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High Court of New Zealand Decisions |
Last Updated: 24 December 2018
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IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
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CIV-2018-442-000041
[2018] NZHC 3396 |
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BETWEEN
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MICHAEL ANDREW LOOKMAN and 187 BRIDGE TRUSTEES 53 LIMITED as
Trustees of the LOOKMAN FAMILY TRUST
Plaintiff
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AND
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DESIGN ELECTRONICS LIMITED
First Defendant
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AND
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RICHARD WARWICK JONES
Second Defendant
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Hearing:
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27 November 2018
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Appearances:
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G M Downing for Plaintiff
S J Jamieson for First and Second Defendants
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Judgment:
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18 December 2018
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JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] Issues between the parties to this case are the subject of two earlier judgments of this Court.1
[2] As background, the following passages are reproduced from the latter of these judgments:
LOOKMAN v DESIGN ELECTRONICS LTD [2018] NZHC 3396 [18 December 2018]
[12] On 14 December 2016 the parties entered an agreement titled “Investment and Shareholding Agreement 14 December 2016”. The agreement was for a term of five years “unless terminated earlier in accordance with its conditions”. It recorded that the Lookman trustees would advance $2,100,000 “on a reimbursement model” to Design Electronics from the date of an earlier promissory note issued on 8 May 2016. The funds were to be interest free for a period of one year from the date of the first advance, after which interest would be charged at 10 per cent per annum payable monthly. The document is expressed to be the entire agreement between the parties in relation to its subject-matter, replacing and extinguishing all prior agreements, draft agreements, arrangements, undertakings or collateral contracts of any nature made by the parties, whether oral or written, in relation to such subject-matter.
...
[14] The Lookman trustees have advanced $1,820,000 pursuant to this agreement. The security to be given to the Lookman trustees was “security over SenSys IP” the name SenSys being the defined name of Design Electronics in this agreement. A personal guarantee was also to be given to the Lookman trustees from the director of Design Electronics, Mr Warwick Jones.
[3] The Lookman Family Trust (the Trust) now sues Design Electronics Ltd, together with the second defendant, Mr Jones, its director and a shareholder (along with his wife, Ms Matthews) for specific performance of obligations said to lie on those parties under the agreement. The orders sought are set out in three schedules, and each schedule relates to clauses in the agreement. It is convenient, therefore, to set out each clause which Mr Lookman says has not been complied with, together with the clause of the agreement from which it is derived.
[4] Clause 6:
Requirements A Personal Guarantee to the Lender from the Company Director on behalf of the existing shareholders. Personal Guarantee is to be released at the time shareholding is taken up. The shareholders will not act to remove from access any value supporting the personal guarantee.
Security over SenSys’ IP will be provided against the loan to the Lender. Once proper and adequate IP protection is in place in the name of SenSys this security will be released.
Personal guarantees and security over IP protection will be provided within 15 days if the lender requests.
The names of major customers and contact persons remain available always.
The Company’s product costings shall remain available and verifiable.
Order sought:
(C1) The Second Defendant shall forthwith execute in favour of the Plaintiff a Personal Guarantee of the First Defendant’s liability under the Investment and Shareholding Agreement dated 14/12/2016 in the form attached to this Schedule.
(C2) The Second Defendant shall forthwith deliver to the Plaintiff such executed Personal Guarantee and a Statutory Declaration listing all his present assets and liabilities, and listing any changes to his assets and liabilities since December 2016.
[5] Clause 8:
Provision of The Lender agrees to provide the treasury function of
Services SenSys through to the end of Dec 31 2017.
Lender may at their discretion supervise accounting staff to ensure that relevant financial reports are produced on a timely basis.
SenSys’ electronic accounting system and records will be available to enable independent access to statements.
Lender will arrange bank financing.
Order sought:
The First Defendant shall:
Access to Electronic Accounting System
(B1) Forthwith provide access to Michael Lookman to the First Defendant’s Electronic Accounting System; and continue to provide such access.
Financial Documentation
(B2) Forthwith provide the following classes of the First Defendant’s Financial Documentation to Michael Lookman by email at
michaellookman@gmail.com; and shall continue to provide updated Financial Documentation by email monthly in relation to each class listed below which is produced monthly or annually in relation to each class listed below which is produced annually:
(a) Monthly and year-to-date financial statements from August 2017 to the date of this Order (“to-date”);
(b) Monthly balance sheets from August 2017 to-date;
(c) Monthly listings of accounts payable from August 2017 to-date;
(d) Monthly listings of accounts receivable from August 2017 to- date;
(e) Monthly cash flow for the months from August 2017 to-date;
(f) Six monthly cash forecasts from the date of this Order;
(g) Annual budget for the year ended 31 March 2019;
(h) Annual financial statements and tax returns for the year ended 31 March 2017 and 31 March 2018;
(i) Monthly detailed breakdown of all inventory on hand from August 2017 to-date;
(j) Monthly details of all product costings from August 2017 to-date;
(k) Copies of all bank statements, including current account and loan accounts from August 2017 to-date;
(l) Copies of documents recording any changes in shareholding of the First Defendant company from August 2017 to-date;
(m) Details of all shareholder loans or third party loans, to or from the First Defendant, and copies of the terms and conditions of such loans from December 2016 to-date.
Sales Information
(B3) Forthwith provide the following Sales Information to Michael Lookman; and shall continue to provide updated Sales Information at least monthly in relation to each category listed below:
(a) Name and contact person of all major customers from August 2017 to-date;
(b) Sales reports in table form with listing of major sales prospects and potential sales volumes from August 2017 to-date;
(c) Sales report per customer compared to budget from August 2017 to-date;
(d) Copies of agreements with Farmlands and Genesis Energy from August 2017 to-date;
(e) Copies of agreements with network suppliers (either LORAN, LNC or other networks) from August 2017 to-date.
Intellectual Property Information
(B4) Forthwith provide the following Intellectual Property Information to Michael Lookman; and shall continue to provide updated Intellectual Property Information at least monthly in relation to each category listed below:
(a) Monthly reports on Intellectual Property from August 2017 to- date;
(b) Copies of all invoices and correspondence with Ellis Terry of Wellington (or with John Terry, principal of Ellis Terry) from March 2017 to-date.
Operations and Product Development Information
(B5) Forthwith provide the following Operations and Product Development documentation to Michael Lookman; and shall continue to provide updated Operations and Product Development documentation at least monthly in relation to each category listed below:
(a) Monthly reports on operations and product development (detailing all products, development and all supporting software development) from August 2017 to-date;
(b) Copies of all Leases for premises and Leases of equipment entered into from August 2017 to-date;
(c) Copies of lists of all current employees; and copies of all Job Descriptions of employees who commenced from or had Job Descriptions amended from August 2017 to-date;
(d) Copies of all Directors’ Resolutions from December 2016 to- date.
[6] Clause 10:
Monthly Each month a meeting will be held on the 6th working day
Meeting of the month. Date subject to change by prior agreement.
The meeting is to provide information and be a focus for an overall view of the company, and to document agreements.
Minutes will be recorded at the meeting and goals and decisions will be documented and prior meetings minutes discussed.
At least 24 hours prior to the monthly meeting the following will be available to the meeting participants:
Accurate monthly and annual YTD financials which reflect proper and accurate inventory recording.
A monthly balance sheet.
Listing of AR and AP with their payment dates.
Cash flow for the current month and pro forma for the next 6 months.
A sales report in table form with a listing of major sales prospects, potential sales volumes and margins and a date range (earliest to later) and a probability factor, this report to be cumulative to provide sales history.
Actual sales report by customer compared with budget. Report on IP protection progress.
A brief operations report, on product development and monthly goals and problem issues.
At this meeting the amount of money to be advanced will be discussed and agreed upon.
Money will be advanced by the 10th working day of the month. (Subject to the agreed upon maximum).
Order sought:
(A1) The First Defendant shall hold a monthly meeting on the 6th working day of each month. Such meeting shall comply with clause 10 of the
14 December 2016 Investment and Shareholder Agreement between the parties.
(A2) At least 3 working days’ notice of such meeting shall be given to Michael Lookman, by email.
(A3) Michael Lookman shall be entitled to attend in person, or by videoconference or teleconference at the discretion of Michael Lookman. Michael Lookman shall be entitled to have a professional adviser present at such meeting.
(A4) Such meeting shall be held during usual business hours, and be held at 71 Redwood Valley Lane, Richmond, or at some other venue if agreed to prior by Michael Lookman.
Summary judgment
[7] Rule 12.2 of the High Court Rules provides that the Court may give judgment against a defendant if a plaintiff satisfies the Court that the defendant does not have a defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[8] The onus lies on the plaintiff to prove this position. There is no onus on a defendant. Where the plaintiff’s unchallenged evidence is sufficient to convince the Court that there is no defence, the defendant will need to respond in order to defeat the application, but the onus remains throughout on the plaintiff.2
The agreement in more detail
[9] The investment and shareholding agreement between the Trust and Design Electronics is a contract for a five year period unless terminated earlier in accordance with its provisions, and was entered after the Trust had lent Design Electronics sums of money secured by promissory notes some six months earlier. It provides that the Trust will advance up to $2,100,000 progressively, at an interest rate of 10 per cent after the first year. The Trust and Design Electronics agreed that a budget for the business of the latter would be developed and advances would be dependent on cashflow. The Trust was to provide a treasury function up until the end of December 2017, and at its discretion would supervise accounting staff to ensure that relevant financial reports were produced on a timely basis. The electronic accounting system
2 MacLean v Stewart (1997) 11 PRNZ 66 (CA).
of Design Electronics, and its records, were to be available to enable independent access to statements, presumably financial. The Trust was to arrange bank financing.
[10] The agreement provides for monthly meetings as can be seen from clause 10 above. A personal guarantee was to be given to the Trust by Design Electronics, as clause 6 above shows. Security was provided for.
[11] The agreement provides in clause 9:
Shareholding All and any shares for sale will be offered to existing shareholders such that existing shareholders shall have a premeditate (sic) right to buy any shares offered.
A Shareholders Agreement will be prepared by the Parties prior to any shareholding changes and / or share options being exercised and causing a change in shareholding.
The Lender has the right to purchase 51% of the shareholding at the share price of NZD 2,100,000. This shareholding purchase will be enabled through the issuance by the Company of new shares.
The option to purchase shares will survive for 3 (three) years from the date of the original funds advance of 8 May 2016.
The statement of claim
[12] The Trust pleads that although monthly meetings were held initially, and Mr Lookman was provided access to documentation by means of a joint Dropbox account, in October 2017 Design Electronics and Mr Jones removed all documents from that account. The Trust says that although it has continued to request the documentation it is entitled to under the contract, and electronic access to it, together with the right to attend monthly meetings, this has not occurred. It says that despite requests, documentation and information about progress on obtaining intellectual property protection for the sensing systems produced by Design Electronics have not been provided. The Trust says that as it has an option to purchase 51 per cent of the shares in Design Electronics, expiring on 8 May 2019, it requires ongoing access to Design Electronics’ documentation in order to make an informed decision as to whether to take up the option. It also pleads that under the agreement it is entitled to supervise accounting staff and the electronic accounting system and records of Design Electronics, but this is prevented.
Summary of the evidence
[13] In evidence Mr Lookman says that after the agreement was signed he was provided with Design Electronics’ documentation, monthly meetings were held with him and he made advances which now total $1.82m. However, by late 2017, he had become concerned about what he saw as a lack of progress in obtaining intellectual property protection, and about the financial performance of Design Electronics, and its management by Mr Jones. He says that in late September Mr Jones removed his access to the electronic accounting system and bank accounts, deleted all documents from the shared Dropbox which had been set up, and prevented him from supervising accounting staff. Monthly reporting and monthly meetings ceased in October 2017.
[14] Some documentation was provided in January 2018.
[15] The last information the Trust has had on intellectual property matters was also in January 2018. Mr Lookman says that no patents have been applied for, nor have trademarks. These are matters of concern to him because Design Electronics is “essentially a start-up technology enterprise” which does not hold any significant fixed assets. Protected intellectual property in the form of patents and trademarks relating to its products are the ingredients of its business.
[16] Mr Lookman says that part of the business of Design Electronics is the operation of a wireless network, which is intended to connect Design Electronics with sensing equipment it has provided and which is in place on farms and other properties throughout New Zealand. The ability for charges to be rendered to users for this network is a key source of income and, accordingly, a key asset of Design Electronics. He has a report dated 6 September 2017 stating the network has received interest from national companies willing to use it. The report provides projected income, and details of progress made by September 2017. In January 2018, however, when dealing with a Mr Hansen who acted for a short time as a financial adviser of Design Electronics, he was informed that the intended network was “being set up in a separate company”.
[17] Mr Lookman says that while Design Electronics is continuing to develop both SenSys products and the network for their operation, and to market those products to significant entities in New Zealand and overseas, he remains short of information.
Therefore, as the Trust has until 8 May 2019 to decide whether to take up the option to purchase 51 per cent of the shareholding he needs ongoing information and documentation which he is entitled to be provided with under the agreement. Likewise, he is entitled to have monthly meetings, and is entitled to have a personal guarantee of Design Electronics’ obligations.
[18] Mr Jones says that throughout 2016 and part of 2017 Mr Lookman and he, together with his wife Karen Matthews, met monthly to discuss and review progress in product development, manufacturing, sales, customer negotiations and financial reports. Mr Lookman was included in visits, meetings with customers and staff interviews. He was provided with management reports, product development reports and financial reports generated from Design Electronics’ accounting system including cashflow forecasts and sale plans. This material was provided in advance of monthly meetings and Mr Lookman was given access to a Dropbox account which maintained a record of past reports.
[19] In July 2017 there were discussions about the creation of a new network company. According to Mr Jones, Mr Lookman proposed that he invest $1,000,000 in this new entity but would be the majority shareholder. Mr Jones and Ms Matthews decided it was in the best interests of Design Electronics that it was the majority shareholder in the proposed network company. This, Mr Jones says, seemed to displease Mr Lookman. He thinks that this was a turning-point from which the relationship between he and Mr Lookman soured.
[20] There was a further meeting on 7 August 2017 which Mr Jones says was lengthy and difficult. He says there was a complete change in demeanour on the part of Mr Lookman, which led to a character attack on him.
[21] Over ensuing weeks there were a number of written communications which spell out an acrimonious relationship. It is not necessary to review all this material or attempt to reach conclusions on which of the parties was right and which was wrong in the various contentions which were put forward. It is sufficient to note that late in September Mr Jones cancelled a meeting that Mr Lookman was to attend at Design Electronics’ Wellington engineering base. The parties met on 26 September, and
Mr Jones says the outcome was that although Mr Lookman wanted access to company documents, Mr Jones was left with no certainty that Mr Lookman had any intention of investing any more funds, and the impression he got was that Mr Lookman wanted to take over control of Design Electronics with Mr Jones no longer being involved. Shortly after that Mr Jones removed Mr Lookman’s access to the electronic accounting system, bank accounts and documents in the shared Dropbox. This was reinstated for a time in an attempt to reach a compromise, but in October 2017 monthly reporting and monthly meetings ceased.
[22] It is a matter of record that in November Mr Lookman issued a statutory demand for repayment of funds he had advanced together with interest. Mr Lookman’s use of this procedure for recovering his advances is the subject of the two former judgments of this Court referred to earlier. Mr Jones says that he has been working hard to get Design Electronics into a position where it can repay Mr Lookman in full. He believes that Mr Lookman is not suffering any prejudice in the position he is presently in and:
the reality is I cannot trust Mr Lookman, and based on his behaviour in the past 12 months, including trying to liquidate [Design Electronics] I doubt he has any intention of pursuing a working relationship with me going forward.
[23] So far as intellectual property protection is concerned, Mr Jones says the majority of the intellectual property is “inside my head” and that he has been working with a patent and trademark attorney to secure intellectual property protection. He confirms, however, that a separate company has been established to develop the network referred to above, though at this point no assets have been moved from Design Electronics to develop this network.
[24] Mr Jones concludes by saying that he does not believe there is any prejudice to Mr Lookman if the orders now sought are not granted as he is continuing to receive interest each month. He says it is his belief that Mr Lookman is seeking to get access to information which he has demonstrated by prior conduct that he will use to damage or potentially shut down Design Electronics.
[25] In an affidavit in reply, Mr Lookman takes issue with a good deal of Mr Jones’ evidence. Notably he says the intellectual property is Design Electronics’, not
Mr Jones’ and under clause 6 of the agreement, security over it is to be provided to the Trust. He takes issue with Mr Jones’ version of events surrounding the possible setting up of a new company for the proposed network. He gives his own explanation of the events of late 2017, which does not align with that of Mr Jones. He confirms, however, that he has now lodged in his solicitor’s trust account $280,000 which is sufficient to take the Trust’s full contribution to Design Electronics to $2,100,000, so it is clear that the Trust is in a position to make a further capital contribution to Design Electronics by taking up shares in the company pursuant to its option if it elects to do so.
Discussion
[26] The contract between the Trust and Design Electronics is an executory contract with rights and obligations on an ongoing basis. The term for which funds have been and are to be advanced is yet to expire. The date by which the Trust may exercise its option to purchase shares is yet to be reached. Obligations intended to be complied with throughout the term of the contract are clearly ongoing, and have not been complied with. Arguably at least “proper and adequate IP protection” has not been obtained by Design Electronics as required by clause 6. Nor, therefore, has security over this level of protection been granted to the Trust. Ongoing obligations to hold meetings and to provide information to the Trust have not been complied with. All the obligations on both the Trust and Design Electronics set out in the agreement remain on foot.
[27] It is established that where a contract is to be performed in stages the Court can enforce performance of those obligations which have already become due, even though other obligations cannot be enforced because the time for their performance has not yet arrived.3 Further, specific performance may be ordered of part of a contract which is to be performed in stages even if the contract contains obligations which are not enforceable, provided they are not inter-dependent, though issues of hardship may arise in this context and must be considered when deciding whether or not specific performance should be ordered.4
3 Odessa Tramways Co v Mendel (1878) 8 Ch.D. 235; Langen & Wind Ltd v Bell [1972] Ch 685.
[28] The defendants do not challenge the assertions made by the Trust that they have not complied with the obligations on them under clauses 6, 8 and 10 since approximately August 2017. It is also clear on the evidence that there has been a significant breakdown in the relationship between Mr Lookman and Mr Jones, and thus Design Electronics. The latter puts forward this breakdown as justification for not having performed its contractual obligations. In my opinion that is not a justification for acting as Design Electronics and Mr Jones have. This is a commercial contract involving a significant sum of money and mutual material rights and obligations: the Trust has material contractual rights to which Design Electronics agreed, and Design Electronics has had the benefit of funding from the Trust which it continues to enjoy and is not in a position to repay.
[29] It is not pleaded by Design Electronics or Mr Jones that the Trust is in breach of the agreement by the actions of Mr Lookman which they maintain are responsible for the breakdown in the relationship between Mr Lookman and Mr Jones. The only breach of the contract pleaded in the notice of opposition is that the Trust is in breach by not having provided $2,100,000 of lending. There is not, however, any obligation on the part of the Trust to have provided that sum by now. Rather, it is clear from clause 5 of the agreement that that is a sum to be advanced over time, and all but
$280,000 has been advanced, notwithstanding that interest has been in arrears and continues to be in arrears at present.
[30] Causing a breakdown in the relationship between the Trust and Design Electronics – or more accurately Mr Lookman and Mr Jones – is not, even if established, in itself a breach of contract. On the contrary, clauses 6, 8 and 10 relied on in this case by the Trust place specific obligations on Design Electronics and Mr Jones.
[31] I therefore turn to the obligations in those clauses.
[32] Clause 6 refers in part to a “Personal Guarantee to the Lender from the Company Director on behalf of the existing shareholders”. The terms of the personal guarantee are not set out. Nor is there cross-reference to, for example, a standard form.
In Honk Land Ltd v Fetherston, an agreement to lease was entered into with the word “Guarantor” and the name of a person next to it added to a standard form of agreement.5 The named person signed as guarantor. The agreement provided that an Auckland District Law Society lease form would be executed, and that form does contain a form of guarantee. However, no such document was ever signed. The District Court, the High Court on appeal, and the High Court again, on an application for leave to appeal to the Court of Appeal, found that the terms of the agreement to lease were sufficiently clear in relation to the first six months of the term of the intended lease, so there was a valid guarantee for that period, but that there was no guarantee in relation to a longer term which had been intended to be the subject of the ADLS lease form, even though there was a reference to that document in the original agreement. The reference was to the effect that the terms of the guarantee would be no more onerous than those contained in the 3rd edition of that document. As Lang J said:
[47] The parties to the lease arrangement in the present case therefore never agreed upon the terms of the formal lease. They did no more than agree that the terms of any such lease could not be more onerous than those contained in the ADLS standard form. A lease document that excluded liability on the part of the guarantor after the expiry of the term of the lease remained in theory at least a possible outcome. For this reason I agree with both Judge McElrea and Frater J that the terms of the formal lease remained uncertain and the appellant could not establish that the terms of the ADLS 3rd edition commercial lease were incorporated within the agreement to lease.
[33] In Regan v Brougham, a finance contract contained a provision that if any person is named in the agreement as a guarantor, that guarantor must have signed a deed of guarantee and indemnity. There was no reference to any specific form of guarantee. Simon France J said:6
The Agreement clearly contemplates that any guarantee will be found in a separate contract. Consistent with this, and unlike for both the borrower and any covenantor, there are no operative clauses within the document imposing any obligation at all on a guarantor. Nowhere it is said what the guarantor is agreeing to, nor when that obligation might arise. I acknowledge that with a simple term loan arrangement the nature and extent of a guarantor’s obligations may be easier to infer, but one would still expect clarity around matters such as when the guarantee will be triggered and what notice is required. Further, I do not accept that a consumer protection requirement such as s 27 of the Property Law Act 2007, which requires that a guarantee contract
5 Honk Land Ltd v Fetherston HC Auckland AP-2005-404-7019, 30 April 2007.
6 Regan v Brougham [2017] NZHC 1091 at [25].
be in writing, is met by a document which merely describes a person as a guarantor and which is then signed by the guarantor. The essential terms of a guarantee contract must in writing and here they are not.
[34] Counsel for Design Electronics advised that the Court of Appeal has granted leave to appeal the judgment of France J in Regan v Brougham. Although the judgment of the Court of Appeal is not available yet, the judgment granting leave contains this passage:7
[4] In particular, we note the loan agreement was a standard ADLS form and therefore its construction is a matter of general importance. We note too the existence of previous authority – not cited to Simon France J – which has held that when a person signs a loan agreement as guarantor, he or she can be taken as agreeing to guarantee something and that in the absence of words of limitation, the natural and only reasonable inference is that they are agreeing to guarantee all the obligations of the principal debtor contained in the document. Further, the issue of whether and when equity can be invoked to overcome the effects of non-compliance with s 27 is a novel one.
[35] The reference to s 27 is to that section of the Property Law Act 2007 which requires a contract of guarantee to be in writing and signed by the guarantor.
[36] The authority referred to is Bradley West Solicitors Nominee Co Ltd v Keeman.8 Tipping J discussed a variation of mortgage document signed by four persons next to the word “Guarantors”. It also contained a clause saying those persons had executed the document as guarantors. No other terms of guarantee were included in the document. His Honour said:9
The document as a document either constitutes a valid guarantee or it does not.
The question becomes whether the document itself evidences with sufficient clarity an intention on the part of the purchasers to guarantee the nominee company mortgage.
[37] There is sufficient doubt raised by Design Electronics in this case to lead me to the conclusion that the Trust has not, in relation to clause 6 of the agreement, established that there is no defence to its application for summary judgment granting specific performance pursuant to this clause. The agreement in this case is not a
7 Regan v Brougham [2018] NZCA 157.
8 Bradley West Solicitors Nominee Co Ltd v Keeman [1994] 2 NZLR 111 (HC).
9 At 116.
standard form agreement and there is no reference to the terms of the guarantee that might have been intended. This is a matter which may be the subject of oral evidence at a trial in accordance with the principle applied in Bradley West v Keeman.
[38] The document simply states “a Personal Guarantee to the Lendor from the Company Director on behalf of the existing shareholders”. It is not clear from this sentence whether the shareholders are to be liable or just the company director. There are two shareholders, one of whom is the director, Mr Jones. Neither shareholder is named as, or signed as, a guarantor. The agreement is only executed by Design Electronics, with signatories for that company being described as Warwick Jones, Director and 50% shareholder, and Karen Matthews, 50% shareholder.
[39] In my opinion the question whether any guarantee, and if so the terms of that guarantee, are enforceable against Mr Jones are matters for trial.
[40] The force of the point is exemplified by the fact that attached to the statement of claim is a draft form of Deed of Guarantee and Indemnity which, from the name on the front cover of it, appears to have been prepared by Mr Lookman’s solicitors. It is a detailed 10-page document. There is no evidence before the Court that there has ever been even discussion of Mr Jones and/or Ms Matthews signing a document in these terms, let alone agreement to do so.
[41] The sole obligation on Design Electronics in clause 8 is contained in the third sentence, albeit expressed in passive rather than active terms. I am satisfied that it is sufficiently clear that it casts an obligation on Design Electronics. That obligation, however, is to make available its electronic accounting system and records, to the extent necessary to enable independent access “to statements”.
[42] The orders sought are considerably more extensive. The order sought in paragraph B1 sufficiently mirrors the obligation in clause 8 of the agreement to be a reasonable foundation for an order though with the addition of the words “and records”. Whilst the terms of paragraphs B2, B3, B4 and B5 might refer to material which Mr Lookman would like to have (and arguably should have contracted to
receive) and indeed might refer to material that he once did receive, they are well outside the terms of clause 8 of the agreement, and that clause cannot, at least on a summary judgment application, be interpreted to place any obligation on Design Electronics to act as the order predicates. I accept that some of the documents referred to might well be within Design Electronics’ “electronic accounting system”, and thus come available to Mr Lookman by virtue of an order giving him access to that in accordance with the obligation on Design Electronics contained in clause 8. However, the order of the Court can only be to comply with the express contractual obligation. I accept that the obligation has existed since August 2017 so the access provided must be to all material on the electronic accounting system from that date to the present time and is, as well, an ongoing obligation for the term of the contract. Any further or wider access is an issue for evidence at trial.
[43] The obligations imposed on Design Electronics by clause 10, while expressed in abbreviated language, are in my opinion sufficiently clear for the Court not to be left in any real doubt or uncertainty about what was intended. The first three sentences provide for a monthly meeting on a specified date which may be changed by agreement, for information to be provided which will be a focus for an overall view of the company, and for the purpose of documenting agreements that need to be made. The last two sentences refer to advances by the Trust. The remainder of the clause places obligations on Design Electronics to provide specified information and documents at least 24 hours prior to the monthly meetings.
[44] One argument advanced by Ms Jamieson was that the Court should not order specific performance of any terms of the contract because the terms by their nature are such that Court supervision of compliance would be required. In relation to the obligations placed on Design Electronics in clauses 8 and 10, I do not agree. The terms of the obligations are sufficiently clear, and on the evidence of Design Electronics itself the obligations have been complied with up until August 2017.
[45] Ms Jamieson also argued that the fact that Mr Lookman had issued a statutory demand under s 289 of the Companies Act 1993 disentitles him to an order for specific
performance. Again, I do not agree. Whilst for reasons already canvassed by this Court in its judgment dated 2 May 2018,10 proceedings based on that demand could not proceed, Mr Lookman’s actions can be interpreted as an attempt by him to bring matters to a head given that he had invested $1.82m in a company which was obliged to provide him with certain information and to take certain material steps, and had ceased to do so. I do not regard the issuing of the demand as conduct material to the Court’s discretion in relation to ordering specific performance, in the circumstances of this case.
[46] Ms Jamieson argued that damages would be an adequate remedy if Design Electronics is found to be in breach of contract. I do not agree. The evidence given for Design Electronics by Mr Jones is that Design Electronics is not even in a position to repay Mr Lookman’s advances, which strongly suggests that it could not meet a damages claim. Mr Jones does not give any evidence indicating to the Court that he would be in a position to meet a damages claim either.
[47] Finally, Ms Jamieson notes that Mr Lookman says the reason he seeks specific performance is to enable him to determine whether to invest the balance of the sum of
$2.1m in Design Electronics and exercise its share option. She notes that clause 9 of the agreement provides that prior to any shareholding changes and/or shareholding options being exercised, a “Shareholders Agreement” will be prepared. She says that in light of the matters set out in the evidence presently before the Court there has to be real doubt as to the ability of the parties to agree the terms of any such shareholders’ agreement and a real possibility that issues between these parties will be back before the Court in the near future.
[48] Whilst I can understand the basis upon which Ms Jamieson makes that submission, the unhappy state of the relationship between Mr Lookman and Mr Jones being described by both of them, the Trust and Design Electronics nonetheless remain contractually bound, and both must perform all obligations imposed on them by the contract whilst that remains the position. If clause 9 imposes on them an obligation to prepare a shareholders’ agreement, both are obliged to take such steps as may be
necessary to comply with the obligation that each has. I say “if” because the clause may be susceptible to argument that it is void for uncertainty, or it may be arguable that the provisions relating to disputes in clause 12 will need to be invoked, and promptly so. On these points I do not express an opinion, and refer to counsel’s observation only to emphasise the importance of both parties to the agreement ensuring that they honour their respective obligations including, if necessary, such obligations as may be imposed on them by clause 12. If Mr Lookman, a trustee, and Mr Jones, a director, believe themselves to be unable to act in the best interests of the Trust and Design Electronics respectively, they may need to consider standing aside in favour of persons who can.
Outcome
[49] I am satisfied that the Court should enter summary judgment for the Lookman Trust on part of its claim by making orders for specific performance in the following terms:
(a) Design Electronics Ltd will forthwith provide access to the Lookman Family Trust to its electronic accounting system and records from 1 August 2017 and will continue to provide such access.
(b) Design Electronics Ltd will comply in every respect with the obligations imposed on it by clause 10 of the agreement between it and the Lookman Family Trust dated 14 December 2016. All information required by that clause to be made available will include information for the period August 2017 to the end of the month before the first meeting following this judgment.
[50] In all other respects the application for summary judgment is dismissed.
[51] Costs are reserved.
[52] The proceeding is adjourned to a case management conference to be arranged after 1 February 2019.
J G Matthews Associate Judge
Solicitors:
McFadden McMeeken Phillips, Nelson Tavendale and Partners, Christchurch
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URL: http://www.nzlii.org/nz/cases/NZHC/2018/3396.html