Wulff v DeMarco
[2021] NZHC 3110
•18 November 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-000417
[2021] NZHC 3110
BETWEEN OLIVER WULFF
Plaintiff
AND
EUGENE JOHN DEMARCO
First Defendant
OLD STICK & RUDDER CO LIMITED
Second Defendant
Hearing: 10 August 2021 Counsel:
B A Scott and D W Ballinger for the Plaintiff
G A D Neil and R M G Hindriksen via VMR for the
Official Assignee for the First Defendant (a bankrupt) and the Second Defendant (in liquidation)
Judgment:
18 November 2021
JUDGMENT OF GRICE J
(interim)
Contents
Para
Introduction[1]
The background[12]
Procedural background[21]
The pleadings[27]
The plaintiff’s submissions[34]
First cause of action – breach of contract[34]
Legal effect of transactions concerning the P-40[59]
The Company Register[69]
Law – formal proof[76]
Limitation and consideration issues[80]
Analysis[87]
Conclusions on the ownership of the P-40[124]
Share register[126]
Conclusion re: share register[131]
Orders[132]
The P-40 (first cause of action)[132]
The company shares (third cause of action)[133]
Other claims adjourned to case management conference[134]
Costs[137]
WULFF v DEMARCO [2021] NZHC 3110 [18 November 2021]
Introduction
[1] These proceedings concern a dispute between Mr Wulff and Mr DeMarco, about the legal ownership of a vintage aircraft, a Curtiss P-40, and shareholding in the second defendant. The judgment is interim only to the extent that some of the claims in the statement of claim have been halted by the bankruptcy and liquidation of the first and second defendants respectively.1 Those claims will be adjourned to a case management conference.
[2] Mr Wulff says he bought, from Mr DeMarco, the Curtiss P-40 together with a 50 per cent shareholding in the second defendant. Mr Wulff seeks, among other things, a declaration that Mr DeMarco or Old Stick & Rudder Co Ltd (OSRC), holds the P-40 on trust for Mr Wulff as well as an order for rectification of the second defendant’s share register (if it exists) to record his ownership of half of the shares.
[3] Mr Wulff and Mr DeMarco were both interested in vintage aircraft. They met in 2010. Mr DeMarco, at that stage, was employed by a New Zealand company known as The Vintage Aviator Ltd (TVAL), in a senior role. His role involved restoring and building authentic replicas of vintage aircraft. He was also actively involved in the buying and selling of vintage aircraft and parts for his employer. In his personal dealings Mr DeMarco had acquired the P-40 and a Corsair aircraft from the Airtight Trust (ATT).
[4] No steps were taken to formally transfer the P-40 to Mr Wulff’s ownership, nor to record his 50 per cent shareholding in the share register of the second defendant.
[5] These proceedings were earlier put on hold pending the outcome of Mr DeMarco’s criminal trial.
[6] In September 2019, Mr DeMarco was convicted on four charges of theft by a person in a special relationship and two charges of obtaining by deception following a jury trial in the High Court at Wellington.
1 See below at [134] and [135].
[7] The first set of offending related to the sale of three aircraft owned by his employer, TVAL. The second set of offending related to his dealings with Mr Wulff. On 5 December 2019, Mr DeMarco was sentenced to two years and five months’ imprisonment.2 Mr DeMarco commenced his sentence in December 2019 and was released on parole at the end of September 2020.
[8] Following the hearing of an interlocutory application at the commencement of the trial of these proceedings, which were being conducted in tandem with another action against the defendants involving Mr DeMarco’s employer,3 Mr DeMarco was adjudicated bankrupt on an unrelated debt.4
[9] The Official Assignee immediately took over the proceedings as the administrator of Mr DeMarco’s bankrupt estate. A few days later the Official Assignee controlling Mr DeMarco’s 100 per cent shareholding in the second defendant put it into liquidation on 27 July 2021. The Official Assignee was appointed liquidator.
[10] Mr DeMarco denies that the arrangement the parties entered into allowed Mr Wulff to take ownership of the P-40 or a share in the company. Mr DeMarco, in his statement of defence, said the US $500,000 that Mr Wulff paid Mr DeMarco or to his direction was in fact a loan.
[11] The Official Assignee for the defendants says the claim is for the court to resolve. He nevertheless made detailed submissions on legal issues pertinent to the claim. In summary, he takes the view that Mr Wulff is entitled to ownership of the P-40 and to rectification of the share register.
2 R v DeMarco [2019] NZHC 3209 [“Sentencing Judgment”].
3 The Vintage Aviator Ltd v DeMarco, CIV-2017-485-1027.
4 On 14 July 2021 Mr DeMarco was adjudicated bankrupt: Re Demarco, ex parte Anderson
[2021] NZHC 1757 [“The Bankruptcy Judgment”].
The background
[12] Mr DeMarco and Mr Wulff had met in 2010. Mr DeMarco by that stage had moved from the United States to New Zealand and was employed by TVAL as its production manager.
[13] Mr DeMarco was also friendly with Mr James Slade, another vintage aircraft aficionado. Mr Slade was trustee of the ATT and its primary beneficiary, as well as having the power of appointment of new trustees. Mr Slade’s trust was apparently in financial difficulty. Mr DeMarco wanted to gain control and buy Mr Slade out. The trust owned valuable assets including the Goodyear Corsair FG-1D (Corsair) and the P-40. In September 2005 Mr Slade accepted the resignations of three other trustees and appointed Mr DeMarco as a trustee alongside Mr Slade.5
[14] Mr DeMarco sought financing from Mr Wulff on 22 September 2011, but Mr Wulff advised that he could not provide a loan. In the meantime, Mr DeMarco secured funding for ATT from the Film Property Trust (FPT), for NZ $607,000 plus US $9,000.6 A loan agreement and a specific security deed between the FPT and ATT provided that security for the loan was given over various property including the P-40. The FPT registered a financing statement in respect of its security interest on the Personal Property Securities Register (PPSR).
[15] Between September 2011 and February 2012 Mr DeMarco and Mr Wulff engaged in correspondence and discussions in which they discussed various options to address the financial difficulties that Mr DeMarco said ATT faced. He did not tell Mr Wulff that he or OSRC had taken over the ownership of the P-40, not that it was subject to a security interest to the FPT.
[16] The negotiations and discussions resulted in an arrangement in which Mr Wulff made payment of US $70,000 on 15 February 2012 to the second defendant at Mr DeMarco’s direction.
5 Deed dated 8 September 2005.
6 According to the evidence of Mr Corke, the Trust was established by Peter Jackson, who stored planes in a hanger owned by ATT. Due to financial difficulties, the ATT may have been forced to sell the hanger, which could have meant losing a place to store the aircraft.
[17] Further, on 19 March 2012, following pressure from Mr DeMarco and at his direction, Mr Wulff paid a further US $430,000 into the second defendant’s bank account. The bank statement records under remittance information “PURCHASE CURTISS P-40 ZK-RMH”.
[18] The P-40 was transferred to OSRC in March, without the consent of the FPT. OSRC therefore, it appears, had taken ownership of the P-40 about the time Mr Wulff alleges he bought the aircraft.
[19] The agreement between Mr DeMarco and Mr Wulff was partly recorded in writing and partly oral. A series of emails, in particular, one of 6 February 2012, provide evidence of an agreement in principle for the sale of the P-40 and a half-share in the second defendant to Mr Wulff. The agreement was subsequently partly reduced to writing in a shareholder agreement and share transfer agreement.
[20] The relevant written material is a shareholder agreement dated 15 March, a P-40 “side letter” dated 15 March 2012, a share transfer form dated 1 February 2012, as well as an email dated 6 February 2012 between Mr Wulff and Mr DeMarco to which I refer in more detail below.
Procedural background
[21] Shortly before this trial was due to start Mr DeMarco was adjudicated bankrupt on an unrelated matter.7 There had already been a series of procedural interlocutory hearings stemming from the defendants’ failure to meet timetable directions and to provide adequate discovery. However, the adjudication halted the proceedings, in respect of Mr DeMarco, on 14 July 2021. That day, before the adjudication, the defendants argued for a stay of these proceedings pending appeals against, primarily the order debarring the defendants from defending the proceedings, which was as a consequence of breaching an “unless” order.8 Leave was also sought to appeal that judgment and in the course of argument the defendants orally sought stays pending the determination of appeals against the 2019 convictions (which had been filed
7 The Bankruptcy Judgment, above n 4.
8 The Vintage Aviator Ltd v DeMarco [2021] NZHC 1476 [“Debarring Judgment”].
substantially out of time) and orders striking out Mr DeMarco’s counterclaim and parts of the statement of defence.9
[22] An earlier order debarring the defendants from defending the claim for failure to comply with discovery obligations and an unless order meant the defendants had been entitled to appear and make submissions but otherwise the proceedings were to proceed to trial as if they were formal proof hearings. The evidence had been filed in affidavit form with the witnesses available by audio visual link, if required, for further questions. An application for leave to appeal against the debarring judgment was unsuccessful.10
[23] Both defendants had been represented up to their respective adjudication in bankruptcy and liquidation. This included in the pre-trial matters relating to the striking out of the defendants’ counterclaim and parts of the statement of defence, the debarring judgment, and the applications for stay and leave to appeal.
[24] The applications for stay and leave to appeal were dismissed.11 The second defendant was put into liquidation on 27 July 2021. The Official Assignee, as liquidator, agreed to the continuation of some claims.12
[25] The parties agreed on various issues concerning the first and third causes of action. However, the third cause of action relates to a monetary claim and was halted by Mr DeMarco’s bankruptcy and the liquidation of the second defendant. The parties ask that that cause of action be adjourned for three months to enable the Official Assignee to further consider it. By that time, he should have at least some preliminary information on the extent of Mr DeMarco’s and the company’s assets and liabilities. Similarly, the claim for compensation in the third cause of action, has been automatically halted by the bankruptcy and liquidation and so will be adjourned for three months.
9 The Vintage Aviator Ltd v DeMarco [2021] NZHC 847 [“The Strike Out Judgment”].
10 Debarring Judgment, above n 8.
11 Insolvency Act 2006, s 76(2). The Vintage Aviator Ltd v DeMarco [2021] NZHC 1911 (leave to continue proceedings). The Vintage Aviator Ltd v DeMarco [2021] NZHC 2467 (applications for leave to appeal and stay of proceedings).
12 Companies Act 1993, s 248(1)(c).
[26] Counsel for the Official Assignee filed submissions and took a principled approach to the claims. While he noted the respects in which he agreed with the plaintiff, he said any determinations were matters for the court.
The pleadings
[27] The first cause of action is in breach of contract. It alleges a contract was entered into on about 15 March between Mr DeMarco and Mr Wulff in which they agreed that:13
(a)Mr DeMarco would transfer to Mr Wulff 500 shares in OSRC.
(b)Mr Wulff would take ownership of the P40.
(c)Mr DeMarco would take ownership of the Corsair.
(d)Mr Wulff would pay USD500,000 as consideration for the transfer of 500 shares and ownership of the P40.
(e)No further charges of loans were to be made against the Corsair or the P40 without the consent of all the shareholders of OSRC.
(f)Mr DeMarco would have a right to purchase the P40 from Mr Wulff within two years of the agreement at a price of USD500,000.
(g)Mr DeMarco would have a right of first refusal to purchase the P40 from Mr Wulff.
(h)Mr DeMarco would be the operator of the P40, and operate it for commercial purposes, including private passenger flights and at airshows.
(i)All proceeds from the commercial operation of the P40 would be applied towards its operating costs, with any surplus to be applied to an account for the benefit of Mr Wulff.
(“the Agreement”).
Particulars:
·The Agreement was partly oral and partly written. It is recorded in part in the Shareholder Agreement dated 15 March 2012; the P40 Sideletter dated 15 March 2012; the Share transfer form dated 1 February 2012; and an email dated 6 February 2012 between Mr Wulff and Mr DeMarco.
7. Pursuant to the Agreement, Mr Wulff paid USD500,000 in two tranches:
(a)a deposit of USD70,000 on 15 February 2012; and
13 Amended statement of claim 1 March 2021, at [6] and [7].
(b)the balance of USD430,000 on 21 March 2012.
[28] The first cause of action alleges a breach of that agreement. On 7 June 2016 Mr DeMarco purported to grant a security interest to the Bank of New Zealand (BNZ) over the P-40 and all present and after-acquired property of the second defendant without Mr Wulff’s consent. The relevant BNZ security interest was registered by the BNZ on the Personal Property Securities Register (PPSR) on 14 June 2016.14
[29]The relief claimed is as follows:15
(a)A declaration that Mr DeMarco breached the Agreement by purporting to grant a security interest over the P40 without obtaining Mr Wulff’s consent;
(b)A declaration that Mr Wulff is the sole owner of the P40 in law and equity;
(c)In the alternative to the declaration sought above in paragraph (b), a declaration that OSRC holds the P40 on a resulting trust for Mr Wulff and/or that Mr Wulff is the sole beneficial owner of the P40;
(d)In the alternative to the declarations sought above in paragraphs (b) and (c), a declaration that OSRC is the sole owner of the P40 in law and equity;
…
[30] The second cause of action alleges breach of contract and failure to account for proceeds. It relates to Mr DeMarco’s use of the P-40 for commercial purposes at times between February 2012 to November 2017. This cause of action seeks compensation and will be adjourned given the effect of the Insolvency Act 2006 and Companies Act 1993, halting the proceedings.
[31] The third cause of action is for breach of contract and breach of the Companies Act for failure to register the transfer of 500 shares in OSRC that Mr Wulff said were to be transferred to him pursuant to the agreement with Mr DeMarco. The relief claimed is as follows:16
(a)A declaration that Mr DeMarco has held 500 shares in OSRC on trust for Mr Wulff since the date of the Agreement;
14 This followed the discharge of the FPT security interest over the P-40.
15 Amended statement of claim 1 March 2021, at [14].
16 Amended statement of claim 1 March 2021, at [24].
(b)Orders under section 91 of the Companies Act 1993 that:
(i)OSRC’s share register is rectified to record Mr Wulff as owner of 500 shares in OSRC;
(ii)The defendants are to pay compensation to the plaintiff for loss sustained from the failure to register the transfer of 500 shares to Mr Wulff, in a sum to be quantified prior to trial;
(c)Some such other order as the Court thinks fit; …
[32] The claim for compensation sought at (b)(ii) cannot be dealt with at present due to Mr DeMarco’s bankruptcy and the company’s liquidation.
[33] Mr Neil, for the Official Assignee on behalf of the first and second defendants, noted that there may be no extant share register, therefore, the form of any order should reflect that.
The plaintiff’s submissions
First cause of action – breach of contract
[34] According to Mr Wulff, he and Mr DeMarco had had preliminary discussions and exchanged emails in September and October 2011. Mr DeMarco had told Mr Wulff that the ATT was in financial trouble, and so he approached Mr Wulff for a loan. Mr Wulff said he would not provide a loan, but discussions continued about the possibility of Mr Wulff being involved in a deal relating to the P-40 and Corsair owned by ATT.
[35] A series of emails between Mr Wulff and Mr DeMarco in November 2011 about the purchase of the aircraft followed. Mr DeMarco and Mr Wulff discussed taking ownership of both ATT aircraft as equal partners for something “along the lines of 750 K USD”.
[36] Key emails were exchanged in early February 2012. It appeared Mr DeMarco remained interested in securing a loan from Mr Wulff with security being granted over the P-40 and other assets.
[37] However, on 6 February 2012 Mr Wulff sent an email to Mr DeMarco which read as follows:
Subject: The Idea Hello Gene,
a little bit more structured now ;o) couldn't have been any less structured anyway.
I would buy the P40 from the Trust for USD 500k
(which is obviously way below value but the idea is to give you the money to get clear of James and the time to strike a good deal in the future minus the pressure)
In a side agreement we would do the following:
1. If the plane is ever to be sold you have right of 1st refusal
2. If the plane is ever sold you would receive 50% of the proceeds above USD 500.000
3. This also holds if you exercise your right of 1st refusal*
4. You would operate the plane in NZ for airshows/passenger flights. All proceeds from this would go towards maintenance, insurance, hangaring and if anything is left: over beyond that towards a 'replacement' reserve.
5. The insurance would be in my name but you would operate the plane (and hopefully one day I would be able to fly it too)
6. The principal idea is to leave the plane in NZ and to strike a more encompassing deal involving hangar, Corsair and P40.
7. There would be a clause or option for you to buy back the plane for 24 months for USD 500.000
8. If you buy back and sell the plane we would also split the profits above USD 500.000 50%-50%.
* This implies that if someone were to want to buy the plane for lets say USD 1 million you would either get another USD 250.000 or you could buy the plane for USD 500.000 plus USD 250.000 ie USD 750.000 as you are due to receive 50% of the profits.
I believe that this structure should keep both of us safe. If worse comes to worse you have 2 years time to sort everything out (point 7). There is a bit too much sales talk in the above so just to clarify things. I have no intention to sell the plane full stop. The idea is to give us and especially you the ability to sort out the mess. Please let me know what you think and if this would work. I still need to make sure that I can get the money together but would get onto that as soon as we have reached an agreement in principal. I am guessing you need to speak to the trustees and James to see if they would give
the all clear for the above. Personally I can sleep with the above and am hopeful that we can evolve this into a great cooperation going forward. Please let me know what you think.
Cheers Oliver
[38] Mr DeMarco replied by email on the same day saying, “I am happy to give the all clear to what you suggest”.
[39] Mr Wulff came back and said that he would draw something up for discussion purposes. He also noted that he was booking a trip to New Zealand. There were various other exchanges of emails.
[40] Mr Wulff, in his evidence, said there was pressure on him from Mr DeMarco to pay some money toward the purchase of the P-40. Mr Wulff undertook to draw up a contract for execution on the basis that the ATT owned the planes and Mr Wulff’s payment of US $500,000 would be to the trust and he would acquire the P-40. Mr DeMarco would then become the sole beneficiary of the trust which would still hold the Corsair.
[41] Mr Wulff said around this time Mr DeMarco suggested that following the purchase by him of the P-40 the OSRC would operate the P-40 and the Corsair. Mr Wulff says he recalls Mr DeMarco explaining to him why this and a mutual shareholding for “us both” would be beneficial in terms of the “operation, operational profits, registration, insurance, maintenance etc for the aircraft. I was happy with the idea provided I owned the P-40”.
[42] There followed some emails about the preparation of the contract. Mr Wulff intended to modify a contract he had found on the internet for the purchase of aircraft. He said he was going to amend it to fit the sale and purchase of the P-40 and was also going to draft a side letter with the additional terms that he had set out in his earlier email set out above at [37].
[43] Mr Wulff subsequently emailed on 10 February, confirming the “real goal I have with this is to purchase hangar, corsair and p40 and share the ownership with
you…”. There is also a reference to “Stefan”, but it appears that that third party had earlier decided he did not want to be part of the transaction.
[44] In the 10 February email were two electronic SkyMail links, one to an aircraft contract and another to the P-40 side letter. Those electronic draft agreements are no longer available for download. Mr DeMarco responded on 12 February to say that he had looked at both drafts and “basically everything seems in order”. Mr DeMarco then pressed for payment from Mr Wulff. Mr Wulff says he was concerned he might lose the opportunity to purchase the P-40 and so agreed to make a down payment for the purchase with the rest of the money to follow as soon as possible.
[45] Mr Wulff then made payment of US $70,000, at the direction of Mr DeMarco, to “Dairy Air Ltd”. The narration or reason for the payment was stated as “Downpayment Curtis P-40 Kittyhawk ZK-RMH”. The records indicate that the payment was processed on 15 February 2012. Mr Wulff emailed Mr DeMarco on 23 February 2012 with the subject line “All good?” Mr Wulff said he assumed the money had arrived and hoped everything was sorted out and that Mr DeMarco was “now the master of the show”. Mr DeMarco emailed that he should have everything signed over “tomorrow”.
[46] Mr DeMarco indicated, in a separate email thread with the subject line “OSCR”, that he wished to speak to Mr Wulff “in the weekend” regarding the sale and purchase and how “we would move forward”. Mr Wulff understood this to be a reference to the sale and purchase of the P-40 for which he had just made the down payment. Mr DeMarco indicated that he was having “real difficulty with the loan conditions and the lawyer drafting an agreement that incorporates your ideas. We should think about how to get others involved and how to fund the note etc etc”. Mr DeMarco said he would collect the various issues and put them into an email to send to Mr Wulff for them to work on together. Mr Wulff says he has no idea what Mr DeMarco meant by “fund the note”. That was never discussed between them. Mr Wulff had assumed that he was referring to loan documents relating to the bank loan or its repayment. Mr Wulff said he knew Mr DeMarco had bank lending requiring repayment.
[47] Mr Wulff travelled to New Zealand as planned and arrived on about 13 March. He stayed with Mr DeMarco and while he was in New Zealand, he executed various documents to give effect to what Mr DeMarco and Mr Wulff had previously agreed. Three documents were executed by Mr DeMarco and Mr Wulff at Mr DeMarco’s house or at Mr DeMarco’s employers’ workshops.
[48] Mr Wulff said the three documents reflected what Mr DeMarco and he had agreed: that Mr Wulff would own the P-40 and Mr DeMarco would own the Corsair; Mr Wulff would be a 50 per cent shareholder in OSRC, which was to operate the aircraft; and Mr DeMarco would have certain rights in respect of the P-40, which were recorded in the side letter.
[49] The first relevant document is headed “Shareholder Agreement” for OSRC. The second was the share transfer form and the third was the “side letter”.
[50] The shareholder agreement is dated 15 March 2015, but Mr Wulff says this is a typo and it should say 15 March 2012. It is titled “Shareholder Agreement; The Old Stick and Rudder Company Ltd” and signed by Mr DeMarco and Mr Wulff as shareholders, number one and two respectively. It records certain matters as being agreed between the parties, including:
WHERAS [sic]
A.The Shareholders are, or intend to be the only shareholders of the company
B.The parties desire to record their agreement as to certain matters relating to the company
C.Individual assigned ownership of the aircraft is as follows
• Corsair ZK-COR– Gene DeMarco
• P-40 Kittyhawk ZK-RMH – Oliver Wulff NOW THE PARTIES AGREE AS FOLLOWS
1.To comply with the terms set forth in the Agreement called P-40 Sideletter.
2.A charge is to be placed on the P-40 for $500,000 USO to register the security interest of Oliver Wulff this will be recorded by way of PPSR
3.No further charges or loans are to be made against the assets of Old Stick and Rudder Co without the consent of all shareholders.
…
[51] The side letter states it is an agreement made and executed on 15 March 2012 between Mr Wulff, referred to as the “buyer”, and Mr DeMarco, referred to as the “operator”. The provisions set out in the “side letter” are as follows:
1.Should Oliver Wulff wish to sell the airplane the operator will have the right of 1st refusal, to be exercised within 15 days of an email notification by the Buyer.
2.If the aircraft is sold the operator will receive 50% of the proceeds above USD 500.000 plus costs such as taxes, fees etc.
3.If the operator exercises the right of 1st refusal he will also receive 50% of the proceeds above USD 500.000 plus costs such as taxes, fees etc.
4.The plane is to be based in New Zealand at Masterton aerodrome until further notice but for at least 2 years
5.The operator will be using the airplane for commercial and private purposes such as airshows and passenger flights. All proceeds from commercial activity will be used to pay for hangaring, maintenance, insurance etc, Any extra proceeds will be credit to an account of the owner and kept as a reserve for repairs etc.
6.Costs insurance, maintenance, storage and other costs from the operation of the aircraft that go above the revenues from the commercial activities will be paid for by the operator.
7.Cost for all other flying activity by the operator will be born [sic] by the operator.
8.The insurance of the airplane will cover third party damages and damages to the aircraft. For the later the owner would be the beneficiary whereas the payment of the insurance premiums are the responsibility of the operator.
9.The operator will ensure that the airplane is maintained appropriately and kept in good working order.
10.Should the operator wish to purchase the airplane at any point in time during the two years after the execution of this agreement he can do so at the price of USD 500.000 plus any costs incurred by the owner in association with the purchase, sale and operation of the aircraft provided the airplane remains in the possession of the owner at the time of such a request
11.If the operator purchases the airplane under the terms of point 10, then the owner will be entitled to 50% of the proceeds above USD 500.000
plus costs such as taxes, fees etc. should the operator sell the airplane afterwards
12.Any changes to this agreement will need to be in writing and signed by both parties.
[52] That document is signed by Mr Wulff as “Buyer” and Mr DeMarco as “Operator”.
[53] On 19 March 2012 Mr DeMarco emailed Mr Wulff with the bank account details for OSRC and requested a bank transfer on 20 March 2012. On that date Mr Wulff paid US $430,000. It was received into OSRC’s ANZ bank account on 21 March 2012. The ANZ statement records under remittance information, “PURCHASE CURTIS P40 ZK-RMH”. Mr Wulff says he does not remember why Mr DeMarco directed the payment to be made to OSRC but trusted Mr DeMarco to forward the funds onto ATT.
[54] In the meantime, the P-40 that had been owned by ATT had been sold to OSRC, along with three other assets including the Corsair, in March 2012 for a sum of US $500,000. This sale was recorded in:
(a)a trustee minute of ATT dated 14 March 2012, which was signed by Mr Slade (the ATT trustee);
(b)an undated sale and purchase agreement, which was signed by Mr Slade. The possession date is recorded as 15 March 2012; and
(c)Civil Aviation Authority change of possession of aircraft forms for the Corsair and P-40, dated 14 March 2012. The forms are signed by Mr DeMarco as trustee for ATT and record the transfer of the aircraft to OSRC, with its interest being noted as that of a legal owner.
[55] At the time of the sale Mr DeMarco was the sole director and shareholder in OSRC.17
17 Mr DeMarco has admitted this, and that OSRC obtained ownership of the Corsair and P-40, in his statement of defence dated 22 March 2021.
[56] Mr Wulff was not aware that the P-40 was already charged at the date of the “purchase”. A security interest had been registered over it in favour of the FPT. Therefore, if Mr Wulff took ownership of the P-40 he took it subject to that charge. That registered security was subsequently discharged.
[57] Counsel for TVAL and the FPT in separate proceedings that were “travelling” with these proceedings,18 confirms that TVAL and the FPT do not claim a security interest or any other proprietary interest in the P-40.19
[58] With that background I now turn to consider the submissions made to the parties as to the legal effect of the arrangements between Mr DeMarco and Mr Wulff relating to the P-40.
Legal effect of transactions concerning the P-40
[59] Counsel agree that the interpretation of the contractual material should be approached in line with the Supreme Court’s decisions in Firm PI 1 Ltd v Zurich Australian Insurance Ltd and more recently in Bathurst Resources Ltd v L & M Coal Holdings Ltd.20 In summary, the general approach to contractual interpretation is as follows:21
[60] … the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
[61] The requirement that the reasonable person have all the background knowledge known or reasonably available to the parties is a reflection of the fact that contractual language, like all language, must be interpreted within its
18 The Vintage Aviator Ltd v DeMarco CIV-2017-485-001027. The proceedings were being dealt with together because of the common parties and transactions. Due to the bankruptcy and liquidation of the first and second defendants respectively, the proceedings were heard separately.
19 Memorandum of counsel for the plaintiffs concerning waiver of claim as to security over the P-40 aircraft dated 11 August 2021.
20 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 [“Firm PI”] and Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85 [“Bathurst”] at [10] and [43]–[44].
21 Bathurst, above n 20, at [43]; citing Firm PI, above n 20.
overall context, broadly viewed. Contextual interpretation of contracts has a significant history in New Zealand, although for many years it was restricted to situations of ambiguity. More recently, however, it has been confirmed that a purposive or contextual interpretation is not dependent on there being an ambiguity in the contractual language.
…
[63] While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
(Footnotes omitted)
[60]In respect of prior negotiations, the Supreme Court in Bathurst said:
[75] The issue for a judge is whether evidence of prior negotiations tends to prove anything relevant to the notional reasonable person. Evidence of the content of prior negotiations will be inadmissible to the extent that it proves only a party’s subjective intention or belief as to the meaning of the words, or what their undeclared negotiating stance was at the time. That is because such evidence is irrelevant to the objective task of interpretation. Often the prior negotiations will not have addressed (even by necessary implication) the issue that has arisen in the proceedings, because that was an issue not identified by the parties prior to contract formation. Often they will also reveal no more than a negotiating stance adopted by one party that is not agreed to by the other.
[76] However, if evidence shows what a party intended the words to mean, and that this was communicated, it may tend to show a common mutual understanding as to the meaning of the contract. Logically, the party who claims to have communicated their intention would have to be able to point to something — even if just silence (in circumstances where a reply might be expected) — on the part of the other party to bring that intention into the realm of mutual understanding. Such an understanding is relevant to the objective search for meaning. The evidence will be relevant and, subject to the s 8 assessment, admissible.
(Footnotes omitted)
[61] Mr Scott, for the plaintiff, also pointed to the summary of the principles as set out in the Supreme Court decision of Vector Gas Ltd v Bay of Plenty Energy Ltd.22
The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean. The court embodies that person. To be properly informed, the court must be aware of the commercial or other context in which the contact was made and of all the facts and circumstances know to and likely to be operating on the parties’ minds.
[62] The plaintiff submitted that the three documents executed on 15 March 2012 did not reflect the entire agreement between Mr Wulff and Mr DeMarco as they assumed matters that were orally agreed and may not have been set out in the written part of the agreement. Mr Scott submitted the agreement needs to be pieced together from the three documents and Mr Wulff’s evidence as to the terms of the oral agreement. He noted the three documents were signed around the same time and, in effect, represent the overall agreement reached between the parties which is reflected in the earlier negotiations. In particular, the email of 6 February setting out the details of the side letter agreement was largely reproduced in the signed side agreement.
[63] Mr Scott summarises the submissions in support of Mr Wulff being the owner of the P-40 starting with the ATT financial position as follows:
78. …
(a)Mr Slade (and therefore Mr DeMarco) were in financial trouble with their financier threatening to foreclose on a loan and sell the three secured assets (hangar, Corsair, P40).
(b)Mr DeMarco (with Mr Slade) needed to raise money. They had three assets available to them including the P40.
(c)Mr Wulff and Mr DeMarco discussed various arrangements including a purchase of assets or lending against the assets.
(d)Mr Wulff identified that a loan arrangement would not change the situation from the current one i.e. a lender potentially having to sell assets if the loan was not repaid.
(e)Mr DeMarco was pressuring Mr Wulff by creating a competing buyer situation.
22 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19] per Tipping J.
(f)Mr Wulff made a down payment of USD70,000 for the aircraft purchase.
(g)Mr Wulff and Mr DeMarco signed three documents at about the same time.
(h)The Shareholder Agreement recorded in the recital that Mr Wulff was to have ownership of the P40.
(i)The Side letter proceeds on the entire basis that Mr Wulff was to own the P40. It makes no sense otherwise.
(j)The Share transfer is of no relevance to who was to own the P40.
(k)So of the two relevant documents executed, both record or rest on Mr Wulff being owner of the P40.
(l)Mr DeMarco alleges the arrangement was a loan. But there are no terms of any loan e.g. interest rate, term, consequences of default etc.
(Footnotes omitted)
[64] The plaintiff also submitted that Mr DeMarco’s subsequent conduct23 was consistent with the agreement being that he would own the Corsair but not the P-40. In particular, after the P-40 was relocated from the TVAL hangar to a secure location in early November 2017, Mr DeMarco sought from TVAL the return of a number of specific items from the hangar, including the Corsair but no mention was made of the P-40 nor was a demand made for its return.24 This suggests Mr DeMarco took the view the P-40 did not belong to either defendant.
[65] In the alternative the plaintiff argues that OSRC, if it is found to be the legal owner of the P-40, holds it subject to a resulting trust in favour of Mr Wulff as Mr Wulff paid funds totalling $500,000 toward its purchase. The plaintiff points to the fact the payment was made with the intention that the P-40 would come back to Mr Wulff and belong to Mr Wulff with a right of first refusal for two years in favour of Mr DeMarco. Mr Scott submitted it was clear from the P-40 side letter that at least the $500,000 would come back to Mr Wulff in the event the P-40 was sold.
23 Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) [“Burrows, Finn and Todd”] at 198–200.
24 According to the affidavit of Sir Peter Jackson.
[66] In addition, the plaintiff says it is clear that the funds were not intended as a loan as pleaded by Mr DeMarco. Mr Wulff says there are no written provisions in any of the three executed documents as to the interest rate, loan term, or dealing with other customary aspects of a loan. While there are passing references to the possibility of a loan in email negotiations Mr Wulff had firmly rejected any such arrangement. Therefore, he submits that the Court can be satisfied that the presumption of a resulting trust in favour of Mr Wulff applies and that has not been rebutted.
[67] In written opening submissions filed on behalf of the defendants before Mr DeMarco went into bankruptcy and the second defendant went into liquidation, the defendants submitted that the agreement was unclear and the Court could rewrite the contract in a way that accorded with the objectively assessed original intentions of the parties. The defendants pointed to a comment by Clark J who sentenced Mr DeMarco to the purported assignment of ownership of the P-40 as being “legally meaningless”.25 Mr DeMarco maintained the $500,000 was a loan.
[68] Alternatively, in relation to the claim based on a resulting trust the defendants submitted that any resulting trust would be in favour of Mr Wulff for only $500,000 or, given the reference in the documentation about splitting the proceeds over
$500,000, then 50 per cent of the value over $500,000.
The Company Register
[69] In relation to the third cause of action the plaintiff relies on the decision in Nicholls v Parkview Projects Ltd,26 as to the power to rectify a company register under s 91 of the Companies Act 1993. Counsel submits:27
(a)Section 91 is discretionary:
Rectification is an equitable remedy and it would be inconsistent of Parliament to confer such remedy in one discretionary form.28
25 Sentencing Judgment, above n 2, at [11].
26 Nicholls v Parkview Projects Ltd (1999) 8 NZCLC 262,016 (HC) [“Nicholls”].
27 Submissions for formal proof hearing; Plaintiff 12 July 2021, page 29, at [118].
28 Nicholls, above n 26, at 7.
(b)In an application for rectification, the Court takes into account all the circumstances of the case and considers what equity the applicant has to support the application.29
(c)While rectification should be ordered if the power to transfer has not been exercised by the directors or the company within a reasonable time, this principle was of no application for the circumstances of the existing case where pre-emptive rights were in place.30
(d)Section 84’s purpose is the enforcement of the right of the transferee to have a share transfer registered if “he is entitled to that course”.31
(e)Section 84(4) of the Companies Act does not amend the substantive laws of New Zealand. It does not permit a transferee who has no right to have a share transfer registered (because of the pre-emptive right provisions) to compel registration because the directors of the company have overlooked following the procedures set out in that section.32
[70] Mr Scott pointed to the decision in Sharrock v Wedd,33 where there was some doubt as to whether there was a share register in existence. The Court said:
[60] Mr Sharrock asks for a declaration that he is a shareholder in Just Steel, but I doubt that that can be the position legally, when he is not presently registered as such in Just Steel share register. In these circumstances, I think that the justice of the case would be met if I made a declaration that Mr Sharrock is entitled to be entered in the share register which Just Steel is required by the Act to maintain as a shareholder in the company, or in the event that a share register for Just Steel currently exists is entitled to an order under s 91 of the Act rectifying the register by including Mr Sharrock’s name in the register in respect of the shares acquired by him under the Deed and any other shares that he may subsequently have validly acquired in Just Steel.
[71] Mr Scott also pointed to the decision in Singh v Patel,34 where the High Court found the absence of a share register does not preclude an agreement to purchase the shares.35 The Court of Appeal noted that it was the responsibility of the directors to keep a share register and ensure that share transfers were properly entered on it in accordance with s 84 of the Companies Act. Whether the company maintained a share register or not, once the shares had been purchased by Mr Singh, they had remained his.
29 Nicholls, above n 26, at 8.
30 At 9–10.
31 At 13.
32 At 14.
33 Sharrock v Wedd [2016] NZHC 1477.
34 Singh v Patel [2021] NZCA 242.
35 At [28] and [29].
[72] In relation to the application of the law to the facts in this case, Mr Scott submitted that the following facts pointed to an agreement to sell the shares to Mr Wulff:
(a)Mr Wulff has deposed that he and Mr DeMarco agreed that Mr Wulff was to be a 50% shareholder in OSRC which was to operate the aircraft.
(b)Mr Wulff and Mr DeMarco signed an agreement headed:
SHAREHOLDER AGREEMENT
The Old Stick and Rudder Company Ltd.
(c)The recitals to the agreement recorded that “The Shareholders are, or intend to be the only shareholders of the company”.
(d)The agreement contained a clause regarding the operation of OSRC (clause 3; in relation to loans).
(e)The agreement was signed by Mr DeMarco as “shareholder 1” and Mr Wulff as “shareholder 2”.
(f)Mr DeMarco (as transferor/seller) and Mr Wulff (as transferee/buyer) signed a share transfer form for 500 shares in OSRC, being 50% of its shares.
(g)Mr Wulff assumed that Mr DeMarco would attend to registration of the share transfer. Mr DeMarco was at the relevant time the sole director of OSRC.
(Footnotes omitted)
[73] Mr Scott points out that there is no evidence that OSRC has a share register. It was not provided in discovery. He further notes:
…
(b)OSRC does not have a constitution. This means that there are no pre-emptive rights. Therefore the only ground to delay or refuse the registration of the transfer of shares is if: “the holder of the shares has failed to pay to the company an amount due in respect of those shares, whether by way of consideration for the issue of the shares or in respect of sums payable by the holder of the shares in accordance with the constitution.”
(c)On 4 May 2020, when Mr Ward was the sole director of OSRC, he was delivered a copy of the share transfer form.
(d)Mr Ward responded by an undated letter which was received on 4 June 2021. This letter stated that there was no evidence that Mr Wulff was a shareholder in OSRC.
(e)There is no evidence of any of the steps set out in s 84(4) being taken by OSRC.
(f)There is no evidence that Mr Wulff or Mr DeMarco have failed to pay to OSRC an amount due in respect of those shares. Nor has this ground ever been raised by way of affirmative defence or otherwise.
(g)Mr Ward and OSRC therefore had no right to refuse to register Mr Wulff as a shareholder.
(Footnotes omitted)
[74] The plaintiff noted that he sought a declaration of equitable ownership of shares. Although, if a rectification order was made then this declaration was of less moment. The plaintiff says that the failure of Mr DeMarco and OSRC to register the share transfer in accordance with the Companies Act means that Mr DeMarco continues to hold the shares on trust for Mr Wulff until such time as the register is rectified.36
[75] The relief in the third cause of action for compensation cannot be pursued given the bankruptcy and liquidation of the first and second defendant respectively. In any event, Mr Wulff had earlier submitted given the lack of discovery of the company’s financial records, it was not possible for Mr Wulff to take that claim any further.
Law – formal proof
[76] This matter was heard on the basis of evidence adduced on behalf of the plaintiff’s claim in affidavit evidence without cross-examination. To that extent the matter was a formal proof. However, there was detailed argument on behalf of the defendants in relation to the legal effects of the claims.
[77] In addition, I have considered the written submissions made in the opening memoranda filed by Mr Fraser on behalf of the defendants before their bankruptcy and liquidation. A further memorandum was filed concerning the proposed order to rectify the share register on behalf of the second defendant, before it went into liquidation.
36 Referring to Phillips v Phillips (1985) 3 NZFLR 791 (HC) in which the High Court ruled that even if the share transfer was never rectified Mr Phillips would retain his equitable ownership of the shares and the seller who was named on the share register would hold the legal title of the shares on trust for Mr Phillips’ benefit.
[78] The provisions of r 15.9 of the High Court Rules 2016 which govern formal proof hearings apply. That provides:
(1)This rule applies if, or to the extent that, the defendant does not file a statement of defence within the number of working days required by the notice of proceeding, and the plaintiff seeks judgment by default for other than a liquidated demand.
(2)The proceeding must be listed for formal proof and no notice is required to be given to the defendant.
(3)After a proceeding is listed for a formal proof hearing, no statement of defence may be filed without the leave of a Judge granted on the ground that there will or may be a miscarriage of justice if judgment by default is entered, and on such terms as to time or otherwise as the Judge thinks just.
(4)The plaintiff must, before or at the formal proof hearing, file affidavit evidence establishing, to a Judge’s satisfaction, each cause of action relied on and, if damages are sought, providing sufficient information to enable the Judge to calculate and fix the damages.
(5)If the Judge before or at the formal proof hearing considers that any deponent of an affidavit filed under subclause (4) should attend to give additional evidence, the Judge may direct accordingly and adjourn the hearing for that purpose.
[79] The requirements and standard required at a formal proof hearing were considered by Duffy J in Ferreira v Stockinger.37 Her Honour said:
[33] Now r 15.9 of the High Court Rules applies to a formal proof hearing when no statement of defence has been filed and the plaintiff seeks judgment by default for other than a liquidated demand, which is the case here. This rule provides a mandatory procedure: “it does not involve the immediate entry of judgment by default”.
[34] Under r 15.9(4) a plaintiff must establish to a Judge’s satisfaction each cause of action relied on and, if damages are sought, provide sufficient information to enable the Judge to calculate and fix the damages. The affidavit evidence required by r 15.9(4) should not include evidence that the Court could not receive if objection was raised by the defendant.
[35] When it comes to the extent to which the plaintiff’s evidence is required to satisfy a Judge under r 15.5(4) the presence of r 15.5(5) gives some indication of what may be required. Rule 15.5(5) permits a Judge to direct a deponent of an affidavit to attend the Court to give additional evidence. The fact the rules make provision for a Judge hearing a formal proof to hear from witnesses whose evidence has obviously not been challenged by an opposing party suggests to me that the level at which a Judge is required to satisfy herself regarding the plaintiff’s evidence is much the same as it would be if
37 Ferreira v Stockinger [2015] NZHC 2916.
the proceeding had gone to trial. This view of r 15.9 is consistent with the observation of Kós J in Neumayer that the r 15.9 procedure may not provide any advantage over allowing matters to run to trial. The view that I take of r 15.9 is also consistent with the very helpful discussion of the earlier version of r 15.9 in Chen v Zhong, where Wylie J makes it clear that in a claim for unliquidated damages where no statement of defence has been filed, it does not necessarily follow that allegations of fact made in the statement of claim are deemed to be admitted.
[36] On the other hand in a formal proof hearing, the plaintiff is only required to prove a cause of action so far as the burden of proof lies on the plaintiff. The plaintiff is not required to engage with any matters of affirmative defences, set-off or counter-claim.
(Footnotes omitted)
Limitation and consideration issues
[80] In a memorandum Mr Fraser, for the defendants, raised a Limitation Act 2010 defence in relation to failure to register the share transfer within 35 working days.38 He says that the statement of claim was filed in May 2018 and the share transfer form is dated 1 February 2012, accordingly, the claim is out of time under the Limitation Act, which requires a claim to be brought within six years.
[81] On the other hand, the Official Assignee accepts that Mr Wulff became entitled to the transfer of 500 of the 1,000 issued shares in OSRC from about 15 March 2012 when the share transfer form was fully executed. The limitation issue was not pursued for the defendants at the hearing.
[82] I take the view that on the evidence there was no share register. The share transfer was not registered by the director, Mr DeMarco. That failure by the director to fulfil the obligation to keep a register and register transfers does not prevent the Court making the declaration sought in relation to the shares if it is satisfied such a declaration should be made. The directors have the responsibility for maintaining the share register and registering the transfers.
[83] Mr DeMarco cannot point to his own failures as a director to prevent the true situation as to the ownership of the shares being recognised. In any event declaratory
38 Companies Act 1993, s 84(4).
relief only is sought. The Limitation Act does not apply to declaratory relief .39 The limitation argument therefore fails.
[84] The second submission made on behalf of the OSRC was that Mr Wulff knew the P-40 was worth far in excess of $500,000 and that, together with the fact that Mr Wulff never “looked at the share register in eight years”, indicates that the
$500,000 paid by Mr Wulff was a loan. In addition, Mr Wulff’s 50 per cent of the shares would mean he would also indirectly own part of the Corsair, which was worth significantly more than the P-40. Essentially, the argument is that the consideration of $500,000 paid was inadequate for the benefit he received, being the P-40 plus a half-share of the company that also owned the Corsair.
[85] It is a well-established principle that the courts will not enquire into the adequacy of consideration. The courts do not seek to measure and compare the value of the promise against the value exchanged and will not denounce an agreement merely because it seems unbalanced or unfair.40
[86] Both Mr Wulff and Mr DeMarco were businessmen and Mr DeMarco was particularly keen to get the money which, by any measure, was a substantial amount. The side letter provided further value for Mr DeMarco. In my view the court does not need to, and should not, consider the adequacy of consideration in this case.
Analysis
[87] Following Mr DeMarco’s adjudication in bankruptcy on 14 July, and the liquidation of the second defendant on 27 July 2021, the Official Assignee, as administrator of Mr DeMarco’s bankrupt estate and as liquidator of OSRC, assessed the merits of Mr Wulff’s claim to ownership of the P-40 and to a 50 per cent shareholding in OSRC.
[88] The Official Assignee indicated that insofar as the claims were to property they were not halted by the bankruptcy or liquidation. The claims for compensation,
39 Maltese Cat Ltd v John Doe [2017] NZHC 1728 at [16].
40 Burrows, Finn and Todd, above n 23, at [4.4].
however, in the second cause of action and part of the relief in the third cause of action, were halted by the insolvency and liquidation.
[89] The Official Assignee indicated that he accepted that Mr Wulff had become entitled to the transfer of 500 of the 1,000 issued shares from OSRC from on or about 15 March 2012 when a share transfer form was fully executed by Mr DeMarco as transferor and Mr Wulff as transferee. The Official Assignee also did not dispute that Mr Wulff was entitled to an order for rectification of the share register (if it existed).
[90] In addition, the Official Assignee for the defendants accepted that Mr Wulff was entitled to full ownership, both legal and beneficial, of the P-40 subject to:
(a)any security or proprietary interests that TVAL or the FPT may have in the P-40; and
(b)Mr DeMarco’s right to share in the proceeds of the P-40 pursuant to cl 2 of the P-40 side letter agreement.
[91] Both parties agreed that if the Court found that Mr Wulff was not the legal owner of the P-40 it was open to find that he was nevertheless the beneficial owner subject to the interests identified above with OSRC holding the P-40 on a resulting trust for Mr Wulff.
[92] The P-40 had been transferred to the second defendant by the ATT while the aircraft was still subject to the FPT security interest. That security was subsequently discharged. TVAL, in separate proceedings, is arguing that it was subrogated to the security on the terms and conditions of the loan originally held by the FPT in relation to the Corsair.
[93] TVAL says that it does not seek any interest in the P-40, although it maintains its claim for an interest in the Corsair. Therefore, there is no need to consider the position of the P-40 in relation to the previous FPT security interest or any subsequent subrogation or tracing claim by TVAL.
[94] I turn to consider the rules concerning intention to transfer ownership as it relates to the P-40.
[95] The Official Assignee noted that the Contract and Commercial Law Act 2017 governs the sale of goods and it applies to the present case.41 Section 144 of that Act provides:
144 Property passes when intended to pass
(1)… the property in the goods is transferred to the buyer at the time that the parties to the contract intend it to be transferred.
…
[96] Section 146 provides the rules for ascertaining when the parties intend for property to pass from the buyer to the seller in the absence of a different intention. Rule 1 provides as follows:
146 Rules for ascertaining parties’ intention
Rule 1
(1)Under an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made.
(2)For the purposes of subsection (1), it is immaterial whether the time of payment or the time of delivery, or both, is postponed.
[97] In this case the parties prepared and signed the documentation, recording their agreement, without legal input. It is not as comprehensive or consistent as would be desirable for a commercial transaction of the size involved. Nevertheless, both Mr Wulff and Mr DeMarco were experienced businessmen who were used to doing business and, it appears, considered themselves sufficiently experienced to draw up the formal documentation.
[98] I have set out above some detailed excerpts from the three documents signed by Mr DeMarco and Mr Wulff: the share transfer agreement; the shareholder agreement; and the P-40 side letter. None of those documents constitute the full
41 Contract and Commercial Law Act 2017, sch 1: cl 10 states that Part 3 (which includes the relevant sections) “applies to any contract of sale of goods regardless of whether it is made before or after the commencement of this Act”.
agreement between the parties. Nevertheless, they do largely record the provisions which were set out in the email of 6 February 2016 from Mr Wulff. The terms of that email were agreed to in principle by Mr DeMarco subject to the documentation.
[99]In particular:
(a)The share transfer records an agreement to transfer 50 per cent of the shares to Mr Wulff.
(b)The shareholder agreement recites what has been agreed between the parties including that Mr DeMarco would have ownership of the Corsair and Mr Wulff of the P-40. It contained an express term that the parties would comply with the terms in the “agreement called P40 sideletter”. It refers to a charge to be passed on the P-40 for US $500,000 recorded “by way of PPSR”.
(c)The P-40 side letter, which is titled as an agreement between Mr Wulff as buyer and Mr DeMarco as operator, refers to the sum of US $500,000 as the set price for a purchase by Mr DeMarco within two years. It is also the threshold above which any proceeds of sale are divided 50/50 between Mr DeMarco and Mr Wulff. It is apparent that this document is the “P40 sideletter” referred to in the shareholder agreement.
[100] None of those documents refer explicitly to Mr Wulff’s payment of $500,000 as a purchase price. The shareholder agreement refers to the registration of a security interest for US $500,000 to be recorded in the PPSR. That is evidence which would support Mr DeMarco’s argument that the $500,000 was a loan.
[101] However, Mr Wulff explains the security reference by saying he had been told by Mr DeMarco that without a register of ownership of aircraft, the way in which to secure Mr Wulff’s proprietary interest in the aircraft was by the registration of the security interest.
[102] The side letter refers to Mr Wulff selling the P-40 and the operational arrangements following sale, as well as providing for an option for Mr DeMarco to buy the aircraft back from Mr Wulff unless it was earlier sold. This supports the fact that the parties intended a sale of the P-40 to Mr Wulff.
[103] Standing back and looking at the correspondence and the documentation, I conclude the agreement was for the purchase of the P-40 and it was not a loan agreement. In addition, the email of 6 February 2012 was unequivocal. Mr Wulff would not provide a loan but outlined the proposal for the purchase of the P-40 for
$500,000. Mr DeMarco said he was happy with that proposal by return email. When Mr Wulff provided the draft contracts, he reiterated his goal of purchasing the P-40 and Mr DeMarco expressed his satisfaction with the drafts. The key terms in the P-40 side letter and the shareholder agreement are consistent with the proposal in Mr Wulff’s 6 February 2012 email.
[104] In addition, the narrations on the remittances of the payments from Mr Wulff seem to also indicate they were payments toward the purchase of the P-40.
[105] I am satisfied there was a contract between Mr DeMarco and Mr Wulff for the purchase of the P-40 based on the evidence I have set out above.
[106] The issue then becomes whether Mr DeMarco was able to actually sell the P-40 because at no stage did he personally own it. The ATT had sold it to OSRC. That sale occurred in March 2012, although the exact date is unclear. There is a trustee resolution by ATT approving the sale dated 14 March 2012. The sale and purchase agreement of 2012, which records a possession date of 15 March 2012, is itself undated and only signed by Mr Slade as trustee of ATT. The Civil Aviation Authority forms recording the transfer of possession are dated 14 March 2012.
[107] Mr Wulff’s first payment of US $70,000 was made on 15 February 2012, prior to the sale of the P-40 by ATT to OSRC. The money was paid by Mr Wulff to Mr DeMarco’s company on the understanding it would be transferred to OSRC, which would then pay Mr Slade who was a trustee of the ATT.
[108] I am satisfied that the share transfer agreement, the shareholder agreement and the P-40 side letter were executed in March 2012. While the share transfer agreement is dated February, Mr Wulff says he was not in New Zealand until 13 March 2012. The date of 15 March 2015 on the shareholder agreement is likely a typographical error. The date on the P-40 side letter is 15 March 2012 and contextually the shareholder agreement, the P-40 side letter, and the share transfer agreement appear to be linked. I am satisfied all the documents were executed around 15 March 2012 while Mr Wulff was in New Zealand.
[109] In addition, this is supported by the fact that Mr Wulff paid the balance of the money to OSRC on 20 March 2012 and it was received by the company on 21 March 2012.
[110] In my view the OSRC purchased the P-40 from ATT providing for a buy back agreement for Mr DeMarco within two years. This would explain why Mr Wulff’s US $70,000 initial payment was paid by OSRC to ATT and why Mr DeMarco instructed Mr Wulff to pay the balance to OSRC on 19 March 2012.
[111] Mr DeMarco signed the relevant documents in dual capacities as a trustee and as a director of OSRC.
[112] In Doughty-Pratt Group Ltd v Perry Castle, the Court of Appeal found that directors had signed a guarantee in dual capacity.42 In that case the agreement contained a clause that provided that the directors would guarantee the company’s covenants under the agreement. The attestation clauses at the end of the document only provided for signatures by the directors on behalf of the company. There was no place for guarantors to be identified and to sign, and the Court held that the directors had signed in dual capacity. The directors were bound personally because they had initialled the relevant guarantee clause (which included handwritten amendments changing the persons referred to from principals to directors and inserting the directors’ names) and the directors gave evidence that they knew they were giving a
42 Doughty-Pratt Group Ltd v Perry Castle [1995] 2 NZLR 398 (CA). In different circumstances the Court of Appeal found a director had not signed a guarantee in a personal capacity in: Trotter v Avonmore Holdings Ltd (2005) 8 NZBLC 101,646 (CA).
guarantee when they were signing it. This was sufficient to bind them as guarantors despite their subjective belief that the guarantee was limited. The subjective misunderstanding by the directors of the extent of the guarantee was irrelevant as the meaning of the contract must be determined objectively.43
[113] I am satisfied that Mr DeMarco was acting in his capacity as OSRC’s director when he signed the sale and purchase agreement with Mr Wulff. The following factors support that conclusion:
(a)The P-40 was owned by ATT, whose trustees in March 2012 were Mr DeMarco and Mr Slade.
(b)By March 2012, Mr DeMarco was the sole director and shareholder of OSRC.
(c)Mr DeMarco agreed with Mr Wulff’s proposal in the 6 February 2012 email, and then signed the side letter, containing the same key terms, on 15 March 2012. This was the day OSCR would have taken possession of the P-40, according to the sale and purchase agreement.
(d)By signing the P-40 side letter at that time, Mr DeMarco represented that he had the authority to sell the P-40 to Mr Wulff. He could only have had that authority if he was acting as director of OSRC.
(e)Finally, this is consistent with Mr DeMarco directing Mr Wulff to pay the balance of the US $500,000 to OSRC on 19 March 2012, as by then OSRC appears to have taken ownership of the P-40 from ATT.
[114] Mr DeMarco signed the P-40 side letter with the designation of “operator” rather than specifically as director of OSRC. In my view “operator” was intended to refer to OSRC. There is no place for another signatory in the document. Based on the parties’ previous correspondence it was envisaged that OSRC would be the “operating company” for the P-40 in terms of air shows and passenger flights. Even if the
43 Doughty-Pratt Group Ltd v Perry Castle, above n 42, at 403–404.
operator did not refer to OSRC but, to Mr DeMarco as the pilot, in my view the circumstance indicated that Mr DeMarco was signing in a dual capacity. He did not have authority to agree to the terms of the P-40 side letter in his personal capacity as he did not own the aircraft. However, he was the sole director and shareholder of OSRC, which had bought the P-40 off ATT and, in that capacity, he did have authority.
[115] If all persons who are empowered to assent to actions on behalf of a company agree to a course of conduct, the acts of the company are valid irrespective of a failure to comply with the formal requirements.44
[116] The only party who had authority to act on behalf of OSRC was the party to the P-40 side letter – that was Mr DeMarco.
[117] I am satisfied that the agreement was for OSRC to sell the P-40 to Mr Wulff for US $500,000 and proprietary rights passed to Mr Wulff on completion of the contract.45
[118] Mr Wulff had fully performed his obligations under the contract by payment of the money. He purchased the aircraft subject to any security interest by TVAL, which has since been abandoned by it, as well as on the terms of the side letter. The buy back option for OSRC was to be exercised within two years. That term has expired without the exercise of the option.
[119] I am satisfied that Mr Wulff is the owner of the P-40. That was also the primary conclusion of Mr Neil, for the Official Assignee. He, however, also explored the alternative that Mr Wulff was a beneficial owner of the P-40 by virtue of a resulting trust and that OSRC, to the extent it maintained legal ownership of the P-40 following its purchase from ATT and sale to Mr Wulff, might hold the aircraft on a resulting trust in favour of Mr Wulff. Mr Neil submitted, as did the plaintiff, that a resulting trust or an institutional constructive trust would operate had Mr Wulff provided
44 This is referred to as the Duomatic principle. See: Westpac Securities Ltd v Kensington [1994] 2 NZLR 555 (CA). Further, Mr DeMarco admitted in his statement of defence dated 22 March 2021 that he was sole director and shareholder of OSRC and OSRC had obtained ownership of the Corsair and P-40.
45 Contract and Commercial Law Act 2017, s 144. See above at [95].
post-transaction contributions to the P-40 with a reasonable expectation of a proprietary interest that OSRC could reasonably be expected to yield.
[120] I am satisfied that OSRC did pay the $500,000 to ATT. The surrounding emails indicate that Mr DeMarco urgently requested the money from Mr Wulff in February 2012. Mr DeMarco had suggested that there was another buyer for the P-40 and so put pressure on Mr Wulff to come up with the money quickly. Mr Wulff did so.
[121] There is no evidence to suggest that the money was a gift, nor was it a loan. The evidence is that the $500,000 was intended to be used to purchase the P-40. In the absence of any evidence to the contrary a resulting trust arose over the aircraft.
[122] In accordance with well-settled principles on resulting trusts,46 which arise at the time of the payment for the purchase price, an institutional trust could arise “by virtue of conduct/contributions of the parties after the transaction”.47 I would have found that a resulting arose in favour of Mr Wulff and that OSRC was holding the P-40 on behalf of Mr Wulff following its purchase of it from ATT and sale to Mr Wulff.
[123] In any event my primary conclusion is that the legal and beneficial ownership of the P-40 is vested in Mr Wulff.
Conclusions on the ownership of the P-40
[124]I therefore conclude that:
(a)Mr Wulff has full ownership (legal and beneficial ownership) of the P-40, subject to:
46 See Wakenshaw v Wakenshaw [2017] NZCA 252, [2018] NZAR 532 at [25]. The claimant must establish contributions direct or indirect to the property in question; the expectation of an interest in the property; that such expectation is a reasonable one; and that the defendant should reasonably expect to yield to the claim and an interest in the property. The principles are not limited to the relationship property context but are part of a wider concept: Li v 110 Formosa (NZ) Ltd [2020] NZCA 492 at [136].
47 Mamat v Mamat [2018] NZHC 639, (2018) 19 NZCPR 331 at [113].
(i)Mr DeMarco’s right to share in the proceeds of sale of the P-40 pursuant to cl 2 of the P-40 side letter.
[125]I now turn to consider the issues relating to the company share register.
Share register
[126] I have set out my findings in relation to the agreement between Mr DeMarco and Mr Wulff. In 2012 Mr DeMarco agreed to transfer 50 per cent of his shares in the second defendant to Mr Wulff in consideration for the payment of US $500,000 and on the other terms and conditions of the contract including the side letter. Mr DeMarco entered that agreement in a dual capacity, both on behalf of OSRC and himself personally.
[127] The Official Assignee, as administrator of Mr DeMarco’s bankrupt estate, has requested the Court, as has the plaintiff, to grant the share rectification order and to order the transfer of shares to Mr Wulff post liquidation pursuant to s 248(1)(d) of the Companies Act.
[128] However, there is no evidence that a share register ever existed. The register should have been kept by Mr DeMarco as director. In those circumstances the form of the order as was used in Sharrock v Wedd is appropriate.48 That is that Mr Wulff be entitled to be entered as a shareholder of 500 ordinary shares in the share register of OSRC.
[129] In the event that such a register did exist, I would have made an order rectifying that register under s 91 of the Companies Act by including Mr Wulff’s name in the register in respect of the 500 shares acquired by him from Mr DeMarco in the agreement of March 2012.
[130] Mr Scott, for the plaintiff, indicated that he also sought the order that the application for compensation in relation to any benefits lost by virtue of his not having the benefit of the shares since March 2012 be dealt with separately. That relief was
48 Sharrock v Wedd, above n 33, at [93](c).
not pursued at the present time. The Official Assignee agrees with the proposal as he requires time to consider the bankrupt estate and the claims in the liquidation. He indicated that by the time of the case management conference, in about three months, he may be in a better position to update the Court as to progress.
Conclusion re: share register
[131] I am satisfied the share register should be rectified (if it existed) and that the shares should be transferred to Mr Wulff post liquidation and make a declaration as to Mr Wulff’s entitlement.
Orders
The P-40 (first cause of action)
[132]I make the following declaration:
(a) Oliver Carl Horst Wilbur Wulff has been the sole legal and beneficial owner of the Curtiss P-40 aircraft with nationality mark “ZK” and registration mark “RMH” since March 2012, subject to Eugene John DeMarco’s right to share in the proceeds of sale of the P-40 pursuant to cl 2 of the P-40 Side Letter.
The company shares (third cause of action)
[133]I declare that:
(a)Eugene John DeMarco has held 500 shares in The Old Stick & Rudder Co Ltd on trust for Oliver Carl Horst Wilbur Wulff since March 2012; and
(b)Oliver Carl Horst Wilbur Wulff is entitled to be entered as a shareholder in the share register of The Old Stick & Rudder Co Ltd, or (in the event that such a register currently exists) to an order rectifying that register under s 91 of the Companies Act 1993, by including Mr Wulff’s name in the register in respect the 500 shares acquired by him in March 2012.
Other claims adjourned to case management conference
[134] The second cause of action cannot proceed due to the bankruptcy and liquidation of the first and second defendants respectively. Therefore, that claim is adjourned to a case management conference for an update on progress to be set down for not earlier than three months from the date of this judgment, before me.
[135] The claim relating to relief sought in the third cause of action that the defendants are to pay compensation to the plaintiff for loss sustained from the failure to register the transfer of 500 shares to Mr Wulff in a sum to be quantified prior to trial is also adjourned to the same case management conference.
[136] The Official Assignee indicated that the claims would need to be dealt with as to both liability and quantum. These may be resolved by him in the course of the bankruptcy administration and liquidation.
Costs
[137] The Official Assignee has indicated that costs on a 2B basis would be appropriate, in the circumstances, in favour of the plaintiff. The plaintiff has indicated it may consider seeking increased costs. Therefore, it has sought leave to file submissions in that regard if it pursues that application.
[138] Accordingly, submissions seeking costs by the plaintiff should be filed on or before five days from the date of this judgment. Any response should be filed on or before a further five days, and any reply within a further three days.
Grice J
Solicitors:
Gibson Sheat, Wellington for the plaintiff. Meredith Connell, Auckland for the defendants.
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