HENRY DENT AND VERA & ANOR v JANE MAREE PORTER [2003] NZCA 111 (18 June 2003)

IN THE COURT OF APPEAL OF NEW ZEALAND

CA 243/O2

BETWEEN HENRY DENT AND VERA DENT

First Appellant

AND JANE MAREE PORTER

Second Appellant

AND COLIN FRANCIS HERBERT

Respondent

Hearing: 9 June 2003

Coram: Blanchard J

Panckhurst J

O'Regan J

Appearances: G D Wiles for Appellants

A J Davis for Respondent

Judgment: 18 June 2003

JUDGMENT OF THE COURT DELIVERED BY O’REGAN J

[1]	The second appellant, Ms Porter, sought summary judgment against the respondent, Mr Herbert, for specific performance of a put option agreement dated 1 August 2001.In the High Court Master Sargisson declined the application and the appellants now appeal to this Court against that decision.

Facts

[2]	At the instigation of their son, Mark Dent, the first appellants, Mr and Mrs Dent, entered into an arrangement with Wilson Neill Corporation Ltd (Wilson Neill), under which they agreed to advance $250,000 to Wilson Neill.The terms were:
1.	The advance would be secured by the transfer to Mr and Mrs Dent or their nominee of 12,500 ordinary shares in Wilson Neill at a price of 2c per share.
2.	Wilson Neill would ensure that these shares would be transferred to Mr and Mrs Dent by the respondent, Mr Herbert, who was a major shareholder in Wilson Neill and had formerly been a director;
3.	The transfer from Mr Herbert would be for a total consideration of $250,000, and would be subject to a put option under which Mr and Mrs Dent would have the right to require Mr Herbert to buy the shares back at a price of 2.5c per share, making a total of $312,500.This right had to be exercised by a notice in writing, given at any time between 30 November 2001 and 14 December 2001, and settlement was to occur five days after receipt of the notice.Title to the shares was to be transferred to Mr and Mrs Dent or their nominee.
[3]	The obligations of Mr Herbert under the put option were to be guaranteed by Wilson Neill.In fact, Wilson Neill contracted with Mr Herbert to satisfy his obligations under the put option agreement when called upon to do so.It also agreed to pay him a fee for his involvement in the arrangement.
[4]	For reasons which will become apparent later, Mr and Mrs Dent appointed Ms Porter, who is their daughter and a chartered accountant, as their nominee and the letter evidencing the put option arrangement was therefore a letter from Mr Herbert to Ms Porter.The letter was on Wilson Neill letterhead.The text was as follows:

Re:Purchase of Wilson Neill Corporation Limited shares From [sic]

I confirm that I will sell to you, today, twelve million five hundred (12,500,000) ordinary Wilson Neill Corporation Ltd shares at 2 cents per share for a total consideration of $250,000.00.

I hereby grant you the right to put the 12.5 million shares back to me at 2.5 cents per share (being an aggregate consideration of $312,500.00) by notice in writing at any time during the period commencing 30 November 2001 and ending 14 December 2001, with settlement to occur within 5 working days of receipt of the notice in writing of the exercise of the put.

I direct that you pay the purchase price of $250,000.00 to Wilson Neill Corporation Ltd.

Please acknowledge your acceptance of the terms of this agreement by signing below.

[5]	The letter was signed by Mr Herbert as vendor and Ms Porter as purchaser.Mr Herbert also signed a securities transfer form, although some essential details such as the name of the issuer and description of the securities were left blank.Ms Porter entered her details as transferee and signed the transfer form.
[6]	The put option letter and the transfer form were delivered to Ms Porter by Mark Dent.Ms Porter said she expected him or someone else at Wilson Neill to arrange for the shares to be registered in her name.
[7]	Wilson Neill also sent to Ms Porter a copy of a letter from Wilson Neill to Mr Herbert which outlined the arrangements between them in relation to the loan.The text of that letter was as follows:

Re:Loan to Wilson Neill Corporation Ltd

Wilson Neill Corporation hereby acknowledge that in consideration of you selling 12.5 million shares to Jane Porter and directing that the purchase price be paid to the Company, that the Company (WNC) owes to you an amount equal to the greater of $250,000.00 (being the purchase price) or if the put option is exercised by Jane Porter, the amount of the consideration payable by you under the put option.

Wilson Neill Corporation will either:

1)	If the put option is exercised, at your direction satisfy your obligation under the put option or:
2)	If the put option is not exercised by 14 December 2001 and unless otherwise agreed by you, pay you the sum of $250,000.00 in satisfaction of the debt owing by Wilson Neill Corporation to you within 5 working days of 14 December 2001.

Provided however the debt may be satisfied at your option and on demand by the provision of 12.5 million shares in Wilson Neill Corporation by the Company (together with any cash differential payable should the put option be exercised).

Wilson Neill Corporation agrees to pay you an establishment fee of $2,500.00 for providing this service to the company.

[8]	This was sent to Ms Porter by Phil Vosper of Wilson Neill.In addition, Mr Vosper sent to Mrs Dent a deposit slip for the account of South Pacific Hospitality Ltd, (South Pacific) a subsidiary of Wilson Neill.The $250,000 advance was deposited to that account.
[9]	Wilson Neill was in some financial difficulty at the time the advance was made and matters did not improve.After consultation with Mr and Mrs Dent, Ms Porter decided that the put option should be exercised, and sent a notice exercising the put option to Mr Herbert on 4 December 2001.Mr Herbert did not respond.

The proceedings

[10]

The appellants then commenced proceedings against Mr Herbert and against Wilson Neill and South Pacific.However, by the time of the hearing Wilson Neill had gone into liquidation and the applications in relation to it and South Pacific were not pursued.Ms Porter sought specific performance of the put option agreement. The shares, the subject of the agreement with Mr Herbert, had not been registered in Ms Porter’s name so the orders sought included an order that Mr Herbert transfer the shares to her and then pay $312,500 in return for a subsequent re-transfer of the shares back to him.In the alternative, judgment for $312,000 was sought.

[11]

Counsel for the appellants, Mr Wiles, said only the latter was now sought, given the futility of transferring and retransferring shares and the complications caused by the fact that Wilson Neill is now in liquidation.

Grounds of opposition

[12]	In the High Court in an affidavit, Mr Herbert accepted the basic facts outlined above, but contended that the put option was part of a broader composite arrangement which involved Mark Dent and various entities associated with him.He pointed to an agreement dated 26 June 2001, under which Pegasus Trustees Limited (Pegasus), agreed to act as agent for Genesis International Charitable Trust (Genesis), to arrange for Genesis to buy 46% of the ordinary shareholding of Wilson Neill.Thirty-one percent was to be purchased at 4.9c per share and 15% at 10c per share.The agreement was conditional on Genesis obtaining funding, but was voidable if that had not happened by 1 September 2001.Genesis’s obligations were guaranteed by Mark Dent and a business associate of his, Alan Merrie.
[13]	Mr Herbert said that he had entered into an unconditional agreement to sell about 56 million shares in Wilson Neill, belonging to him and associates, to Pegasus for 10c per share.The agreement between Genesis and Pegasus was amended on four occasions.One of the amendments extended the settlement date to 23 July 2001, but settlement had not occurred as at 1 August, so Genesis was in default at the time the put option agreement with Ms Porter was entered into.The Genesis/Pegasus agreement was further amended on 23 November 2001 to provide for settlement on 30 November 2001, but this did not occur either.
[14]	Mr Herbert said that the default by Genesis in settling the purchase of shares meant that Wilson Neill did not receive $310,000 which it anticipated receiving as a result of the settlement of the Genesis transaction.Wilson Neill had significant liquidity problems and Mark Dent agreed to arrange for short term funding.Mr Herbert said that Mark Dent told him he had authority to arrange a short term loan from Mr and Mrs Dent and that he, Mark Dent would underwrite this.He said Mark Dent’s secondary motive was to obtain a block of shares for Mr and Mrs Dent on favourable terms, so that they could benefit from the takeover Mark Dent was organising.Mr Herbert said Mark Dent agreed on behalf of the first and second appellants to a transaction, under which Mr Herbert granted the put option, but with a full indemnity in favour of Mr Herbert from Mark Dent.
[15]	Mr Herbert said it was specifically agreed that the put option would be exercisable only after full settlement had been made in respect of the Genesis transaction, and that such settlement was therefore a condition precedent to the exercise of the put option.He said the transfer of shares to Ms Porter on behalf of Mr and Mrs Dent was pre-delivery of shares which later he would have become bound to transfer for the purposes of the Genesis transaction.
[16]	In addition, Mr Herbert argued that the transfer of shares, pursuant to the put option, would breach the Takeovers Code.He argued that Wilson Neill was a code company, Mark Dent held more than 20% of the equity securities in Wilson Neill, and so any transfer to an associate to Mark Dent (he said Ms Porter was an associate because she was Mark Dent’s sister), would be valid and effective only if Mark Dent made a similar offer of securities to the other shareholders in Wilson Neill.
[17]	Mrs Dent, in an affidavit, denied that Mark Dent had acted as agent for Mr and Mrs Dent and that he had authority to include a transaction on their behalf which was conditional on completion of the Genesis transaction, which she and her husband had no involvement in.Mark Dent also denied agreeing to such a condition, and also denied that he had agreed to indemnify Mr Herbert.
[18]	Mark Dent already held shares in Wilson Neill, and was involved in the Genesis transaction.In an affidavit he said he was asked by Mr Vosper of Wilson Neill to arrange for the shares to be purchased from Mr Herbert, not to be held in the Dent name, given Mark Dent’s involvement in the Genesis transaction.That is why Ms Porter became involved.Mr Herbert said Ms Porter’s involvement was because Mr and Mrs Dent knew Mark Dent held over 20% of the voting securities in Wilson Neill and that Mr and Mrs Dent and Ms Porter were involved in a “charade”.They denied this.

The Master’s judgment

[19]	The Master traversed the facts and set out the principles applying to summary judgments under R 136.No issue is taken with that statement of principle.Having reviewed the evidence, she noted that the dispute about the nature of the transaction was further clouded by the evidence of Mr Vosper of Wilson Neill.He denied that Wilson Neill had concluded any loan or other agreement with the appellants, and said there was never any intention to enter into an agreement with them, but did not explain why he had sent a copy of the letter to Mr Herbert from Wilson Neill to Ms Porter, which is headed ‘Loan to Wilson Neill Corporation Limited’, and the text of which is set out in paragraph [7] above.
[20]	The Master noted that Mr Herbert had not explained why there was no reference in either the Wilson Neill letter or the put option letter, to any indemnity by Mr Dent, or to any condition that the put option would not be exercised unless and until the Genesis transaction settled.She said that Mr Herbert had not given evidence in any detail to support the existence of a representation from Mr and Mrs Dent that their son, Mark Dent, was their agent and had authority to negotiate on those terms.However, she decided that full disclosure and cross-examination of deponents was necessary to get to the bottom of the factual issues and disputes and therefore declined summary judgment.
[21]	In relation to the Takeovers Code argument, the Master had accepted that Wilson Neill was a code company and that there was disputed evidence that Mark Dent was beneficial owner of more than 20% of the voting shares in the company – Mr Dent had deposed that his beneficial entitlement was to only 8.3%.She said it was arguable that Mr and Mrs Dent (and their nominee Ms Porter) and Mark Dent were acting jointly or in concert in terms of R 4(1)(a) of the Takeovers Code or were subject to R 4(1)(d) by reason of their personal relationship in the circumstances of the case.Again, she thought this issue could be safely resolved only with the benefit of a trial.
[22]	The Master rejected a further argument on behalf of Mr Herbert that the put option agreement was frustrated/terminated and this has not been the subject of appeal in this Court.

Appellants’ arguments

[23]	Mr Wiles for the appellants argued that the Master had erred in failing to make an assessment as to whether a sufficient evidential foundation was established by Mr Herbert’s bare allegations made in support of his defences.He argued that the Master had not viewed the situation in an appropriately robust and pragmatic way.He said Mr Herbert’s evidence fell squarely within the remarks in Eng Mee Yong v Letchumanan [1980] AC 331 at 334 where Lord Diplock had commented that a Judge was not required to accept uncritically as raising a dispute of fact, every statement in 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”.
[24]	Mr Wiles submitted that Mr Herbert’s assertions about the nature of the transaction should have been rejected.In particular he highlighted the following:
a)	The put option letter and the Wilson Neill/Herbert letter were clear in their terms and supported the appellant’s contention as to the nature of the transaction.It was highly unlikely that an experienced businessman such as Mr Herbert would have allowed what he considered to be key components of the transaction (the indemnity from Mark Dent and/or the condition precedent tying the put option to the Genesis transaction) to be omitted from the documentation;
b)	The documentation for the Genesis transaction was modified in November 2001, and there was no reference in that modification to the fact that the shares sold by Mr Herbert to Ms Porter were a pre-delivery of shares for the Genesis transaction, or that the put option arrangement involved a partial settlement of the Genesis transaction;
c)	The condition precedent contended for by Mr Herbert rendered the put option arrangement useless.If the put option could not be exercised until the Genesis transaction had taken place it would not be exercised at all, given the Genesis transaction involved the purchase of shares for a considerably higher price than could be obtained by the exercise of the put option.So the put option would not have provided any form of security to Mr and Mrs Dent in a practical sense.There would have been no reason for them to have entered into the put option arrangement;
d)	Mr Herbert’s version of events included an assertion that Mark Dent was acting as agent for Mr and Mrs Dent and had agreed to the condition precedent on their behalf, even though he had apparently omitted to tell them that he had done so.In effect, Mr Herbert was saying that Mark Dent has misled both him and Mr and Mrs Dent.Mr Wiles argued that there was no evidential foundation for this agency assertion.
[25]	Mr Wiles argued in the alternative that evidence of any oral terms varying the put option agreement should have been excluded under the parol evidence rule, because the oral terms alleged by Mr Herbert were not capable of acting consistently with the written terms of the put option agreement and were contradictory to those written terms.
[26]	In relation to the Takeovers Code, Mr Wiles argued that the evidence did not provide a proper factual basis for the assertions that Wilson Neill was a code company, that Mark Dent controlled more than 20% of the voting shares in the company, or that Ms Porter and Mark Dent were “associates” in terms of the Takeovers Code.He said there was nothing in the Takeovers Act 1993 or the Takeovers Code that rendered an acquisition or proposed acquisition of shares in breach of the Takeovers Code a “nullity” as suggested by Mr Herbert.

Respondent’s arguments

[27]

On behalf of Mr Herbert, Mr Davis traversed the possible defences which Mr Herbert had raised in the High Court and argued that the Master had been right in declining summary judgment because the complex nature of the transaction meant that Mr Herbert’s defences could only be evaluated properly after a substantive trial.He said the appellants had accepted in their statement of claim that the arrangements were partly written and partly oral, and this supported Mr Herbert’s contention.

[28]

In relation to the Takeovers Code, he argued that Mr Herbert had raised a question of compliance with the Code which could be appropriately evaluated only at a substantive hearing.

Discussion

[29]	The difficulty faced by Mr Herbert in relation to the agency argument is that, on his own evidence, there was never any direct communication between him and Mr and Mrs Dent.That meant there was no possibility that Mr and Mrs Dent could have represented to Mr Herbert that Mark Dent was authorised to act as their agent and to agree to the terms of the arrangement on their behalf.The only other witness for the defendants in the High Court was Mr Vosper.He says nothing in his affidavit about any communication from Mr and Mrs Dent, expressly or impliedly, to the effect that Mark Dent was acting as their agent with authority to agree the unwritten terms referred to by Mr Herbert, although he confirms the facts set out in Mr Herbert’s affidavit “insofar as they relate to [Wilson Neill] and [South Pacific]”.On the face of it, that does not provide confirmation of Mr Herbert’s statements about the role of Mark Dent in the transaction between Ms Porter and Mr Herbert.Both Mr and Mrs Dent and Ms Porter denied that Mark Dent was acting as their agent.
[30]	The Master noted that Mr Herbert had not given evidence in any detail to support the existence of a representation from Mr and Mrs Dent that Mark Dent was their agent.She said this came close to a failure to provide sufficient particulars of a critical element of the defence.Mr Wiles argued that there was no evidence at all, and that this was a fatal flaw in Mr Herbert’s case.We accept that submission.
[31]	In Savill v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257, McMullen J said (at 305):

It is not enough for a third party to show that he relied on the agent’s representation that he had the authority of his principal.He must show that he relied on the representation of the principal that the agent had the necessary authority.

[32]	At a substantive hearing, the onus would be on Mr Herbert to establish express or ostensible authority in order to resist summary judgment.It was necessary for Mr Herbert to raise a factual basis which suggested the possibility of Mark Dent having authority to negotiate the unwritten terms and conditions on behalf of Mr and Mrs Dent.In our view he has failed to do so, because on his own evidence there was never any communication between Mr and Mrs Dent and him, and there is no other evidence which indicates any possibility that Mr and Mrs Dent represented to Mr Herbert that Mark Dent was their agent.That means that Mr Herbert failed to establish a factual basis suggesting a possibility of Mark Dent having authority to act as agent for Mr and Mrs Dent.
[33]	Even if Mark Dent represented to Mr Herbert that the put option was conditional on settlement of the Genesis transaction, that condition could not be binding on the appellants, because there is no indication Mark Dent had any authority to agree to it on their behalf.If Mark Dent did, in fact, make such a representation, or if he agreed to provide an indemnity to Mr Herbert, then those would be matters to be resolved between Mr Herbert and Mark Dent.It cannot, however, affect Mr Herbert’s obligations to the appellants.
[34]	In view of that finding, we do not need to consider the argument made on behalf of the appellants that the parol evidence rule should apply.
[35]	We now turn to the issues raised in relation to the Takeovers Code.The Master accepted that the evidence established Wilson Neill was a code company at the relevant time.She said there was a dispute as to whether Mark Dent held more than 20% of the voting rights in Wilson Neill at that time.Even if he did, the put option would not contravene the code unless Ms Porter and/or Mr and Mrs Dent were “associates” of Mark Dent.
[36]	Mr Herbert suggested Mr and Mrs Dent/Ms Porter were “acting jointly or in concert” with Mark Dent (R 4(1)(a)), but Mr Davis accepted that could not be sustained if there were no valid legal link between the Genesis transaction and the put option.Alternatively, Mr Herbert suggested they were associates because they had a personal relationship to the extent that they should, under the circumstances, be regarded as associates (R 4(1)(d)).It is plausible that the family relationship between Mr and Mrs Dent and Ms Porter on the one hand, and Mark Dent on the other, could be sufficient to make them associates, but in order to establish a factual basis for a defence based on this provision, Mr Herbert needed to put forward evidence of the circumstances which could lead to Mr and Mrs Dent and Mark Dent being regarded as associates.In the absence of the alleged link between the present transaction and the Genesis transaction, there are no such circumstances alleged by Mr Herbert.
[37]	Mr Herbert would still have to provide a factual basis for his argument that Mark Dent controlled 20% or more of the voting rights in Wilson Neill.A mere assertion that is the case, unsupported by any evidence (such as material obtained from the share register, or by reference to other documentation), indicating Mark Dent had an interest, is in our view insufficient to provide a factual foundation.As this Court said in Haines v Carter [2001] 2 NZLR 167 at 187:

A bald assertion that there is a defence but without any elaboration or detail is unlikely to be seen as raising an arguable defence for the purposes of resisting a summary judgment.

[38]	We conclude that the arguments based on the Takeovers Code do not provide a basis for declining summary judgment.We therefore do not need to consider whether a breach of the Takeovers Code would invalidate the put option agreement.

Conclusion

[39]

We conclude that Ms Porter was entitled to summary judgment and we therefore allow the appeal.It was accepted by counsel that in the circumstances of this case, the appropriate course was to issue judgment against Mr Herbert for the sum owing pursuant to the put option agreement.We therefore give judgment to Ms Porter for $312,500 and interest calculated in accordance with the Judicature Act 1908 from 11 December 2001 to the date of judgment.

Costs

[40]

The appellants are entitled to costs in the High Court which should now be fixed in that Court.The respondents must pay costs of $5,000 in respect of the appeal, together with reasonable disbursements of the appeal, including travel and accommodation costs of counsel, fixed if necessary by the Registrar.

Solicitors:

Bryan Gallagher, Pakuranga Auckland for Appellants

Clark Boyce, Christchurch, for Respondent