Wilson v Irvine

[2009] NZCA 569

IN THE COURT OF APPEAL OF NEW ZEALAND

CA232/2009
[2009] NZCA 569

BETWEENJOHN DOUGLAS WILSON

First Appellant

ANDADELE JOY WILSON

Second Appellant

ANDTRACEY MICHELLE WHITE

Third Appellant

ANDJOHNATHAN BRIAN IRVINE

First Respondent

ANDFELICITY JANE IRVINE

Second Respondent

ANDTIMOTHY MALCOLM IRVINE

Third Respondent

Hearing:17 November 2009

Court:Ellen France, Gendall and Harrison JJ

Counsel:S O McAnally for Appellants

M C Black for Respondents

Judgment:7 December 2009 at 2.30 pm 

JUDGMENT OF THE COURT

AThe appeal is allowed and summary judgment entered for the appellants in the sum of $3,580,000 together with interest.

BInterest  is to be fixed at 13.25 per cent:

(1)on the sum of $1,800,000 from 30 September 2007 to the date of payment; and

(2)on the sum of $1,780,000 from 17 October 2007 until the date of payment.

CThe cross-appeal is dismissed.

D            Costs in the High Court are, in the absence of agreement, to be fixed by that Court in light of this judgment and the reasons therefor. 

EThe respondents must pay the appellants’ costs in this Court for a standard appeal on a Band A basis plus usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Gendall J)

[1]        This is an appeal from a decision of Associate Judge Doogue, who dismissed the appellants’ application for summary judgment seeking $3,580,000 from the respondents pursuant to a contract entered into between the parties upon the termination of a joint venture.  The Associate Judge dismissed the summary judgment application on the basis that he accepted the respondents’ claim that an arguable defence of equitable setoff existed.

Background

[2]        The appellants are trustees of the Ridgefield Family Trust (and we refer to it and them as “the Wilson interests”).  The respondents were trustees of the Frankleigh Trust (and we refer to them as “the Irvine interests”).  The Irvine interests were developing a hotel and apartment complex in Taupo with the prime moving force being Johnathan Brian Irvine, the first respondent.  The Wilson interests entered into a joint venture project with the Irvine interests and signed a Shareholders’ Agreement on 14 October 2003, and a Deed of Accession on 19 December 2003 so as to become part of the joint venture. 

[3]        The Wilson interests advanced substantial amounts by way of loans to the joint venture.  The joint venture company was called The Terraces Ventures Ltd and the Wilson and Irvine interests each held 405 of the 900 shares in that company.  It owned the land on which a hotel was situated and all the shares in the company which operated and owned the hotel business, The Terraces Hotel Ltd.  Another company, The Terraces Hotel Apartments Ltd, was involved in the joint venture in developing apartments adjacent to the hotel. 

[4]        A separate company, known as GPK Lake Taupo Ltd (GPK), was incorporated to manage the operation of the hotel’s food and catering business.  Of the 1,000 shares in that company 225 were held by each of the Wilson and Irvine interests, 50 by another person and 500 were held by Mr D Parat.  He was to be the supplier of the catering service having an established reputation as a high quality restauranteur.  The directors of that company were Mr Johnathan Irvine, Mr John Wilson, and Mr Parat.  Once the joint venture project was created, Mr Wilson was appointed a director of The Terraces Ventures Ltd, The Terraces Hotel Ltd, GPK, and  The Terraces Hotel Apartments Ltd.

[5]        The Wilson interests in the joint venture came to an end however, in August 2007.  The parties agreed that the joint venture be terminated and entered into a Deed of Termination.  Relevantly, it provided that Mr Wilson would resign as a director of the various companies;  the Wilson interests were to provide Mr Johnathan Irvine with an executed transfer of all their shares in the capital of The Terraces Ventures Ltd and in GPK;  and certain payments were to be made to the Wilson interests.  Those payments reflected the repayment of loans made by the Wilson interests to the joint venture, together with a further sum being on account of the shares held by them in The Terrace Ventures Ltd.  Those amounts totalled just under $3,580,000 and were to be paid by instalments.  In addition, the shareholding of the Wilson interests in GPK of 225 shares was to be transferred for a consideration of $1 to Mr “Irvine or a party nominated by” him.  In that regard the Deed provided:

Ridgefield shall provide to Irvine and Frankleigh an executed transfer of all its shares in the capital of GPK Lake Taupo Limited (1902793) to Irvine or a party nominated by Irvine.

[6]        Parts of the termination agreement were performed.  But the Irvine interests did not make any payments by instalments as were required.  After they became due, notice was given by the Wilson interests to the Irvine interests of the default.  Mr Wilson resigned as a director of the various companies and share transfers in The Terraces Ventures Ltd and GPK were forwarded, signed by the Wilson interests, the transferees being recorded as the three respondents, namely the trustees of the Irvine interests.

[7]        Thereafter, these proceedings were issued.  Associate Judge Doogue considered that there was no arguable defence to the preponderance of the Wilsons’ claim for $3,580,000 and interest.  He accepted, however, a proposition advanced by counsel for the Irvine interests that an arguable defence, or claim to equitable estoppel, could be available to them in respect of the transfer of the 225 shares in GPK.

[8]        It was contended on behalf of the Irvine interests that the separate shareholder in GPK, Mr Parat, although not a party to the joint venture, had pre-emptive rights in respect of the shares in GPK and he had not waived those rights.  Counsel contended that the Wilson interests were in breach of their obligations under the Termination Deed because they had not obtained from Mr Parat such a waiver.

[9]        Associate Judge Doogue displayed some scepticism about the strength of that contention.  But he concluded that there might be an arguable proposition that a contractual obligation rested on the Wilson interests to obtain a waiver of those pre-emptive rights and a possible setoff of $720,000 (being the amount Mr Irvine contended the shares were worth) despite the consideration in the Deed being a nominal sum of $1, might exist.

[10]       The contention of Mr Irvine that pre-emptive rights in relation to the GPK shares existed in favour of Mr Parat was also accepted by counsel for the Wilson interests.  We were advised that the Irvine interests provided to the High Court a constitution of a company which contained pre-emptive rights provisions.  After the hearing before us, it was ascertained that the constitution was of The Terraces Ventures Ltd, a different entity, and in which Mr Parat held no shares.  It was also only after the hearing that we were advised GPK had no constitution.  Whether there was confusion at the earlier hearing on this point we cannot be sure and this is not a matter on which we have heard submissions.

Counsel’s contentions

[11]       Apart from relying upon Mr Irvine’s evidence that there was an  “understanding of all shareholders” in relation to pre-emptive rights, Mr Black for the Irvine interests pointed to evidence contained in two emails dated 1 October 2007 and 11 October 2007 from Mr Parat to Mr Wilson, which state:

It would have been great for me to have been offered extra shares as I would have been interested in purchasing them to acquire better control of my brand.

and:

I have not yet received any response to my previous email except for Doug [Wilson] stating that he has resigned as a director.I now need to know what is happening.  My position is still the same as discussed at the Langhom [sic] Hotel when we discussed shareholding issues and potential valuation.

1No GPK Lake Taupo shares should be transferred without the consent of all directors as I always had the understanding of pre-emptive rights.

....

[12]       Mr Black further contended that the Shareholders’ Agreement executed by the parties to the joint venture, provides pre-emptive rights.  His argument was that this was the prevailing document affecting all parties.  He said that a provision existed that a shareholder could not dispose of legal or beneficial ownership of shares other than in accordance with the pre-emptive rights provisions contained in the constitution and that [para 22.0]:

Unless all parties agree to waive this requirement, any transfer of Shares by a party to a transferee not party to this Agreement will be conditional upon the transferee entering into a participation agreement on terms acceptable to the Parties to this Agreement.

[13]       Mr McAnally, on behalf of the Wilson interests, contended that the Associate Judge was wrong to conclude any arguable counterclaim of equitable setoff existed.  He said that a proper interpretation of the relevant clause in the Deed of Termination was that nothing further was required by the Wilson interests other than to provide an executed transfer in favour of the Irvine interests or party nominated by Mr Irvine.  That had been done.  The Deed did not provide, explicitly or impliedly, any obligation for the Wilson interests to obtain Mr Parat’s consent to such a transfer.  He contended that all that was required under the Deed had been done.

Cross-appeal

[14]       The Irvine interests cross-appealed on the basis that funding and costing limitations for the joint venture, as set out in the Business Plan and Shareholders’ Agreement, were exceeded and breached without there having been shareholders’ resolutions, which were required to overcome borrowing limitations.  So, it was submitted that this afforded an arguable defence.  Mr Black accepted that there was insufficient evidence at present as to how or why “overspending” had occurred, but contended the position could not be determined at a summary judgment stage and trial following full discovery was necessary.

[15]       Further, the Irvine interests argued that the liability of the respondents was limited to their capacity as trustees of the Ridgefield Family Trust and that they could not be personally liable.  Mr Black did however accept that in the case of Mr Johnathan Irvine, the onus was on Mr Irvine to displace the presumption of personal liability through evidence indicating a contrary intention.

Discussion

[16]       We take a different view from Associate Judge Doogue as to whether there was an arguable case for defence of equitable setoff but agree with him that the Wilson interests were otherwise entitled to judgment.

[17]       We accept the appellants’ argument that providing an executed share transfer was all that was required.  Even with pre-emptive rights in Mr Parat’s favour, we are satisfied that the provisions of the Deed of Termination were not subject to any express or implied term requiring Mr Parat’s consent, or waiver, to be obtained by the Wilson interests.

[18]       The consideration of $1 supports the proposition that the shares were essentially being gifted, as part of the total termination package.  This conclusion is sufficient to dispose of the appeal.

[19]       Even accepting the concession by counsel for the Irvine interests that the pre-emptive rights in GPK existed because of a general understanding of all shareholders, we have some scepticism about this given the content of Mr Parat’s email communications. 

[20]       The matters asserted by Mr Irvine in his affidavit opposing summary judgment were vague and imprecise.  A Judge is not bound:

to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.  (Eng Mee Yong v Letchumanan [1980] AC 331, at 341E per Lord Diplock)

This is such a case. 

[21]       In any event we are satisfied that the Irvine interests are estopped from relying on such an argument that the Wilson interests had to obtain a waiver.  This is because of the communications, initiated by the solicitor for the Wilson interests to Mr Irvine, as follows:

Similarly (with the exception of Dominique [Parat]) waivers of pre-emptive rights re the share transfers are effectively covered off by the agreement.  Do you want me to get a waiver of pre-emptive rights re Dominique/GPK?

[22]       Mr Irvine responded:

I think you have covered it.  I will be back in the office and will get a waiver from Dom regarding the pre-emptive rights and also try and get the company key from him.

[23]       Mr Irvine held out unequivocally to the solicitor for the Wilson interests that he would resolve this issue with Mr Parat and that nothing further was required from them.  So even if there were pre-emptive rights, which we think was highly unlikely given that there was no constitution of GPK containing such provisions, Mr Irvine is estopped from relying on the claim that the Wilson interests had to obtain a waiver.

[24]       The argument of Mr Black that the pre-emptive rights provisions contained in “the constitution of The Terraces Ventures Ltd” could be applied in favour of Mr Parat is misguided and fails.  Mr Parat was not a party to the Shareholders’ Agreement which has no application to his shareholding in GPK.

[25]       The argument advanced by Mr Black on the cross-appeal that a factual inquiry is required into the issue of whether shareholders’ resolutions were required so as to limit borrowings and overrun costings is rejected.  When the Termination Agreement was negotiated by the parties, the terms resolved finally all issues as between the respective interests of the parties to the joint venture.  Any contentions now raised that there were breaches of the earlier Shareholders’ Agreement for which some defence/setoff/counterclaim may arise are untenable. 

[26]       The Wilson interests accepted that Felicity Irvine and Timothy Irvine’s liability is limited to their capacity as trustees.  That is apparent from the statement of claim.  But it is also apparent from the statement of claim that Johnathan Irvine is sued in his personal capacity and as a trustee of the Frankleigh Trust.  The presumption that he is personally liable is supported by the fact that the Deed of Termination is signed by him (and the other Irvine family members):

on behalf of the Frankleigh Trust by the trustees.

but also by him in his personal capacity. 

[27]       There is no evidence or indication from the factual circumstances (as Mr Black described them) raised or advanced on behalf of Mr Irvine that the presumption should be displaced.  Indeed, it is abundantly clear from the Termination Agreement that it was intended that he had personal liability.

Conclusion

[28]       We summarise:

(1)There was no arguable defence to the Wilson interests’ claim based upon the terms of the Termination Agreement;

(2)there was no reasonable argument available to the Irvine interests to support a possible claim for equitable setoff based upon the Wilson interests not obtaining a waiver of pre-emptive rights because:

·     a proper interpretation of the Deed did not require that;

·     if pre-emptive rights existed by reason of an understanding between the parties that Mr Parat could avail himself of those rights, the Irvine interests would have been estopped from successfully advancing a claim that the Wilson interests were required to obtain a waiver of such rights.

·     no such pre-emptive rights existed in any constitution of GPK there being no such constitution, or other contractual document;

(3)the arguments submitted on behalf of the Irvine interests in the cross-appeal are rejected.

[29]       The appeal is allowed and summary judgment is entered for the appellants in the High Court in the sum of $3,580,000, together with interest at the contractual rate of 13.25 per cent:

(a)on the sum of $1,800,000 from 30 September 2007 to the date of payment;

(b)on the sum of $1,780,000 from 17 October 2007 until the date of payment.

[30]       The cross-appeal brought by the Irvine interests is dismissed.

[31]       Costs in the High Court are, in the absence of agreement, to be fixed by that Court in light of this judgment and the reasons therefor.  The respondents must pay the appellants’ costs in this Court for a standard appeal on a Band A basis plus usual disbursements.

Solicitors:

Keegan Alexander, Auckland for Appellants

Taylor Grant Tesiram, Auckland for Respondents