Shoye Venture Limited v Wilson
[2015] NZHC 319
•29 April 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-004-7912 [2015] NZHC 319
BETWEEN SHOYE VENTURE LIMITED
Plaintiff
AND
DONALD GORDON WILSON Defendant
Hearing: 25 and 26 February 2015 Counsel:
MRT Colthart for Plaintiff
Defendant in personJudgment:
29 April 2015
JUDGMENT OF FOGARTY J
This judgment was delivered by me on 29 April 2015 at 4.00 p.m., pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors: Lee Salmon Long, Auckland
SHOYE VENTURE LIMITED v DONALD GORDON WILSON [2015] NZHC 319 [29 April 2015]
Introduction
[1] Under the Gambling Act 2003, the Manukau Golf Club is eligible to operate gambling machines for profit. Between October 2007 and September 2009, the golf club’s gambling machines were operated off the golf course, at the Trophy Bar in Takanini, pursuant to licenses granted under that Act. The club had an operator licence, the plaintiff, Shoye Venture Limited (Shoye) had a venue operator licence, and Mr Joyce was the licensed venue manager. These licences were granted under the Gambling Act following receipt of a “venue agreement” executed by these three parties on 9 October 2007.
[2] Mr Joyce agrees that he executed the October agreement on behalf of his company as the venue operator. However, the agreement shows that he signed Schedule 2 of it also on behalf of himself as venue manager. Mr Joyce’s evidence was that he did not know of the content of the venue agreement at the time he signed it and, by reason of the doctrine of non est factum, that agreement is void against him, inasmuch as he accepts the obligations of venue manager.
[3] Rather, Mr Joyce argues that he is entitled to the benefit of a deed of guarantee by the defendant, entered into a month earlier on 10 September 2007. This is a guarantee of due performance of the manager of the Trophy Bar under a contemporaneous management agreement to Shoye, as the business owner, and includes an obligation to purchase the business if the business owner is justified and terminates the management agreement. The management agreement referred to is dated 10 September 2007 and executed on the same date as this deed of guarantee.
[4] This September management agreement has a crucial difference from the second schedule of the October venue agreement, as in the September management agreement Ms Tania Mara executes as manager, not Mr Joyce. By the deed of guarantee, Mr Wilson was guaranteeing the performance the manager “under the management agreement dated on or about the date of this Deed”. Both were signed on 10 September.
[5] The issue in this case is whether or not Shoye can rely on the deed of guarantee, given that the September management agreement was superseded by the different October venue agreement.
The Deed of Guarantee
[6] The “INTRODUCTION” (Preamble) to the deed of guarantee reads as follows:
(a) The Business Owner and Tania Mara have agreed to enter into a deed known as the management agreement dated on or about the date of this Deed (“Management Agreement”) relating to the management of the Business Owner’s business known as the Trophy Bar in Takanini.
(b)In consideration of the Business Owner entering into the Management Agreement, the Guarantor has agreed under this deed to guarantee the obligations and performance of the Manager as set out in the Management Agreement.
(c) This Deed sets out the Terms of the Guarantee by the Guarantor.
[7] There then follows the heading “operative provisions” and the provisions:
1 GUARANTEE
1.1 Unconditional Guarantee and Indemnity
In consideration of the Business Owner agreeing to enter into the Management Agreement, the guarantor unconditionally and irrevocably:
1.1.1Guarantees by way of continuing obligation to the Business Owner, and not merely as a surety, the due performance by the Manager of all its obligations under the Management Agreement; and
1.1.2Indemnifies the Business Owner against any loss or damage that it may suffer as a direct or indirect result of the breach by the Manager of any of its obligations under the Management Agreement.
[8] There are a number of events which do not operate as a discharge to the guarantee, none of which are relied on by the plaintiff.
The Management Agreement
[9] The 10 September 2007 management agreement was entered into between
Shoye and Ms Mara, described as “Manager”. The introduction to this deed records:
AThe Business Owner and the Manager have agreed to enter into this Agreement relating to the management of the Business Owner’s business known as the Trophy Bar in Takanini.
BThe Business Owner agrees to appoint the Manager to manage the business and the Manager has agreed to manage the Business on the terms and conditions of this Agreement.
CThe Business Owner agrees to provide the use of certain intellectual property and certain resources to enable the Manager to organise and manage the Business and the Manger acknowledges that the Business Owner retains the ownership of all such property.
DThe Manager will provide the use of certain of its own intellectual property to assist it in the management of the Business and the Business Owner acknowledges that the Manager retains the ownership to such intellectual property.
[10] The business is defined in provision 1.1 as follows:
“Business” means the licensed premises in Great South Road, Takanini, known as the “Trophy Bar” and includes both the on-premise and off- premise aspects of the Business in addition to the sub-leasing of space within the Business Premises to duly licensed operators of gaming machines.
[11] To put that in the vernacular, the Trophy Bar, as the name suggests, supplied liquor pursuant to liquor licenses. In addition, the business subleased space on the premises to duly licensed operators of gaming machines.
[12] As will become clear, the term “duly licensed operation of gaming machines” in the business definition is important. It underlines the assumption, that is naturally brought to the issues of construction, that the business of operating gaming machines would have to be done in accordance with the law, the law in question being the Gambling Act 2003 which, amongst other things, creates an offence under s 19(1):
A person who does any of the following things commits an offence:
…
(c) Conducts illegal gambling.
…
(f) Makes a direct or indirect pecuniary gain from illegal gambling other than as a direct participant.
…
[13] The management agreement goes on in cl 2, particularly in cl 2.1, to provide the business owner appoints the manager as the exclusive manager of the business and the manager will provide management services in relation to the business on the terms and conditions of the agreement.
[14] Clause 2.2 provides for an initial term of three years, with automatic rights for renewal for further consecutive terms of three years each, unless terminated pursuant to the agreement and subject to the ability to renegotiate the lease of the premises from the landlord (who is not Shoye).
[15] Clause 2.3 deals with the consideration to the business owner and is important. It provides:
In consideration of the Business Owner assigning all its rights and interests in the income derived by the Business during the Term to the Manager, the Manager will pay to the business owner the amount of $2,307.70 plus GST, if any, per week (which contribution shall be varied at the commencement of each anniversary of this agreement by the same proportion as any variation in the All Groups Index of the Consumer Price Index for the 12 months ending on the quarterly index date immediately prior to each lease year’s commencement date).
[16] Under cl 3, dealing with the manager’s duties and obligations, cl 3.2 provides:
3.2The Manager undertakes that in providing the Management Services, it shall ensure:
3.2.1That it complies with all relevant laws and regulations in relation to the business.
[17] It goes on in cl 7.4, a clause dealing with termination, to provide:
If the Business Owner terminates the Agreement under clause 7.1 then the Manager will purchase the Business for $300,000 plus GST, if any in lieu of damages.
[18] The legal context to this agreement is that the Gambling Act addresses a number of mischiefs that can arise out of the operation of gambling machines. It recognises that the habits of gamblers need to be supervised by a person who is not interested in the profits to be made from the gambling.
[19] In this case, the gaming machines were owned by the Manukau Golf Club. The use of these machines fell within a class of gambling called Class 4. Such gambling was legal when, pursuant to s 30(a)(i) of the Act:
(a) The net proceeds from the gambling are applied to or distributed for authorised purposes;
(b)No commission is paid to, or received by, a person for conducting the gambling;
(c) The gambling satisfies relevant game rules;
Such gambling, by s 31, could be conducted only by a corporate society that holds a Class 4 operator’s licence for the gambling and a Class 4 license for the place where the gambling is conducted.
[20] In this context, the Manukau Golf Club was to have a Class 4 operator’s licence, Shoye, a Class 4 venue licence, and Ms Mara was intended to be the “venue manager”, described in the Act as a key person.
[21] When applying for a Class 4 operator’s licences, s 50(2)(g) the Gambling Act requires an application for a Class 4 venue licence and (f) requires the profile of each key person:
… including details of their experience in Class 4 gambling, history and gambling, character, and qualifications.
[22] The management agreement executed on 10 September 2007 was prepared by a solicitor, Mr Nicholls, retained by the Manukau Golf Club. He intended this agreement to be part of the necessary arrangements needed to obtain from the Department of Internal Affairs (DIA) a venue licence at the Trophy Bar in Takanini to operate gaming machines owned by and used by the Manukau Golf Club as the licensed operator and the approval of Ms Mara.
The September Venue Agreement
[23] On the same date as the execution of the management agreement, Shoye entered into an agreement with the Manukau Golf Club, called “the Class 4 venue agreement”. This agreement provided for the venue operator to install gaming machines owned by the Manukau Golf Club at the venue and operate them.
[24] This venue agreement provided that the payment to the venue operator must not exceed the maximum allowable under the Gambling Act.1 The context here is that only a certain proportion of the profit of any particular gaming machine can be used to pay the expenses of the operation. The balance of the profit goes to be spent on purposes authorised by the regulator under the Act.
[25] To put this into context, the $2,307.70 plus GST payable per week to Shoye as owner of the Trophy Bar business by Ms Mara under the Management Agreement, to be lawful, had to be derived from profits from the sale of alcohol and other bar sales and from that proportion of the gambling profits which could be used to pay for the costs of operation of the gambling machines at the venue.
[26] This did not always happen. Before it closed, the weekly payments to Shoye were being funded in part by illegal excessive drawings from the profits of the gambling machines.
The October Venue Agreement
[27] On 9 October 2007, another agreement was executed between the Manukau
Golf Club and Shoye, named as the venue operator, and by Mr Joyce personally as
the venue manager. On 10 September, two agreements had been signed: a venue agreement with Shoye, and a management agreement with Ms Mara. On 9 October, however, there was one agreement signed, called “Venue Agreement”.
[28] However, although called “Venue Agreement”, it had a second schedule entitled “Gambling Related Duties of Venue Managers”. It then set out the obligations of the venue managers and is signed, for the venue operator, by Mr Joyce, as director, and signed by Mr Joyce, as the venue manager personally. Mr Joyce is a director of Shoye. The provision in the October agreement for Mr Joyce to be the venue manager is in direct conflict with the September agreement appointing Ms Mara as the venue manager.
[29] The defendant, Mr Wilson, never guaranteed the second schedule of the
October venue agreement.
[30] We have now come to the central issue in the case. The plaintiff is seeking to enforce a deed of guarantee as to the performance of the manager, the manager being intended in the September agreement to be Ms Mara, as an approved manager by DIA. In conflict with that, the plaintiff has executed the venue agreement, including the second schedule, which provides he is the manager and makes no reference to Ms Mara.
[31] The venue agreement executed in October was clearly intended to replace the conflicting September management agreement, as well as the September venue agreement. Deliberately, Ms Mara was removed as manager. The evidence was this was because of her close links with the golf club and the policy of the Act to separate management from the beneficiaries of the business.
Is the September 2007 Guarantee Deed still enforceable?
Non est factum
[32] Although it was not pleaded, and with some reluctance, counsel for the plaintiff, Mr Colthart, recognised that to enforce the September deed of guarantee of performance of the manager, he had to argue that the October venue agreement, at
least inasmuch as it provided for his client to be the manager and imposed obligations on his client, as manager, was void by reason of the doctrine of non est factum in order that he could sue on the manager’s obligations as imposed on Ms Mara in the September management agreement and thereby get access to the guarantee of Mr Wilson to those management obligations. The obligation on the manager to purchase the business if the management agreement is terminated, does not appear in the venue agreement.
[33] Mr Colthart accepted that the October venue agreement conflicted with, and was intended to replace, the two September venue and management agreements. So he argued that the venue agreement was void by the plea of non est factum on behalf of Mr Joyce.
[34] Mr Colthart recognised that such pleas succeed only rarely. In Bradley West Solicitors Nominee Co Ltd v Keeman, Tipping J set out five matters that must be proved: 2
1The person raising the plea (the proponent) must have signed the document believing it to have a particular character or effect.
2The document must in reality have a radically different character or effect thus creating a wholly different result from that which was understood by the proponent.
3The proponent’s mistaken belief must have resulted from an erroneous explanation or description of the document given to him by someone else.
4The proponent must be able to show that, notwithstanding his error, he acted with all reasonable care in the circumstances.
5 If the proponent’s mistaken belief arises because, acting in reliance on
a trusted adviser such as a solicitor, he did not take steps to read and
understand the document prior to signing it, the plea is not available.
[35] Mr Joyce’s evidence was that on 9 October he received a call from one of the staff at the Trophy Bar. He was put on to a man who was at the Bar to install the Manukau Golf Club’s gaming machines. Mr Joyce was told that the machines were ready to be installed but first he needed to sign a new venue agreement. He was told it was urgent and asked if he could come to the bar to sign it.
[36] The communication with this man was followed immediately by a second phone call from Mr Keown, the general manager of the Golf Club. He told Mr Joyce the same thing. He asked him to go down to the bar immediately.
[37] Mr Joyce asked Mr Keown why he needed to sign a new agreement. Mr Keown told him that the first one signed was not acceptable to the DIA. He said there were a couple of things that needed changing. He did not explain why. Mr Joyce’s evidence was that Mr Keown advised no more than that the changes were minor technical changes that the DIA required. That it was easier to make a new agreement.
[38] Upon being told that the earlier agreement(s) were not acceptable to the DIA, that told Mr Joyce that the document he was about to sign was going to be the document submitted to the DIA as part of the application for the licences. It was going to be a document relied upon by the DIA.
[39] Mr Joyce went to the bar straight away. One of the men there introduced himself as Paul Fleet. He gave Mr Joyce the agreement to sign and said “sign here”. Mr Joyce said he signed the agreement and Mr Fleet witnessed his signature. Mr Joyce said that he did not have time to read it or to seek any advice about it.
[40] Before this Court, Mr Joyce explained that he was dyslexic. He said that he needed longer than most people needed to read and understand the meaning of anything in writing. He did not say that he could not read, or could not assimilate simple written statements.
[41] Mr Joyce said:
I felt I was under immense pressure from Mr Fleet and Mr Keown to sign the Venue Agreement then and there. I did the best I could in the circumstances to read the agreement but could not take it all in.
When I signed the agreement I noticed there was no “Schedule A”. I thought that the Schedule (which named Ms Mara as the venue manager in the September deed) was to be attached after signing. That was the only difference I noticed between the new agreement and the first one I had signed.
He said:
I signed at three copies of the venue agreement, but I was not given a copy to keep. I asked Mr Fleet for a copy. He told me that he would send me a copy after the others had signed. That never happened. I was only able to obtain copies of the Venue Agreement through the discovery process in this litigation, and through making an Official Information Act request to the DIA.
[42] Mr Joyce signed the October venue agreement seven times, as well as initialling every page. The October agreement, like the September agreement, provided for his company to be the venue operator. His first full signature was on page 11, at the start of the execution pages, and has him signing as venue operator and printing after his signature his name “MA Joyce, Director, 9 Oct 07”.
[43] His second signature is on page 13 and witnesses the first schedule of the October agreement providing a number of details, including a box giving address, postal address and phone numbers as to the venue, the venue operator and the venue manager. The full name of the venue operator is stated as “Shoye Venture Limited”. The full name of the venue manager is stated as “Maurice Anthony Joyce” (not Ms Mara). That page is initialled. On the following page there is another box containing two names of Mr Joyce and his wife. In the typed box Mr Joyce is identified “yes” as “director”, “yes” as “shareholder”, and “yes” as “venue manager” and that page is signed by him and in his own words written, “MA Joyce, Director,
9 October 07”. Over the next page, it is signed by him with the words, “MA Joyce” leaving out the reference to “Director”, dated 9 October and opposite to the printed words, which read: “signed by the venue manager in the presence of (Mr Fleet as witness)”.
[44] Then there is the second schedule of the October agreement which contains the duties of the venue managers and including individual venue operators where that is one and the same. Again it is signed for the venue operator by Mr Joyce in the same way, putting the word “director” after his name, and then it is signed a second time on the same page by Mr Joyce as venue manager, without putting “director” after his name.
[45] The last signature appears on the very last page of the document, which is the fourth schedule, under the heading “venue expenses”. This is a schedule in small print dealing with venue expenses, setting limits on hourly costs, weekly costs, venue costs etc. It is signed by Mr Joyce as venue manager, this time again not adding the word “director” but giving his date of birth, and a P O Box address. It is signed again at the bottom by Mr Joyce, as venue operator, but, on this occasion, not adding the word “director” after his name.
[46] Mr Joyce had had significant prior experience of being both a venue operator and a venue manager. This agreement he was entering into with the Manukau Golf Club was replacing an agreement he had with a trust called Trillium. Under that arrangement he was both the venue operator and the venue manager, or Shoye was the venue operator and he was the manager. Either way he knew well, from experience, the difference.
[47] He explained in his evidence that he did not want to be the venue manager anymore. It was part of his negotiations with the Golf Club that there would be a separate venue manager.
[48] In addition to the direct experience of operating premises regulated by the Gambling Act, Mr Joyce’s evidence is that he had over the years owned a large number of businesses. He instanced as a number 15–16 of the same.
[49] It is noticeable that not only did he not obtain a copy of the October agreement at the time but he never obtained a copy of that agreement until the litigation started.
[50] He gave as his explanation for signing on the spot, being the request to get the machines installed on that day. He could not have expected the machines to commence immediately. He knew that at the time he was executing it, the new document was needed in order to gain DIA approval. In other words, to get the venue licence so that the bar could operate the machines.
[51] So he knew the October agreement was a document that was going to be examined, by the DIA, that by law it would be the operative agreement.
[52] If his evidence is accepted in totality, then he does meet items 1, 2 and 3 of the five requirements of non est factum set out above.3 The fifth requirement is not applicable because he was clearly not acting in reliance upon a trusted adviser. The critical condition is the fourth – that when executing the document he acted with all reasonable care in the circumstances.
[53] Mr Joyce presented in the evidence as a decent man, an experienced businessman, and a credible person. But I cannot find his evidence to be reliable. He has very carefully executed the document. It is not a case of adding his signatures only. Where appropriate, he has signed on behalf of Shoye, the limited liability company, as director, and where appropriate he has signed for himself. Let us assume in his favour, he was directed to do that by Mr Fleet. We need to keep in mind that Mr Joyce himself described Mr Fleet as someone who did not really know much about the document and was just telling him where to sign. Even so, Mr Joyce must have realised that he was signing a document in parts of which he was taking personal responsibility as distinct from the company. All he had to do was flick his eyes across to see that in those parts he was being consistently described as the venue manager. He knew very well the distinction between the venue manager and the venue operator. He did not have to read complex text to know he was signing up to personal obligations. He has not proved his dyslexia would have impeded understanding this much. All he had to see across the page from his personal signatures were the words “venue manager”.
[54] In these circumstances, if he did not notice and reflect on these basics then I do not think he has been able to show this Court that he acted with all reasonable care, necessary to succeed in a non est factum plea. This was not even a private document. It was intended to be lodged with the regulator, the DIA. It was intended to support the liquor licences which were absolutely vital to performance of the deal he had reached with the Manukau Golf Club.
[55] In the course of the litigation between the Manukau Golf Club and his company, a claim and counterclaim, his then lawyers attempted there to argue non est factum in respect of the October venue agreement. Duffy J did not have to decide on the plea because it was not pursued. In her judgment she said this:4
Mr Joyce has raised a plea of non est factum regarding his failure to understand that under the 9 October 2007 venue agreement, he was the designated venue manager. But he has not as part of this plea argued he didn’t understand the obligations of the 9 October 2007 venue agreement imposed on Shoye as the designated venue operator. His closing submissions make that clear. It is difficult to see how Mr Joyce should accept that he understood so much of the venue agreement that related to Shoye’s role as venue operator but did not understand that he was named as venue manager. But in any event, any misunderstanding by Mr Joyce regarding who was venue manager cannot relieve Shoye of its contractual obligations as venue operator. Nor could such a plea protect Shoye from the finding that both it and Manukau were operating the offsite gaming business machine in accordance with the de facto arrangements rather than the Internal Affairs’ legally approved arrangements. I consider, therefore, that the plea of non est factum is irrelevant to the real concerns in this proceeding.
[56] I, however, do not have the luxury of finding this plea irrelevant. It is necessary to make a finding. Sustaining a plea of non est factum is difficult as the cases show. One of the reasons for the very conservative policy of the courts is the need for parties and the community to be able to rely on solemn documents such as deeds.
[57] I am satisfied that the plea of non est factum is not made out on these facts because the fourth requirement is not discharged.
[58] It follows, as a result of the conflict, that upon the execution of the October venue agreement, the conflicting earlier management agreement of 10 September
2007 is at an end.
[59] It follows that the liability of the guarantor of that agreement is extinguished, for that liability is tied solely to performance of the September agreement.
Illegal Contracts Act 1970
[60] If I am wrong and the September 2007 deed of guarantee survives, I turn to examine the basis upon which the gaming machines operated. It is common ground in these proceedings that the Golf Club’s gaming machines operated in the bar under the management of Ms Mara. In her judgment Duffy J consistently called this
activity the “de facto arrangements”.5 She made no finding at all that the parties had
revalidated or readopted the first venue agreement and the management agreement. Rather, of 10 September 2007, she found these de facto arrangements made the actual gaming operation illegal.6 There is no dispute about that. It is a very simple syllogism. The DIA approved the venue licence with the manager being Mr Joyce, relying on the October 2007 agreement. The DIA never saw the September 2007 agreement. It was illegal for Ms Mara to be the as manager. There was no suggestion at all that Mr Joyce ever in any way took on the role as manager. Ms Mara de facto took that role.
[61] The evidence also was that the reason why the October 2007 venue agreement was executed was because the Golf Club ceased using Mr Nicholls, who had drafted the September agreement and took advice from an expert in gambling law, Mr Doughty, who advised against lodging an application placing Ms Mara, up to then an employee of the Golf Club, in the role as manager.
[62] There is no doubt that the Golf Club’s manager, Mr Keown, must have know full well that the actual operation with Ms Mara as de facto manager, was illegal.
His knowledge was bolstered by there being two private side letters from him to
5 See for example Shoye Venture Ltd v Wilson, above n 4, at [147].
Ms Mara indemnifying her income and any liabilities for carrying on the role as manager.
[63] Before me Shoye’s counsel accepted that the operation was illegal but did not
accept it was de facto.
[64] In the proceedings before Duffy J, Shoye sued the Golf Club and lost. The Golf Club sued Shoye and lost. Shoye failed under a number of causes of action against the Golf Club being:
(a) Breach of contract. This failed because of the Judge’s finding that the
parties continued trading under illegal de facto arrangements.7
(b)Breach of s 9 of the Fair Trading Act 1986. This cause of action failed for the same reasons.8
(c) Inducement of breach of contract. Shoye claimed that Manukau Golf Club induced Ms Mara to breach the terms of the management agreement. This claim also failed.9
[65] As a general conclusion, the Judge said, inter alia:10
The parties should not be able to now treat as live, and therefore actionable, a contract that the facts show they had abandoned in order to work together under a different, albeit illegal, set of arrangements. …
I consider it is impossible for this Court to allow the parties to sue and recover for breach of their legitimate arrangements, which neither performed.
[66] This finding confirms that when Duffy J talked of “de facto arrangements” after the parties had executed the October 2007 agreement and then never performed it, she is referring thereafter to just that, de facto arrangements. I agree with her
reasoning.
7 At [172].
8 At [188].
9 At [193].
10 At [198]-[199].
[67] Before me the plaintiff’s counsel argued it was not de facto but rather an operation governed by the September 2007 management agreement. I have found that it was not because that agreement was replaced by the second schedule of the October venue agreement. I agree the bar was managed in fact by Ms Mara. Against the possibility that I am wrong and that agreement did survive, I go on to consider whether or not this Court should, under s 7 of the Illegal Contracts Act 1970, nonetheless enforce the guarantee.
[68] Before embarking on that step, it is important to keep in mind the common law perspective as to the guarantor’s status. Halsbury’s Laws of England reads as follows:11
Guarantor as favoured debtor
It has been said that a guarantor is a favoured debtor. He is entitled to insist on a rigid adherence to the terms of his obligation by the creditor, and cannot be made liable for more than he has undertaken.
[69] Mr Colthart sought to minimise any sympathy to the defendant by arguing that he was in on the illegality. He submitted that Mr Wilson knew from the outset that putting Ms Mara in as manager was a “front” to disguise the direct control over management by the Golf Club.
[70] Mr Wilson presented, like Mr Joyce, as a decent elderly man, retired now and an experienced businessman.
[71] It was Mr Wilson’s evidence that he had been a longstanding member of the Golf Club. He had a small business operating golf carts on the course. The general manager of the club, Mr Keown, told him that the club had found an opportunity to increase its revenue by placing gaming machines in a nearby bar, known as the Trophy Bar, that they had taken legal advice and were forming a company called Trophy Bar Ltd to run the bar which was a front for the Golf Club. The vendor of the Trophy Bar business wanted a guarantee and he was requested to supply a personal guarantee on behalf of the Golf Club. Mr Wilson, in his evidence and
cross-examination, was candid about his use of the word “front” when retelling what
11 Halsbury’s Laws of England (5th ed, 2008) vol 50 Financial Services and Institutions at [1093] (footnotes omitted).
Mr Keown had said to him the company to be formed, Trophy Bar Ltd was, but disputed vigorously that he was a party to any illegal arrangement.
[72] In considering the reliability of this proposition, I find it very material that there was absolutely nothing in these arrangements for Mr Wilson. He got no reward for providing this personal guarantee. He judged wrongly that the Golf Club would stand behind him and if it did, he knew that the Golf Club had a surplus of assets over liabilities in the region of $8m. Somewhere along the line, certainly before he signed the guarantee, he knew that the Golf Club were employing solicitors. The Trophy Bar had been incorporated by an accountant of the Golf Club. There has been no suggestion that either the accountant or the solicitors thought that they were embarking on any illegal operation. To the contrary, I am sure the first solicitor, Mr Nicholl, believed that the DIA would approve Ms Mara as manager. All this documentation was going to be lodged with the DIA. At that time the two secret side agreements indemnifying Ms Mara did not exist. To find Mr Wilson was party to an illegal management agreement by Ms Mara is a very serious allegation. It is tantamount to an allegation of participating in a fraud. It has not been proved. Moreover, positively, I find that Mr Wilson, an experienced and intelligent businessman, would not, for no reward, have guaranteed an illegal operation.
[73] The main meritorious argument for enforcing the guarantee against Mr Wilson (assuming the September 2007 management agreement still applied – a necessary assumption) was that Mr Joyce was the victim.
[74] The submission was that Mr Joyce had bought this business as a run-down bar in 2003, only opened a few hours a week with turnover of less than $1,000 and had three pokey machines operating. That over three years he developed the business so that by the end of 2006 it had 18 pokey machines owned by Trillions Trust. The weekly turnover being lifted to between $18,000 to $25,000 and the bar was returning a profit of up to $2,500 per week. Having built up the business, Mr Joyce decided to sell, and at this point Mr Keown, the general manager of the Golf Club, entered the picture. The negotiations were between Mr Keown and Mr Joyce, not involving Mr Wilson at that stage.
[75] Mr Colthart, for Shoye, submitted that Mr Joyce relied on the advice and representations made by representatives of the Golf Club and its solicitor, that the arrangements documented in the September agreements were legal.
[76] I accept that. There is no proof that Mr Joyce knew at the outset that his weekly payments might have to be funded by illegal excessive drawing from the profits of the gaming machines.
[77] Ms Mara gave evidence. Her evidence was clear that the takings from the bar, coupled with the legitimate drawings from the profits, were not enough to sustain the operation of the Trophy Bar. That is ultimately why it closed. It also became the subject of an investigation by the DIA. They were going to close it for
30 days as a penalty but by this stage Ms Mara had given it away.
[78] In this context, nonetheless, Shoye is seeking a judgment in the sum of
$1,379,109.45 made up as follows:
(a) The amount payable under cl 7.4 of $337,500.00;
(b)Loss of weekly payments under cls 2.1 and 7.4 being $2,700 per week, including GST x 282 weeks, being the period between 28
September 2009 to 23 February 2015;
(c) Additional payments, including settlement with the landlord of
$35,250.97;
(d) and legal costs incurred ex-GST of $244,958.48.
[79] This logic is premised on an interpretation of cl 2.2 of the Septemer 2007 venue agreement which provides for the agreement to indefinitely renew for consecutive terms of three years each and, secondly, that the only basis of terminating the agreement is breach or becoming insolvent. Otherwise the agreement is indefinite. That in this case the business owner had terminated the agreement by closing down the bar so that the manager became obliged to purchase the business for $300,000 plus GST in lieu of damages. But pending the sale and
purchase agreement, the business is deemed to continue and the monies continued to be paid. So because the Golf Club has not paid the plaintiff, the payments per week continue to accrue.
Conclusion upon relief under the Illegal Contracts Act
[80] I can find no basis whatsoever for utilising the general jurisdiction in s 7 of the Illegal Contracts Act to award Shoye damages based upon the September management agreement, as that agreement ended on 9 October 2007, and thereafter the bar was managed on a de facto basis. The guarantor could be liable only for breach of the defunct September management agreement. That agreement was executed upon the assumption that Ms Mara would be duly approved as the venue manager. She never was. Mr Wilson never agreed to guarantee a manager other than a manager licensed under the Gambling Act. To find him liable as guarantor to the illegal de facto operation would breach his status as a “favoured debtor”.
Conclusion
[81] There is judgment for the defendant.
[82] The defendant appeared for himself. I will reserve the question of costs in case the defendant at any stage in these protracted proceedings had counsel and incurred costs recoverable under the Schedule of Costs.
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