Jacomb and Others v Wikeley

• Jurisdiction: New Zealand
• Judge: KOS
• Judgment Date: 10 April 2013
• Neutral Citation: [2013] NZHC 707
• Docket Number: CIV 2010-485-0997
• Court: High Court
• Date: 10 April 2013

Between

Michael John Jacomb, Trene Kathleen Jacomb And Peter Reginald Richardson

Plaintiffs

and

Kenneth David Wikeley

Defendant

[2013] NZHC 707

CIV 2010-485-0997

IN THE COURT OF APPEAL OF NEW ZEALAND WELLINGTON REGISTRY

Application by plaintiff to enforce a guarantee given by the defendant for a failed mining venture in Chile — defendant alleged plaintiff's advances to company were subscriptions for capital in the mining company and that if they were loans, they were unlawful and unenforceable because they were major transactions under s129 Companies Act 1993 (“CA”) (major transactions) and were made without special resolutions — advance was initially structured as a loan but once the company was listed, the plaintiff was to receive shares — none of the share capital had been paid — documentation did not refer to lending or use the word “loan” — whether the advances were loans or subscriptions for capital — if loans, whether they were unenforceable under s129 CA — whether the definition of assets in s129(2) CA referred to a gross or net asset approach — whether the shareholders resolutions ratified loans — if defendant was liable in full or in part under the guarantee, whether the equitable doctrine of marshalling applied, reducing the plaintiff's claim by the value of the shares the plaintiff held.

Counsel:

G J Toebes with J W G Grant for Plaintiffs

M J W Lenihan for Defendant

JUDGMENT OF THE HON JUSTICE KOS

1 An economic misadventure in Chile by two former friends, now plaintiff and defendant in these proceedings.

2 The defendant induced the plaintiffs to advance moneys to a New Zealand company with plans to mine molybdenum, copper and other minerals in Chile. The advances were characterised as loans, but not documented formally. The defendant provided personal guarantees as to 50 per cent of the plaintiffs' exposure. The venture failed to prosper. The company failed to repay the advances. The plaintiffs now look to the defendant under his guarantees.

3 The defendant says that, contrary to the correspondence at the time, the plaintiffs' advances were subscriptions for capital in the mining company. Not loans. And he says that if they were loans after all, then most or all of the loans were unlawful and unenforceable. That is because they were major transactions in terms of s 129 of the Companies Act 1993. Most of the lending was made without special resolutions in advance. The defendant says that subsequent resolutions approving the balance of the loans did not ratify the earlier lending.

Background

4 The plaintiffs are trustees of the Genset Trust, settled in 1993. The trust had substantial cash reserves following the sale in 2004 of its 100 per cent interest in a large electrical engineering business. The trustee principally involved in the events leading up to this litigation was Mr Michael Jacomb.

5 The defendant Mr Kenneth Wikeley is a businessman now resident in Melbourne. By his own admission he has had a chequered career. He was at one stage a one-third shareholder in the plaintiffs' electrical engineering business. It was one among many interests in which he was involved in the 1980s and 90s. In 1990 he was in “severe financial trouble”, following the 1987 share market crash. He resold his shareholding to the plaintiffs (albeit for three or four times what he paid for it four years earlier).

6 In 2006 Mr Wikeley induced Mr Jacomb to invest with him in a listed company called Plus SMS Limited. The investment initially appeared to prosper. However as Mr Wikeley put in evidence:

Unfortunately the company subsequently foundered. [Mr Jacomb] lost quite a lot of money as he had bought a significant number of shares in his own right aside from our deal.

Investment in OMG

7 In September 2008 Mr Wikeley induced Mr Jacomb to invest in another venture. Orion Minerals Group Limited (OMG) was to be back-listed on the New Zealand Exchange through a company called RLV-3 Limited. OMG's mining interests were in Chile. Mr Wikeley was in Chile at that time. Mr Jacomb agreed on the trust's behalf to invest US$250,000 as equity in OMG. Payment was made to Mr Wikeley for that purpose on 30 September 2008.

8 The payment was initially structured as a loan by Mr Jacomb to Mr Wikeley, pending listing of OMG. On listing date Mr Jacomb was to receive 6 million shares in OMG, in satisfaction of that loan. Delivery of those shares was also to satisfy an earlier unpaid loan to Mr Wikeley of NZ$63,000. There was then a dispute as to the number of OMG shares Mr Jacomb was to receive, as the number of shares publicly offered increased. In November 2008 it was agreed that Mr Jacomb would receive 10 million shares in OMG, rather than the 6 million originally agreed.

Alleged loans to Edel Metals Group Limited

9 In October 2008 Mr Jacomb went to Chile. He met with Mr Wikeley, Mr Gower (the chairman of OMG) and a Mr Joyce (an Auckland lawyer).

10 In the course of the visit Mr Wikeley interested him in a separate venture, involving a rock crushing machine. This machine belonged to a German-Iranian businessman called Parviz Gharagozlu. Mr Wikeley first saw it “in early to mid-2008”. He was captivated by it. He said in evidence:

Parviz gave me a demonstration of a prototype crusher. The crusher seemed amazing to me. It could crush large rocks with copper, gold or molybdenum in them to powder in seconds. It could crush them dry or with water. Just by demonstration alone I could see that it operated incredibly efficiently compared to conventional technology. I considered it revolutionary. After I finished my visit to the plant, I immediately turned my mind to how I could get the rights to the crusher. I thought there was a fortune to be made from it. It all seemed like an amazing opportunity to me.

11 Nothing in evidence suggested that Mr Wikeley had relevant technical qualifications or experience in mining engineering.

12 There is disagreement on the evidence as to Mr Jacomb's reaction to the opportunity. Mr Wikeley says that he was “completely overwhelmed” by the crusher and insisted on sole investment rights. Mr Jacomb said in evidence that he was more sceptical. He liked it, but what he had seen was a “little test crusher”. If it worked in the field “it would be very clever”. The documentary evidence at the time is silent on the issue. An enthusiastic email from Mr Jacomb in fact seems to pre-date the October inspection of the crusher.

13 It is proper to record at this juncture that generally I found the evidence of Mr Jacomb to be more cautious, thoughtful, concessionary, and ultimately more credible than that of Mr Wikeley. He was by no means a perfect witness, and his recollection was not necessarily reliable. For instance, he initially denied authorship of an unhelpful email, but had later to retract the denial. However Mr Wikeley was in a class of his own as a witness. He was frequently evasive under cross-examination. Much of his evidence seemed calculated to deflect attention from the real issues. Or to offer somewhat improbable explanations for why documents did not mean what they appeared to say. I did not regard him as a reliable witness.

14 As it happens, however, the key issues for consideration by the Court can largely be answered by reference to the documentary evidence. Where the viva voce evidence of Messrs Jacomb and Wikeley is in direct conflict on matters of importance, and where documents or other witnesses do not corroborate one account or the other, I prefer generally the evidence of Mr Jacomb.

15 In issue in this proceeding is the status of four payments totalling US$1.5 million:

The plaintiffs say that these payments were loans, subject to guarantees as to 50 per cent by Mr Wikeley. Mr Wikeley on the other hand says that the payments were not loans but payments by way of subscription for 23.75 per cent of the shares in a company called Edel Metals Group Limited (EMG).

• (a) US$500,060, advanced on 15 December 2008;

• (b) US$500,000, advanced on 11 February 2009;

• (c) US$200,000, advanced on 8 May 2009; and

• (d) US$300,000, advanced on 27 May 2009.

16 EMG is a New Zealand company. It was incorporated on 18 November 2008, and struck off the register in February 2012. EMG issued 100 million shares: 23,750,000 were issued to the plaintiffs, and 76,250,000 to a company called Geier Limited. The shares had a face value of NZ$1.00, but the evidence was clear that neither the plaintiffs nor Geier paid those sums to EGM by way of capital. So the share capital remained uncalled. The defendant acknowledged that in cross-examination. So did Mr Gibson, Mr Wikeley's accountant, who also gave evidence.

17 As to Geier, Mr Gibson said:

Geier Limited was the majority shareholder in EMG. Geier was used as a trust company by my firm to hold shares in trust with people who are shareholders in the mining venture. I became aware from Ken that there were a number of parties in Chile who had an interest in the venture and who notionally been allocated shares in EMG. This included Ken. I say “notionally” because EMG shares were never transferred to them. The majority shareholding remained in Geier in the time that EMG was registered.

I understand that Ken has set out the respective shareholdings of each of the other parties in his evidence. My main duty was to represent the interests of Geier. I took instructions from Ken on what I should do as a director of EMG.

“Ken” is of course Mr Wikeley.

18 Mr Gibson's wife, Judith Burson, who practises with him as an accountant also gave evidence. She also was clear that authority as to dealing with EMG shares held by Geier reposed in Mr Wikeley. The directors of EMG were Messrs Gibson and Jacomb.

19 EMG was the vehicle used by Messrs Wikeley and Jacomb to negotiate with Mr Gharagozlu and other Chilean businessmen associated with him to buy a mineral processing plant and equipment — including the...