Holmes Capital Limited v Marra HC Auckland CIV 2009-463-822 [2010] NZHC 1639 (25 August 2010)

Last Updated: 24 September 2010

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2009-463-822}

BETWEEN HOLMES CAPITAL LIMITED Plaintiff

AND PAUL HENRY MARRA Defendant

Hearing: 20 August 2010

Appearances: Mr Hunter for Plaintiff

Mr Drake for Defendant

Judgment: 25 August 2010 at 4.30 p.m.

_{JUDGMENT OF ASSOCIATE JUDGE DOOGUE}

This judgment was delivered by me on

25.08.10 at 4.30 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors:

East Brewster, P O Box 1742, Rotorua - [e-mail]

Mr T Drake, Barrister, Auckland - [e-mail]

HOLMES CAPITAL LIMITED V MARRA HC AK CIV-2009-463-822 25 August 2010

Background

[1] In the period 2001 to 2003 Mr Marra the defendant and Mr Wayne Holmes entered into a venture which involved them investing in an Australian milk processing and marketing business. The investment vehicle was a company called Green Sky which invested in a company called King Island Milk Pty Limited (“King Island”). The venture was not a success and ended with the liquidation of King Island.

[2] The broad arrangement between Mr Holmes and Mr Marra was that the former would contribute capital to the business vehicle as well as advancing money to Mr Marra for issue with the investment. Mr Marra would also contribute “sweat capital”, as he had expertise in the dairy industry.

[3] In 2005, after the business venture had come to an end and at a time when Mr Marra was embroiled in a criminal prosecution that was widely referred to as “powdergate”, Mr Holmes took steps to recover money which he claimed was owing to whom all the company was associated with in the aftermath of the failed business arrangement. He instructed senior counsel in Auckland to formulate a claim against Mr Marra. Counsel wrote to Mr Marra on 17 June 2005 setting out the demands that were made against him. Counsel said in his letter that he was instructed by “Ashworth Ventures Ltd and Wayne Holmes” to recover the sum owing (which after some repayments had been received totalled $2,744,153.61 plus interest of

$1,228,100.28). The demand which was enclosed with his letter was in the name of Ashworth Ventures Ltd. The following month Mr Marra entered into a written settlement agreement with Ashworth Ventures Ltd, dated 15 July 2005, pursuant to which Ashworth agreed to accept $2 million “and settlement of the debt”. Amongst other things, the arrangement made provision for Mr Marra to transfer a motor vessel that he owned to Ashworth in part payment of the debt.

[4] The settlement agreement itself was varied by a further agreement entered into in November 2007 with the claimant company which was formerly called Ashworth Ventures Ltd but which was now called Holmes Capital Ltd being

described as the “lender” to whom repayments were to be made. The amount of the debt was stated to be $1,732,018.

[5] Mr Marra did not make any payment under the arrangement as varied and proceedings were issued against him in November 2009 with summary judgment being sought. Two grounds were put forward as defences in the notice of opposition which Mr Marra filed. First, it was stated that the settlement agreement dated 15

July 2005 was not supported by consideration and was therefore unenforceable. The second ground was that the defendant alleged that he had been “coerced by duress into executing the settlement agreement”. I shall deal first with the consideration point.

Consideration

[6] Reduced to essentials, the argument that Mr Marra makes is that the advances that were made to him were made by Mr Wayne Holmes personally and not by Holmes Capital Ltd. Mr Marra says that he was never indebted to the plaintiff and that there cannot have been any consideration to support the compromise agreement that the parties entered into in July 2005.

Authorities on consideration to support a compromise agreement

[7] At one time there was a live issue concerning the nature of the consideration which was required to support a compromise agreement. One contention was that the party seeking to enforce such an agreement was required to demonstrate that the agreement entered into was a compromise of a genuine claim. In the textbook

Burrows, Finn and Todd Law of Contract in New Zealand[1] at [4.5.2] reference is

made to the authority of Miles v New Zealand Alford Estate Co.[2] There the Court said at 291:

The reality of the claim which is given out must be measured, not by the state of the law as it is ultimately discovered to be, but by the state of the knowledge of the person who at the time has to judge and make the concession. Otherwise you would have to try the whole cause to know if the man had a right to compromise it.

[8] That is, all that was required by way of consideration was that the party seeking to enforce the agreement must have believed that it was in compromise of a genuine claim on his/her part. In New Zealand the matter was resolved by the case of Couch v Branch Investments (1969) Ltd.[3] The detail of that case need not be discussed but it is authority for the proposition that consideration will be provided where a claimant compromises a claim “in good faith”. It is not necessary that he

should believe that he would necessarily win a proceeding brought to enforce the right, but he must not be bringing or threatening a claim for vexatious purposes such as to capitalise on its nuisance value: Couch at 327. According to Burrows at [4.5.2]:

In the modern law, a consideration in such cases is said to be the surrender, not of a legal right, which may or may not exist and whose existence, at the time of the compromise, remains untested, but of the claim to such a right.

[9] But the Court will conclude in appropriate cases that there was no consideration present if the agreement which is sought to be enforced was not entered into as a compromise of a right which the claimant believed was a genuine one. The Court would decline to recognise consideration where that belief was not present on the grounds of public policy. As Richardson J put it in Couch at 326–

327:

In principle there is much to be said for the view that the unenforceability of compromises and forbearances where there is an absence of honest belief in a cause of action or absence of any real intention to pursue such a claim, is based on public policy rather than want of consideration. It is obviously of benefit to the promisor to be relieved of the need to defend a suit, even one he considers ill-founded (as the promisor did in Cook v Wright). Indeed, the greater the embarrassment and expense to him of having the claim publicly litigated the greater the argument for enforceability of the compromise or forbearance if viewed simply in terms of the benefit/detriment test of consideration. And relinquishment of a claim is patently detrimental to the promisee if the possibility of success in litigation or the possibility that an even unfounded claim may be admitted may justify pursuing the claim. But to regard the benefit to the promisor of not being vexed by the promisee's claim as sufficient consideration warranting the enforcement of the promise without any requirement of honesty of belief and conduct on the part of the promisee, would open the processes of the law to abuse and encourage extortion. The foundation for the test of enforceability of compromises and forbearances, although formulated in various ways in the cases, seems to me to lie in considerations of that kind.

[10] Cooke J similarly found the answer lay in public policy against recognising consideration where a person extorts a compromise of a claim which he knows to be spurious. The law should not by recognising the existence of consideration in such a circumstance allow a person to profit from his wrongful conduct.

[11] In the Couch decision it was suggested by the defendant that the basis of the claimant’s supposed right was founded on an illegal hire purchase agreement. The Court did not come to a conclusion whether that was so or not. It concluded that the Judge at first instance was entitled to take the view that the claimant had brought the claim in good faith.

Whether plaintiff is not in fact the creditor of the defendant

[12] The first matter is to place in context the defendant’s complaints that the loan was not owed to the plaintiff but to Mr Holmes personally.

[13] Essentially the defendant asks the Court to accept that the Holmes interests, knowing that the debt was owed to Mr Holmes personally, chose to present matters as though it was owed to a company; and that as a result the plaintiff’s claim is spurious and vexatious. He did not contend that advances were made to him but focuses on the issue of which entity made those advances.

Evidence about who it was that made the original advances

[14] Probably because the point did not seem to be a live one in the proceedings, the plaintiff did not, when it started the proceedings, file any affidavit evidence tracing where the funds came from which were advanced to Mr Marra. In the usual way, the plaintiff filed an affidavit verifying the statement of claim which alleged that advances had been made to Mr Marra.

[15] It may also be significant that senior counsel whom the plaintiff and Mr Holmes consulted issued the letter of demand to which I have made reference above on the instructions of the plaintiff and Mr Holmes, with the claimant creditor being identified as the plaintiff rather than Mr Holmes or some other entity. I accept that it is a matter of inference that it would be inherently unlikely that counsel would issue

a letter of demand in the name of entity A in circumstances where his instructions were that the money was actually owing to entity B.

[16] On the other hand, it is correct that at the time when the agreement was under negotiation Mr Marra queried who should be shown as the creditor in the deed. He said the arrangements had always been between himself and Mr Holmes.

[17] On 8 July 2005 in an e-mail which he sent to Mr Holmes, Mr Marra said

The arrangements between us have always been between you Wayne and myself. At no time have you discussed Ashworths with me at all. I do not understand Asworths, what it is and what it intends to do in the future. I will not open myself to personal exposure to a company I don't know or company you potentially may not own in the future. Our arrangement was personal as you described it to me.

This arrangement is personal between you and I (sic).

[18] Mr Holmes did not reply to that e-mail but his solicitor did. The solicitor said in an e-mail dated 8 July 2005:

The money advanced to you was advanced by Ashworth Ventures Ltd which is a company owned and entirely controlled by Wayne. It would be prejudicial to Wayne if the settlement arrangement was not made with that company. The obligations of the parties are dictated by the settlement arrangement and not by the nature of the lending entity. Ashworth Ventures Limited must remain as the Lender.

[19] It would appear, therefore, that Mr Marra had concerns about being answerable to a company as his creditor rather than to Mr Holmes personally. His position can be summarised as saying that he did not want his destiny to be in the hands of the shareholders of a company he might not know. The reason for that was that he would not be able to invoke the personal relationship that he had had with Mr Holmes (they had been good friends) if he was obligated to such a company rather than to Mr Holmes. In the end he agreed to drop his objections to the creditor being shown as the plaintiff in return for certain assurances about what would happen in the event that the shareholding of the plaintiff company changed. In an e-mail dated

11 July 2005 Mr Marra said that “I can live with Ashworth [the plaintiff] as lender...”.

[20] At [68] of his affidavit sworn 6 May 2010 he said:

In all discussions I've had with Wayne Holmes it was always my understanding that the funds he offered to pay for me to initially acquire the two tranches of shares were being paid by him personally.

[21] Mr Marra also said at [70] that when he did make some repayments in 2007 and 2008 he regarded those payments as being to Wayne Holmes personally and not to Ashworth Ventures Limited.

[22] There was no documentary evidence placed before the Court to establish exactly where the funds that were advanced to Mr Marra came from. I accept for the purposes of summary judgment that there is a substantial dispute as to which entity made the advances to Mr Marra — Mr Holmes or Ashworth Ventures Limited.

Conclusion on the consideration point

[23] The issue that is at the heart of the present summary judgment claim is this: if Mr Marra never owed money to Ashworth then is the plaintiff’s claim, which is based upon that proposition, a spurious claim which the Court in compliance with the requirements of public policy ought not to enforce?

[24] In my view it is arguable that the indebted party under a claim based upon the purported compromise of a non-existent loan could have a defence that the basis upon which the claim is brought against him is spurious. It is correct that the argument depends, not so much upon the merits of the situation, but upon a rigorous observance of the principle that companies and their proprietors are separate legal entities in the eyes of the law. It is also correct that the defendant did not claim that he had any grounds to show that the substitution of the plaintiff for the genuine creditor was for improper purposes such as fraud. But I do not understand that the authorities would require the presence of such an additional element before the Court would conclude that the claim based upon the compromise agreement was spurious and vexatious. The enquiry is entirely focused on the presence or absence of consideration and the effect that it has upon the enforceability of the compromise agreement. The Court will find that there is consideration if there is a genuine compromise of a claim. If there are grounds to suppose that the claimant never in

fact had a proper claim against the defendant, then there may be an issue present as to existence of an honest belief on the part of the plaintiff that what he is in fact doing is to compromise a genuine claim.

[25] Because the consideration issue is looked at from the perspective of public policy, the fact that Mr Marra agreed to the arrangement is not necessarily decisive against him in circumstances where the plaintiff seeks to enforce the agreement which he now says was unsupported by consideration.

[26] Because the defendant has an arguable defence based upon issues of consideration, there is no need to go on and consider the alternative defence of duress. One would have to conclude that there are some notable difficulties in the way of such a defence. The principal of these is that Mr Marra did not take any steps to challenge the agreement at an early stage and for that and other reasons may well have affirmed the agreement in such a way as to put a defence of duress beyond his reach.

[27] For these reasons, I consider that the defendant has narrowly succeeded in demonstrating the existence of an issue that ought to be considered at trial and that it is therefore arguable that he has a defence to the plaintiff’s claim. That being so the application for summary judgment is dismissed. The parties should confer on the matter of costs which they ought to be able to come to an agreement on. In the event that they cannot, counsel should file brief submissions on the issue of costs which

_{should not exceed five pages.}

J.P. Doogue

Associate Judge

---

[1] _{Burrows, Finn and Todd Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington, 2007).}

[2] Miles v New Zealand Alford Estate Co (1886) 32 Ch D 266.

[3] Couch v Branch Investments (1969) Ltd [1980] 2 NZLR 314.