest at this rate because he considered that the term was void for uncertainty. Mr Kennelly did not attempt to support the Judge’s reasoning on this issue. He concedes that Mr Olliver was entitled to set any rate so long as it did not exceed the prescribed rate for fringe benefit tax. Mr Kennelly also concedes that interest is payable in terms of the agreement on the outstanding loan balance from the time of the advance.
[37] However, the prescribed rate for fringe benefit tax fluctuates over time. It is therefore not appropriate to apply the same rate for the entire period. Further, the calculation should take account of the payment of $2,500 made by Mr Olliver. I expect that the parties will be able to agree on the applicable rates and the computation of interest. If not, further memoranda should be filed in accordance with the timetable set out at the conclusion of this judgment.
Result
[38] Mr and Mrs Olliver’s appeal is dismissed.
[39] Mr Mulholland’s cross-appeal is allowed. The interest award made in the District Court is set aside and replaced with an order requiring Mr Olliver to pay interest to Mr Mulholland at the prescribed interest rate for fringe benefit tax, taking into account the payment made by Mr Olliver of $2,500, from the date of the advance until repayment. If there is any disagreement as to the applicable rate or the calculation of the amount due, a memorandum should be filed and served on behalf of Mr Mulholland on or before 22 January 2014. Any memorandum in response should be filed and served on or before 5 February 2014.
[40] If the issue of costs cannot be resolved, a memorandum on behalf of
Mr Mulholland should be filed and served on or before 22 January 2014. Any memorandum in response should be filed and served on or before 5 February 2014.
M A Gilbert J
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