HAIG V EDGEWATER DEVELOPERS LIMITED AND ORS CA CA525/2008

HAIG V EDGEWATER DEVELOPERS LIMITED AND ORS CA CA525/2008 7 September 2009IN THE COURT OF APPEAL OF NEW ZEALAND CA525/2008 [2009] NZCA 390BETWEEN ROBERT HAIG Appellant AND EDGEWATER DEVELOPERS LIMITED First Respondent AND CARRINGTON FARMS LIMITED Second Respondent AND PH II INCORPORATED Third Respondent Hearing: 28 May 2009 Court: Glazebrook, Arnold and Baragwanath JJ Counsel: J R Billington QC and W W Peters for Appellant J D McBride and B A Ng for Respondents Judgment: 7 September 2009 10.00 amJUDGMENT OF THE COURT A The appeal is allowed and the order for summary judgment is set aside. B Costs for a standard appeal on a Band A basis and usual disbursements are awarded to the appellant. We certify for second counsel.____________________________________________________________________REASONS OF THE COURT(Given by Glazebrook J)Table of ContentsPara NoIntroduction [1]Background [8]Updating evidence [29]Associate Judge Robinson's decision [31]Submissions for Mr Haig [34]Submissions for respondents [40]Do the New Zealand courts have jurisdiction? [49]Is the United States the appropriate forum? [61]Should summary judgment have been entered? [65]Result and costs [71]Appendix: Relevant Correspondence [76]Introduction[1] Mr Robert Haig is an architect and project manager. He moved to New Zealand from the United States in 1996 to manage the development of property situated on the Karikari Peninsula, Northland. The development is owned by Edgewater Developments Ltd and Carrington Farms Ltd (collectively referred to in this judgment as the New Zealand companies). PH II Inc, a US company incorporated in Connecticut, is the ultimate parent of those companies. [2] Mr Haig sued the respondents claiming that he is entitled to 15 percent of the share capital of the New Zealand companies in accordance with an agreement entered into on 2 April 1996 with all three respondents. As an alternative cause of action against PH II Inc, he seeks an enquiry as to damages if it is held that the 2 April 1996 agreement has been superseded by one made on 1 July 1999 and the value of the shares he is to receive under the July agreement in certain US corporations is less than the value of the shares in the New Zealand companies that he would have received under the 2 April 1996 agreement. [3] The respondents say that Mr Haig has issued proceedings against the wrong parties. The New Zealand companies have never agreed to issue shares to Mr Haig and, if he wishes to pursue PH II Inc, he needs to do so in the United States, as the New Zealand courts do not have jurisdiction to determine the claim and New Zealand is forum non conveniens in any event.[4] On 1 August 2008, Associate Judge Robinson granted the respondents' claim for summary judgment against Mr Haig. Because of this, the Judge did not consider it necessary to determine PH II Inc's protest to jurisdiction or its claim that New Zealand is forum non conveniens. [5] Mr Haig appeals against the Associate Judge's decision. The respondents support the decision, save that PH II Inc says that its protest to jurisdiction should have been determined (in its favour) before the summary judgment application. In 2006, the respondents had filed an appearance under protest to the Court's jurisdiction and subsequently applied to dismiss the proceedings under r 131 of the then High Court Rules. [6] The issues in this appeal are: (a) Do the New Zealand courts have jurisdiction to hear Mr Haig's claim? (b) If so, should they do so or is the United States the appropriate forum? (c) Should summary judgment have been entered? [7] Before dealing with those issues, we set out the background in more detail and some updating evidence. We then summarise the main points in Associate Judge Robinson's judgment and the parties' submissions.Background[8] In August 1995, Mr Haig and Mr Kelly, the President and Chief Executive of PH II Inc, travelled to New Zealand to investigate possible investment opportunities. Together they inspected a property at Karikari Peninsula in Northland. Mr Kelly, via a company, entered into a sale and purchase agreement for that property. During the course of the purchase negotiations, Mr Haig and Mr Kelly verbally agreed that Mr Haig would be responsible for managing the design and development of the land into a tourist resort. An application made to the Overseas Investment Commission(OIC) in October 1995 for permission for the proposed development to proceed was granted. [9] The development comprises a luxury lodge, golf course, vineyard and winery, cattle farm, 14 residential villas adjourning the golf course and a residential subdivision to be completed in several stages. The lodge, golf course, vineyard and winery are owned by a subsidiary company of Carrington Farms Ltd. The residential subdivision is owned by Edgewater Developers Ltd. [10] By letter dated 2 April 1996 (the 2 April 1996 agreement), on the letterhead of PH II Ltd but with the name and address of Edgewater Developers Ltd typed in, Mr Jeffrey B Gayner, Chairman of the Board of Edgewater Developers Ltd, offered Mr Haig the position of Chief Executive Officer of Edgewater Developers Ltd at a salary of NZ$100,000 plus a housing and health insurance allowance, an annual home leave transportation reimbursement entitlement and a guarantee of the transportation costs for Mr Haig and his family from New Zealand. It was also noted that, "as previously discussed", Mr Haig "will be offered an equity investment equivalent to 15%". In that letter, Mr Gayner also supplied information concerning the scope of the development. The full text of the 2 April 1996 agreement is set out in the Appendix at [76]. [11] The next letter in the sequence is one dated 4 June 1996 (the 4 June 1996 agreement) from Mr Kelly to Mr Haig on PH II Inc's letterhead. This gave further details of the 15 percent equity investment that the 2 April 1996 agreement said would be offered. The 4 June 1996 agreement was said to be "an addendum" to the April letter. Mr Kelly said that he thought Mr Haig should have the additional letter for his files "particularly since the [2 April 1996 agreement] does not deal with the specifics of your 15 percent equity interest". The 4 June 1996 agreement confirmed that the 15 percent equity applied to both Carrington Farms Ltd and Edgewater Developers Ltd. [12] The price for ten percent of the shares was to be the same proportional price that PH II Inc had paid plus closing costs. Payment for that ten percent was said to be due but it would be "kept open" for the remainder of the year on an interest freebasis. Any balance owing at the end of the year would be subject to a "fair interest rate" to be payable going forward on the unpaid balance. The remaining five percent was to be awarded as an incentive for Mr Haig's agreement to oversee the New Zealand development for three years. The letter said that, while the five percent equity would "automatically vest in full three years" from the start date of Mr Haig's employment, Mr Haig would be entitled to his share of any distributions made by either Carrington Farms Ltd or Edgewater Developers Ltd during the time of his employment. The full text of the 4 June 1996 agreement is set out at [77]. [13] Mr Haig relocated to New Zealand on 4 July 1996 to take up his position as Chief Executive Officer and project manager of the Karikari development. [14] The next relevant event is a memorandum sent by Mr Kelly to Mr Haig on 21 July 1998 headed "Application for NZ Citizenship". In that memorandum, set out in full at [78], Mr Kelly said that he enclosed a letter evidencing Mr Haig's 15 percent "equity interest" in Carrington Farms Ltd and Edgewater Developers Ltd and a Demand Promissory Note expressed to be from Mr Haig to PH II Inc. The memorandum also noted that, despite a higher NZ dollar exchange rate at the time of earlier loans to Carrington Farms Ltd and Edgewater Developers Ltd, there was now a "cash investment" in these properties of at least NZ$6m, with a present market value that was estimated to be higher. [15] The enclosed letter (addressed "To Whom It May Concern") confirmed that Mr Haig "ha[d] a 15 percent equity interest" in Carrington Farms Ltd and Edgewater Developers Ltd. It also confirmed the original purchase price of the land of NZ$3m, shareholder advances of some NZ$37m and said that current plans were for continued extensive development of both properties, which was stated to necessitate a considerable amount of additional investment by equity owners. See at [79] for the text of the letter. [16] The "Demand Promissory Note" (set out at [80] below) was for US$197,536.18 at an interest rate of nine percent per annum. It was stated to be payable on demand for a ten percent interest in the companies and that it was "collateralized" by Mr Haig's "underlying equity interest in Carrington Farms Ltdand Edgewater Developers Ltd, both of which equity interests will be held by PH II Inc until this Note is paid in full." The Note was said to be governed by the laws of Connecticut. It was never signed by Mr Haig. [17] On 24 August 1998, Mr Kelly wrote to Mr Haig saying that the "form of payment" required for Mr Haig's equity entitlement was being changed (see at [81] below). In fact, that letter also purported to change the entities in which Mr Haig was to have shares to Edgewater Corp and Carrington Holdings Inc, two US corporations incorporated in Delaware. For the first time the letter indicated that the equity interests were to take the form of options, including the five percent "sweat equity". Mr Haig did not sign and return the letter to Mr Kelly as requested. [18] On 1 July 1999, Mr Kelly, in his capacity as President of PH II Enterprises Inc, and Mr Haig signed a letter (the 1 July 1999 agreement) (see at [82] below). PH II Enterprises Inc is a US subsidiary of PH II Inc. This 1 July 1999 agreement provided that Mr Haig had an option to acquire from PH II Enterprises Ltd five percent of the equity of Edgewater Corp and Carrington Holdings Inc for US$1 and a further option to purchase ten percent of the same companies for US$223,300. (The evidence does not explain why there was a change in consideration from that set out in the Promissory Note.) The 1 July 1999 agreement said that it represents the full extent of the understanding between PH II Enterprises Inc "and all of its affiliates, including PH II, Inc and Paul K Kelly, and Robert B Haig in regard to the potential equity participation of Mr Haig in common stock ownership of Edgewater Corp and Carrington Holdings Inc". It was said further that "this letter agreement supersedes any previous understandings by the aforementioned respective parties in regard to this subject matter". The 1 July 1999 agreement was said to be subject to the laws of the State of Connecticut. [19] Mr Haig's evidence was that during the year 2000, Mr Kelly informed Mr Haig that his salary would be doubled to NZ$200,000. [20] In October 2000, Mr Kelly decided to separate PH II Enterprises Inc from PH II Inc. On 11 October 2000, a facsimile message from Mr Kelly was sent on PH II Inc letterhead to Mr Haig detailing Mr Kelly's intention to separate PH II Inc and PHII Enterprises Inc "for tax purposes" and requesting that Mr Haig instruct an appraiser to prepare appraisals of the New Zealand companies for this purpose. The text of the memorandum is set out at [83]. [21] In June 2003, there was a group restructuring, apparently also for United States tax reasons. This involved the insertion into the chain of ownership of two new entities: Carrington Capital LLC and Edgewater Capital LLC, both Delaware corporations. On 12 December 2003, Mr Fred Rossetti, Managing Director of Knox & Co, an investment banking firm where Mr Kelly is currently the president and Chief Executive Officer, emailed Mr Kelly to advise that Mr Haig's option to purchase shares should now be through the new LLC companies, if he wished to avoid double taxation at both the corporate and personal level (see at [84]). That e-mail annexed an updated organisation chart, showing the new LLC companies sitting between Edgewater Corp and Carrington Holdings Inc and their respective New Zealand subsidiaries. [22] The new LLC companies assumed the obligations under the stock option agreements at a meeting convened on 12 December 2003, noting that the option holders would not be disadvantaged and that they would not be subject to a double taxation problem. The resolution passed at that meeting records "that the Companies will assume the obligations under certain stock option agreements granted to individuals by their respective immediate parent companies." [23] The respondents maintain that Mr Kelly sent Mr Rossetti's e-mail of December 2003 to Mr Haig, but Mr Haig says that he "was not present or aware of the proposal in June 2003 to restructure Carrington Corporation and Edgewater Enterprises". It appears to be common ground that Mr Haig provided no written acknowledgement of the receipt of the e-mail and did not indicate his acceptance of the changed arrangements in any written documentation before the Court. [24] On 15 November 2004, a letter was sent to Mr Kelly by Mr Haig suggesting options for his "exit strategy". Mr Haig suggested that he relinquish his options in return for specified properties in the development or US$3m, or a combination of the two. That offer was not taken up.[25] On 1 June 2005, Mr Haig wrote again to Mr Kelly, advising him that he was willing to continue his involvement in the development but against a background of having certainty as to how his "equity can be extracted from the Company". This letter asked for additional properties in the development (beyond the November 2004 offer), a cash payment of US$4m, or a combination of cash and properties. Again, this offer was not taken up. In a letter written on the same day, on Edgewater Development Ltd letterhead, Mr Kelly pointed out to Mr Haig that any issues about the arrangements between Mr Haig and PH II Inc should be addressed to that corporation. [26] In a letter of 8 June 2005, Mr Haig stated that his understanding of the arrangement was that he would, on payment of US$223,300, get ten percent of the "project" with a further five percent as "sweat equity". He said that he understood that Carrington Farms Ltd and Edgewater Developers Ltd owned the "project". While Mr Haig acknowledged receiving notice of "changes when they occurred" and that he had signed the 1 July 1999 agreement, this was on the basis that that letter mirrored the original verbal agreement as to receipt by him of 15 percent of the venture. Mr Haig asked for confirmation that this would occur, however that venture was currently configured. This letter is set out in full at [85]. [27] In an e-mail of 9 June 2005 from Mr Kelly (set out at [86] below), Mr Haig was advised that the LLCs had "negative book net worths as of this date" due to "unexpectedly heavy borrowing". Mr Kelly said that the restructuring as per the Rosetti e-mail of December 2003 (and which had been discussed with Mr Haig) meant that Mr Haig now held options in the LLCs. It also appears from that letter that the change from the 1996 arrangements to options in the 1 July 1999 agreement (if it occurred) may have had taxation implications for Mr Haig. It seems to us strongly arguable that both the 2 April 1996 agreement and the 4 June 1996 agreement were not talking about options but about an actual right to shares upon payment and the completion of three years managing the development (and a corresponding obligation on the part of Mr Haig to pay for the ten percent and to work for the five percent).[28] Not having received a satisfactory response to his claim for a 15 percent share in the development, Mr Haig issued the proceedings in the High Court in June 2006.Updating evidence[29] Updating evidence was filed in this Court by Mr Kelly on behalf of the respondents. In his affidavit he said that on 28 August 2008 he had received a letter from Mr Haig dated 25 August 2008. In that letter, Mr Haig purported to exercise the option to purchase from PH Enterprises Inc, ten shares of common stock of Edgewater Corp and ten shares of common stock of Carrington Holdings Inc in accordance with the 1 July 1999 agreement. This evidence was received without objection. [30] On 28 August 2008, Mr Kelly replied by letter to Mr Haig at his home in Florida (set out in full at [87] below). He said that Mr Haig was not entitled to exercise his options because of two disqualifying events and that they were cancelledab initio as a consequence. The first disqualifying event was said to be that Mr Haig, prior to the granting of the options referred to in the 1 July 1999 agreement, had misrepresented himself as an owner and shareholder of Carrington Farms Ltd and Edgewater Developers Ltd to the "New Zealand Department of Immigration" in support of his application for residency (a somewhat odd assertion given the correspondence from Mr Kelly discussed at [14] - [16] above). The second disqualifying event was said to be a concern about certain real estate transactions in New Zealand, which were "undertaken without the full knowledge of, or full disclosure to, the Board of Directors of Edgewater Developers Limited, or were undertaken against the expressed directives of the Board and/or its authorised spokesperson".Associate Judge Robinson's decision[31] Associate Judge Robinson was satisfied that the 1 July 1999 agreement (see at [18] above) recorded the agreement between the parties as to Mr Haig'sentitlement to 15 percent of the equity of the New Zealand venture. In his view this was a completely new contract. If there had been any prior contract, the Judge considered that the 1 July 1999 agreement represented a novation of that earlier agreement. He said that the 1 July 1999 agreement clearly had the consent of both Mr Haig and Mr Kelly, as well as any companies Mr Kelly was representing. Further, the Associate Judge noted that Mr Haig viewed that agreement as binding as shown by his June 2005 correspondence (see at [25] - [26] above). [32] In the Associate Judge's view, there could be no claim against the New Zealand companies or PH II Inc under the 1 July 1999 agreement as they were not bound by it. As to the claim against PH II Inc for an inquiry to determine whether Mr Haig's entitlement under the 1 July 1999 agreement resulted in him receiving less than he would have been entitled to receive under any existing prior to 1 July 1999, the Associate Judge considered that, in view of his finding that there was an effective novation, there could be no basis for such a claim against PH II Inc as it was not a party to the 1 July 1999 agreement. [33] Because of these conclusions, the Associate Judge did not consider it necessary to consider the question of jurisdiction or the claim by PH II Inc that New Zealand is forum non conveniens.Submissions for Mr Haig[34] Mr Billington QC, on behalf of Mr Haig, submits that New Zealand courts have jurisdiction to hear Mr Haig's claim and are the appropriate forum. Edgewater Developers Ltd and Carrington Farms Ltd are incorporated in New Zealand and own assets in New Zealand. These companies were and are parties to the April 1996 agreement and, in Mr Billington's submission, continue to be bound by it: the 1 July 1999 agreement, in his submission, does not supersede that agreement. In addition, the work for which Mr Haig was contracted and which he completed was solely in New Zealand and his salary was paid in New Zealand dollars. Mr Haig is a New Zealand citizen, although, due to ill health, he has been back living in the US since 2006. Further, the respondents have significant continuing business interests in New Zealand at Karikari.[35] While PH II Inc is a company incorporated in the United States, Mr Kelly, as Chief Executive Officer and President of that company, would be required to give evidence on behalf of the New Zealand companies in his capacity as director of those companies. In Mr Billington's submission, it would therefore be entirely appropriate and convenient for him also to give evidence in relation to the activities and position of PH II Inc at a hearing in New Zealand, particularly given PH II Inc owns the share capital in the New Zealand companies through a series of subsidiaries. [36] As to the summary judgment application, Mr Billington submits that Associate Judge Robinson erred in finding that the 1 July 1999 agreement represented a novation of any earlier contract. In his submission, it cannot be said that there is a clear intention evident on the basis of the 1 July 1999 agreement to replace shares in the New Zealand companies with share options in entirely separate US based entities, when the agreement was silent as to the comparative value of the two transactions. The shares in New Zealand companies owning the land in New Zealand were of considerable value (at least NZ$6m by July 1998), whereas the shares in the new LLC US companies were said in 2005 to have a "negative value". There is no mention of Edgewater Developers Ltd or Carrington Farms Ltd in the 1 July 1999 agreement and no clear consent of PH II Inc to the new arrangement. [37] Furthermore, while Mr Haig did sign the 1 July 1999 agreement, he did so under the mistaken impression that the document reflected the verbal discussions he previously had with Mr Kelly. It was Mr Haig's belief that he was still being offered shares in entities that owned the New Zealand properties. Mr Haig's understanding of the substance of the 1 July 1999 agreement was thus mistaken and it was this mistake that formed the basis of his decision to sign the 1 July 1999 agreement. Had Mr Haig been aware that the entities referred to in that letter were not the New Zealand based development companies, he would not have signed it. In Mr Billington's submission, all the respondents must have been aware of Mr Haig's mistake, particularly given Mr Kelly's correspondence both before and after 1 July 1999 which perpetuated the concept of ownership of shares in the New Zealand companies. He submits further that the mistake has most likely resulted in the conferment of a benefit on PH II Inc which was substantially disproportionate to the consideration offered.[38] Mr Billington next submits that the correspondence, when read chronologically, reveals a deliberate strategy by Mr Kelly to take from Mr Haig the sweat equity entitlement he had earned from 1996 to 1999 and also to take away his ability to acquire ten percent of the shares at 1996 prices and to replace these with valueless options in US based subsidiaries of PH II Inc. In Mr Billington's submission, Mr Kelly engaged in correspondence that concealed facts and represented a series of half truths and facts intended to deceive Mr Haig into believing his entitlements to equity in the New Zealand companies were still alive, whilst restructuring the corporate entities in an attempt to defeat Mr Haig's rights. A draft amended statement of claim alleging deceit was annexed to the written submissions filed in this Court on behalf of Mr Haig. [39] In addition, Mr Billington points out that the Rosetti e-mail (see at [21] above) advised what had been done with the LLC companies not what was to be done. If Mr Haig did receive a copy of this e-mail (which he says he did not) then he was advised after the restructuring had already occurred. On any view of the matter Mr Haig had never agreed to the arrangements set out in the later correspondence from Mr Kelly, which was in any event different from the arrangements recorded in the 1 July 1999 agreement.Submissions for respondents[40] Mr McBride, on behalf of the respondents, submits that, if Mr Haig wishes to enforce the 4 June 1996 agreement (if it subsists) or wishes to embark on an enquiry into the damages he says he has suffered because of the 1 July 1999 agreement (whether because he entered into that agreement mistakenly or as a consequence of some deceptive scheme to render his options worthless), he will need to pursue PH II Inc or PH II Enterprises in the United States. [41] The 4 June 1996 agreement between PH II Inc and Mr Haig was made or entered into in the United States. PH II Inc is incorporated in Connecticut. On 4 June 1996, Mr Haig was still living in the United States and was yet to relocate to New Zealand. Further, PH II Inc is not a direct shareholder in the New Zealandcompanies. These factors in Mr McBride's submission all point to the New Zealand courts having no jurisdiction. [42] In addition, Mr McBride points out that, if Mr Haig wishes to rely on the 4 June 1996 agreement to pursue PH II Inc, he will need to show that the 1 July 1999 agreement is void and unenforceable. Mr McBride submits that he should be doing so in the United States where both he and Mr Kelly reside and where the relevant companies are incorporated. The 1 July 1999 agreement is subject to Connecticut law and Mr Haig has failed to show why he has a good arguable case for setting it aside under the laws of that jurisdiction. In Mr McBride's submission, the choice of law in the 1 July 1999 agreement is binding, there being no evidence that it was not bona fide or in any other way contrary to public policy: see Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277 at 290 (PC). In addition, any claim in damages against PH II Inc concerns the corporate restructuring of its group of companies, which was carried out in the United States. The same applies to any claim of deceit. In any event, PH II Inc is not a party to the 1 July 1999 agreement. [43] Even if there is jurisdiction over PH II Inc, PH II Inc says that New Zealand is forum non conveniens and that the United States is the appropriate forum. The 1 July 1999 agreement provides for options to purchase shares in American companies from another American company. It is subject to the laws of Connecticut. PH II Enterprises, the other party to the 1 July 1999 agreement, is incorporated in Delaware. The allegation that Mr Kelly and PH II Inc restructured the relevant companies to dilute or defeat Mr Haig's options requires in-depth knowledge of and application of the relevant company and tax law. Expert evidence from the United States will be required on this topic and on corporations law in both Connecticut and Delaware. [44] In addition, Mr McBride submits that the key witnesses to the arrangement between the parties, being Mr Kelly, Mr Jeffrey Gaynor, Mr Frank Rossetti and Mr Haig, together with all the relevant documents relating to the arrangements between the parties, are in the United States. In particular, no documents relevant to the American companies' restructuring will be in New Zealand. Serious issues will inevitably arise as to the ability of the New Zealand courts to compel production ofdocuments in the event that there is any dispute about the scope of discovery. Similar issues will arise regarding the compellability of witnesses. These issues will apply to both Mr Haig and the respondents. [45] In addition, Mr McBride submits that the enforcement of any judgment requiring specific performance will be highly problematic. He points out that the draft claim does not in any event specify which companies Mr Haig wants shares in. Similarly, he submits that any judgment awarding damages against PH II Inc is fraught, as it will need to be enforced in either Delaware or Connecticut in the United States (PH II Inc owning no property in New Zealand) and may not be capable of enforcement. [46] Turning to the issue of summary judgment, the respondents agree that the 1 July 1999 agreement was not a novation but say that it was an entirely new agreement by which Mr Haig waived his rights under any earlier agreements and accepted an option to acquire shares in Edgewater Corporation and Carrington Holdings Inc from PH II Enterprises. The respondents, however, accept that, given the issues raised by Mr Haig, it is not possible for it to rely on the 1 July 1999 agreement as a basis for summary judgment. [47] In Mr McBride's submission, the enforceability or otherwise of the 1 July 1999 agreement is not, however, determinative of the New Zealand companies' application for summary judgment. He submits that Mr Haig has never had an agreement with the New Zealand companies by which they agreed to issue shares to him and there is no suggestion in any of the documents that the New Zealand companies were proposing to issue further shares. The 2 April 1996 agreement from Mr Gaynor, which was written on Edgewater NZ letterhead, only refers to the fact that Mr Haig "will be" offered an equity interest. [48] The 4 June 1996 agreement, which dealt with the 15 percent equity, was between PH II Inc and Mr Haig. It was not signed by the New Zealand companies and there is nothing to suggest it was written on their behalf. It is written on PH II Inc letterhead and signed by Mr Kelly. This must, in Mr McBride's submission, be contrasted with the offer of employment of 2 April 1996, which is on Edgewater NZletterhead and signed by Mr Jeffrey Gaynor on behalf of Edgewater NZ Ltd. It was thus, in Mr McBride's submission, entirely appropriate that the New Zealand companies' application for summary judgment was granted.Do the New Zealand courts have jurisdiction?[49] The respondents' position is that the question of jurisdiction should be judged in terms of the High Court Rules in force at the time of service of the claim. As it makes no difference in this case, we are prepared to adopt this approach. This means that Mr Haig must establish that he has a good arguable case that he comes within r 219 of the High Court Rules (the rule in force at the time the proceedings were issued) and on the merits: Baxter v RMC Group Plc [2003] 1 NZLR 304 at 310 - 313 (HC) and Bomac Laboratories Limited v F Hoffman-La Roche Limited(2002) 7 NZBLC 103,627, at [28] (HC). [50] High Court Rule 219, which has now been superseded, provided that service of proceedings out of New Zealand could be effected without leave in the following circumstances:(a) Where any act or omission for or in respect of which damages are claimed was done or occurred in New Zealand; (b) Where the contract sought to be enforced or rescinded, dissolved, annulled, or otherwise affected in any proceeding, or for the breach whereof damages or other relief is demanded in the proceeding: (i) Was made or entered into in New Zealand; or (ii) Was made by or through an agent trading or residing within New Zealand; or (iii) Was to be wholly or in part performed in New Zealand; or (iv) Was by its terms or by implication to be governed by New Zealand law. (c) Where there has been a breach in New Zealand of any contract, wherever made; (d) Where it is sought to compel or restrain the performance of any act in New Zealand;(e) Where the subject matter of the proceeding is land, stock or other property situated in New Zealand, or any act, deed, will, instrument, or thing affecting such land, stock, or property; (g) Where any relief is sought against any person domiciled or ordinarily resident in New Zealand; (h) Where any person out of New Zealand is a necessary or proper party to a proceeding properly brought against some other person duly served or to be served within New Zealand; (m) Where the person to be served has submitted to the jurisdiction of the Court.[51] It does not appear to be in dispute that the New Zealand courts would have jurisdiction to determine any disputes related to the employment agreement between Mr Haig and Edgewater Developers Ltd. Assuming that the 2 April 1996 agreement, written when both Mr Haig and Mr Kelly were back in the United States, constituted the formal offer of employment, it was, in terms of r 219(b)(iii), to be wholly performed in New Zealand. The 2 April 1996 agreement was on PH II Inc's letterhead but it is common ground that the employer, whose address appears on the letter also, was Edgewater Developers Ltd. The employer was thus to be a New Zealand company and Mr Haig was to become a New Zealand resident. The development was in New Zealand. The employment agreement was thus likely by implication to be governed by New Zealand law under r 219(b)(iv). [52] In the 2 April 1996 agreement, it was said that there would be an offer of equity in the New Zealand venture. It is difficult to see this being as other than a term of employment of Mr Haig and thus as creating an obligation on Edgewater Developers Ltd as Mr Haig's employer at the least to ensure that the offer was made, even if it was envisaged that the actual offer would be made by another party. It was thus part of an employment agreement over which, for the reasons set out above, the New Zealand courts clearly have jurisdiction. [53] We now turn to the 4 June 1996 agreement, where the offer of equity was detailed. This letter was on PH II Inc's letterhead. Mr McBride, on behalf of the respondents, argues that it is a totally separate arrangement from the 2 April 1996 employment agreement. In our view, this is unarguable on the face of the wording of the 4 June 1996 agreement, which refers to it being "an addendum to the letterwhich was sent to you by Jeff Gaynor on April 2, 1996, outlining the terms of your employment with Edgewater Developers Ltd". It also says, in the last paragraph, that the additional correspondence is because the 2 April 1996 agreement did not deal with the specifics of the 15 percent equity interest. [54] It is not clear in what capacity PH II Inc wrote the 4 June 1996 agreement but, as the 2 April 1996 agreement was on its letterhead, it is possible that it was written as agent of Edgewater Developers Ltd or in some sense as a guarantor. If it was writing as a principal, then PH II Inc may well have been in some measure a subsidiary employer of Mr Haig. Whatever the position, the 4 June 1996 agreement cannot be separated from the employment agreement and the offer of the equity interest cannot be characterised as other than a term of an employment agreement, which was, in terms of r 219(b)(iii), to be wholly performed in New Zealand by Mr Haig. [55] Given the involvement of PH II Inc in the employment arrangements between Mr Haig and Edgewater Developers Ltd (including Mr Kelly giving Mr Haig a raise, see above at [19]), it is clear that PH II Inc is a necessary or proper party to a proceeding properly brought against the New Zealand employer, Edgewater Developers Limited. This provides a further basis on which the New Zealand courts have jurisdiction: r 219(h). Further, what was at issue in the 4 June 1996 agreement was shares in the New Zealand companies as part remuneration for employment in New Zealand by a New Zealand company. It is highly arguable therefore that the 4 June equity offer was, in terms of r 219(b)(iv), by implication to be governed by New Zealand law. [56] We move now to the 1 July 1999 agreement. As the 4 June 1996 agreement must be seen as part and parcel of the employment relationship, the 1 July 1999 agreement, if indeed it is valid, must have varied the employment agreement. It is thus linked to Mr Haig's work and can thus be seen as being partly performed in New Zealand in terms of r 219(b)(iii). This is in any event clear from the terms of the 1 July agreement if the respondents are correct that Mr Haig had, at the time of that agreement, three more days of work to earn the "sweat equity".[57] It is also of some significance that the matters that, according to Mr Kelly's letter of 28 August 2008 (see at [30] above), disentitle Mr Haig to rely on the 1 July 1999 agreement are events that occurred in New Zealand, ie the alleged misuse of the letter with regard to citizenship and dealings with properties in New Zealand. This therefore appears to engage r 219(c). [58] With regard to Mr Haig's contention that the 1 July 1999 agreement is unenforceable, we note that parties to an employment agreement are, under s 4 of the Employment Relations Act 2000, subject to an obligation of good faith. Issues of possible breaches of good faith may thus arise, as well as the issue of mistake and possible deceit with regard to the 1 July 1999 agreement. It may even be that the choice of law provision in the 1 July 1999 agreement would not be upheld as a matter of public policy if in fact its effect would be to remove the good faith in employment obligation if the law of Connecticut is applied. [59] The case for the New Zealand courts having jurisdiction is, in light of the above, clear. We also consider there to be a good arguable case on the merits: see further at [65] - [69] below. [60] There is a further jurisdictional point, however. If our analysis above is correct, then the claim relates to an employment agreement. If that is so, the claim should have been started in the Employment Relations Authority. The Employment Relations Authority and/or Court would have exclusive jurisdiction to interpret the agreement if that is so: s 214 Employment Relations Act. We do note, however, that Mr Billington acknowledged that the High Court proceedings could be stayed while any matters within the exclusive jurisdiction of the Employment Relations Authority and/or Court were dealt with.Is the United States the appropriate forum?[61] It is always open to a defendant resident out of New Zealand to submit that the plaintiff's choice of venue is forum non conveniens. Even where jurisdiction can be invoked under r 219, the Court has an inherent discretion to decline jurisdiction:Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1990] 3 NZLR 513 at525 (PC); Longbeach Holdings Limited v Bhanabhai and Co Limited [1994] 2 NZLR 28 at 35 (CA). The burden rests on PH II Inc to satisfy the Court that there is another more appropriate forum than New Zealand in which the case may be tried and one which better serves the interests of the parties and the ends of justice. Relevant considerations will be convenience and expense, the places where the parties respectively reside or carry on business, the law governing the transaction, what is the "natural forum", ie, that with which the action has the most real and established connection, and whether a New Zealand forum offers the plaintiff a "legitimate personal or juridical advantage": Longbeach Holdings Limited at 35 – 36 (CA). [62] There are some factors pointing to the United States as the appropriate forum. Mr Haig and PH II Inc are United States residents, although Mr Haig also has New Zealand citizenship. The documents relating to the restructuring will be in the United States and, if expert evidence on this is needed, it will be given by US experts. As well as inconvenience, this could add to the expense of the litigation. It is not clear to us, however, to what extent there will be a need to delve into the US restructuring (particularly as Mr Haig's knowledge of that restructuring and agreement to it is unclear). We also accept that there may be some enforcement difficulties against the United States companies but there are New Zealand assets and New Zealand companies who are properly parties and against whom any remedy is primarily sought. [63] The factors pointing to New Zealand as the appropriate forum, however, far outweigh those pointing to the United States. The employment agreement was between a New Zealand company and a man who was to become a New Zealand resident. It involved New Zealand companies with assets in New Zealand. There will be issues relating to the development in New Zealand and its worth, particularly if the respondents persist in their assertion as to the alleged disqualifying events set out in Mr Kelly's letter of 28 August 2008, set out at [87] of the Appendix. [64] It can thus be seen that the whole dispute has a real and established connection with New Zealand and the New Zealand courts are the appropriate forum.Should summary judgment have been entered?[65] It is conceded by the respondents that it is not possible on a summary judgment application to determine that the 1 July 1999 agreement applies (see at [46] above). It is thus not possible to sustain the reasoning of the Associate Judge on this point. There is also force in Mr Billington's submission with regard to the later restructuring, recorded at [39] above. [66] The respondents argue, however, that the summary judgment application was still appropriately granted. In their submission, the New Zealand companies are not parties to the 4 June 1996 agreement and thus are not parties to the agreement relating to Mr Haig's equity share. We do not accept this submission. While the New Zealand companies were not parties to the 4 June 1996 agreement directly, Edgewater Developers Limited is a party to the 2 April 1996 agreement and the two letters are clearly tied together. There is no doubt that it was involved with the employment relationship, although it is unclear whether that was as agent, co-contractor, principal or guarantor. Further, Edgewater Developers Ltd promised in its 2 April 1996 agreement, that an equity share would be offered. [67] We accept that the 2 April 1996 agreement does not say that Edgewater Developers Ltd will issue shares but there is no question that it could have fulfilled its obligations in respect of the offer of equity noted in that letter, either by issuing the shares or by arranging with its shareholders to provide them to Mr Haig. The involvement of PH II Inc may well merely have been to assure Mr Haig that the ultimate parent agreed to that occurring and would ensure that the shares were either issued by the New Zealand companies or that they were provided in some other manner to Mr Haig. It is certainly arguable that Edgewater Developers Ltd remains liable under the 2 April 1996 agreement to pay damages if the shares are not provided. [68] While there is no formal written evidence of any employment relationship with Carrington Farms Ltd, it seems common ground that Mr Haig was the manager of the whole New Zealand venture, including that part owned by Carrington Farms Ltd. Discovery may show that there was an employment relationship betweenMr Haig and Carrington Farms Ltd, through the course of dealing (for example apportionment of salary expense between the two New Zealand entities) and thus a direct obligation on Carrington Farms Ltd that mirrored that of Edgewater Developers Ltd. [69] We thus reject the respondents' submission that summary judgment should have been entered because the New Zealand companies are not proper parties to the claim. It was also inappropriate to enter summary judgment in favour of PH II Inc. There is no doubt that it was involved with the employment relationship, although it is unclear whether that was as agent, co-contractor, principal or guarantor. The 2 April 1996 agreement was on its letterhead and it was the author of the second related 4 June 1996 agreement. [70] For completeness, we note that there was a further question as to whether Associate Judge Robinson was correct in holding that the equitable doctrine expressed in Telecom New Zealand v Sintel-Com Limited [2008] 1 NZLR 780 (CA) has no application to this case. We do not need to deal with this issue, given the conclusions we have reached above.Result and costs[71] The appeal is allowed and the order for summary judgment is set aside. [72] The respondents' submission that the New Zealand courts do not have jurisdiction to hear the claim is rejected, as is the submission that New Zealand isforum non conveniens. The High Court should have dismissed the respondents' r 131 application and set aside the appearance. [73] As to costs, the respondents submit that, even if they do not succeed in the appeal, costs to the appellant should be refused or reduced. The respondents point out that the appellant is now on the third iteration of his claim and say that they have been put to considerable expense responding to the repeated attempts to promote a sustainable cause of action against them.[74] In our view, there is no reason to depart from the ordinary principle that costs follow the event. While Mr Haig has amended his claim a number of times and further amendment is likely, the expense incurred by the respondents was as a result of their challenge to jurisdiction and their application for summary judgment, both of which were misconceived. [75] Costs for a standard appeal on a Band A basis and usual disbursements are thus awarded to Mr Haig. We certify for second counsel.Solicitors: Wayne Peters & Associates, Whangarei for Appellant Bell Gully, Auckland for RespondentsAPPENDIX: RELEVANT CORRESPONDENCE[76] The letter of 2 April 1996 reads as follows:33 Riverside Avenue Phone: (203) 226 6288 5th Floor Fax: (203) 226 8022 Westport, Connecticut 06880 EDGEWATER DEVELOPERS, LTD. Tuitonga Road, Whatawhiwhi RD 3 Kaitaia, New Zealand April 2, 1996 Mr. Robert B. Haig 720 Kendall Drive Marco Island, FL 33937 Dear Bob: As Chairman of the Board of Edgewater Developers, Ltd. ("EDL"), I am pleased to offer you the position of Chief Executive Officer of EDL, at a salary of NZ$100,000 per year. Also, as previously discussed, you will be offered an equity investment interest equivalent to 15%. EDL [Edgewater Development Ltd], a subsidiary of PH II, Inc., is involved in the subdivision and development of residential properties on the Karikari peninsula. At this time, the Company is engaged in the sale of residential lots in one completed subdivision, and plans to apply to the regulatory authorities to develop approximately an additional four hundred residential lots on land owned by the Company on the Karikari peninsula. The market value of these subdivision projects is estimated to be between NZ$12,000,000 – 15,000,000. In addition to the development of the aforesaid residential subdivision, we also intend to consider building houses for sale on certain of the subdivided lots owned by the Company. It is our expectation that the completion of the aforesaid projects will require your on-site residence for a period of at least three years. To date, we have invested NZ$3,000,000 on the Karikari Peninsula and we expect our incremental development investment during the next three years to be at least NZ$15,000,000. In addition, we estimate that between 25-50 local new employment opportunities will be created as a result of our planned development activities. In choosing the appropriate candidate for the CEO position, we considered that a background as both an experienced developer and a registered architect is the ideal combination for overseeing and directing the project described. Your background of more than 30 years as an architect and developer is a rare combination and is ideally suited to our objectives.In addition to the aforementioned NZ$100,000 salary, EDL will provide you with a housing allowance, health insurance allowance, and annual home leave transportation reimbursement. The Company will also guarantee the transportation costs of you and your family to and from New Zealand as part of this assignment. Effective with your relocation to New Zealand, the business offices of EDL will be located at Tuitonga Road, Whatawhiwhi. If you have any questions, please do not hesitate to contact me. Sincerely Jeffrey B. Gaynor Chairman of the Board Edgewater Developers, Ltd.[77] In a letter to Mr Haig of 4 June 1996, Mr Kelly stated:PH II INC 33 Riverside Avenue Phone (203) 226-6288 5 th Floor Fax: (203) 226-8022 Westport, Connecticut 06880 June 4, 1996 Mr. Robert B. Haig 127 Cedar Street Rehoboth, Massachusetts 02769 Dear Bob: Since you will be making plans to relocate to New Zealand in the near future, I am sending you this letter to add to your files as an addendum to the letter which was sent to you by Jeff Gaynor on April 2, 1996, outlining the terms of your employment with Edgewater Developers, Ltd. Jeff's letter pretty well covers the basic terms of your employment, including salary and benefits. The letter also mentions that you will be offered an equity investment interest equivalent to 15%. This 15% interest applies to both Carrington Farms Limited and Edgewater Developers Limited. As agreed, you will pay the same price for 10% of your equity interest as PH II has paid, i.e., the same proportional purchase price, plus related closing costs (legal fees, filing fees, etc.). The other 5% equity interest will be awarded to you as an incentive based upon your agreement to oversee the New Zealand project for a period of at least three years. While your 5% equity interest will automatically vest in full three years from the date of the start of your employment, you will also be entitled to your share of any distributions made by either Carrington Farms Limited or Edgewater Developers Limited during your employment prior to the end of the three-year vesting period. In other words, as an employee in good standing, you will be entitled to your prorata share of any distributions made by either company from the date of your employment. The payment for your 10% interest is due, but we will keep it open for the remainder of this year without any interest charge to you. If there is any amount outstanding at the end of this year, we willestablish a fair interest rate, to be payable going forward on the unpaid balance. I thought that you should have this additional correspondence in your files for your own benefit, particularly since the aforementioned letter from Jeff Gaynor does not deal with the specifics of your 15% equity interest. Best regards, Paul K Kelly President[78] In his memorandum to Mr Haig of 21 July 1998, Mr Kelly stated:PH II INC 33 Riverside Avenue Phone (203) 226-6288 5 th Floor Fax: (203) 226-8022 Westport, Connecticut 06880MEMO TO: Bob. HaigFROM: Paul KellyDATE: July 21, 1998RE: Application for NZ Citizenship Bob: Enclosed is a letter evidencing your 15% equity interest in Carrington Farms Limited and Edgewater Developers Limited, together with a Note to PH II, Inc. which permits you to become immediately the equity owner of record of 10% of the shares of Edgewater Developers and Carrington Farms which, together with the 5% "sweat equity" interest you are receiving, will equal 15% of the equity of the combined enterprises. Please sign and return to me one copy of the enclosed Note and keep the second copy for your files. The equity payment which you are making is, as you know, less than the actual amount of PH II initial investment, since we structured a portion of our initial equity investment as debt (shareholders advances). This debt is, of course, payable prior to any payments received by the equity shareholders. In addition, your equity investment includes a pro rata (10%) share of the closing costs (legal fees, transfer fees, etc.) incurred at the time of purchase of the properties. Even allowing for a higher NZ$ exchange rate at the time of some of our earlier loans to Carrington Farms and Edgewater Developers, we now have a cash investment in these properties of at least NZ$6 million, with a present market value that I would estimate to be more, due to the substantial development improvements which have already been completed. Best Regards Paul[79] Enclosed with the letter of 21 July 1998 was the following certificate:PH II INC 33 Riverside Avenue Phone (203) 226-6288 5 th Floor Fax: (203) 226-8022 Westport, Connecticut 06880 July 21, 1998 TO WHOM IT MAY CONCERN PH II, Inc. is the controlling owner of both Carrington Farms Limited and Edgewater Developers Limited, in New Zealand. PH II's original combined investment in these two properties was NZ$3,000,000, and the purchase of both properties was completed in February, 1996. Since that time, additional shareholders advances of US$1,921,000 (approximately NZ$3,694,000 at current exchange rates) have been invested in the properties for their development. Current plans are for continued extensive development of both properties which will necessitate a considerable amount of additional investment by the equity owners. This letter will confirm that Robert B. Haig, who is the resident Project Manager for both of these properties, has a 15% equity interest in both Carrington Farms Limited and Edgewater Developers Limited. If you have any questions in this matter, please feel free to contact me directly. Sincerely Paul K. Kelly President[80] Also enclosed was a document headed "Demand Promissory Note" (which was not signed by Mr Haig). That document was as follows:July 21, 1998DEMAND PROMISSORY NOTEI, Robert B. Haig, hereby agree to pay to PH II, Inc. the amount of US$197,536.18 in payment for a 10% equity interest in Carrington Farms Limited and Edgewater Developers Limited. This note will be due and payable on demand and is collateralized by my underlying equity interest in Carrington Farms Limited and Edgewater Developers Limited, both of which evidences of equity ownership will be held by PH II, Inc. until this Note is paid in full. The Note will bear interest at a rate of 9% per year from the date of this Note through its payment in full. This Note agreement shall be governed by, and construed in accordance with, the laws of the State of Connecticut.[81] On 24 August 1998, Mr Kelly wrote the following letter to Mr Haig concerning the terms of Mr Haig's employment. The letter was on PH II Inc. letterhead and was signed by Mr Kelly as President:PH II INCAugust 24, 1998 Mr. Robert B. Haig 127 Cedar Street Rehoboth, Massachusetts 02769 Dear Bob: Per our recent conversations on the subject, this letter will confirm that, effective as of this date, we are changing the form of the payment required for you to purchase your 10% equity interests in Edgewater Corp. and Carrington Holdings, Inc. The following structure and methodology will supersede any previous agreement between PH II Inc. and you. Effective as of the date of this letter, you will have an option, expiring August 24, 2001, to acquire 10% of the equity of both Edgewater Developers and Carrington Holdings, Inc., and the strike price for each option will be the amount of the Capital of Edgewater Corp. and Carrington Holdings Inc., respectively, "Capital", as of the date of the exercise of the option(s). "Capital" shall be defined as the paid-in amount of equity, plus positive retained earnings, plus the face amount of any debt outstanding, plus accrued but unpaid interest, on a consolidated basis. This structure will eliminate any interest payable by you to acquire an equity interest in either property and this will save you a significant amount of interest payable to PH II Inc. to finance your equity interests prior to you actually paying for them. In regard to the 5% sweat equity interests in both Edgewater Corp. and Carrington Holdings, Inc., which you will receive at the end of your third year of employment, you will receive a perpetual $1.00 option to acquire such interests at the value paid by PH II, Inc. initially for such pro-rata equity interests, including the initial purchase price, plus related closing and legal costs, etc. Any additional Capital amounts invested since the initial acquisition closing in the various Edgewater or Carrington Holdings properties, must be repaid to the sources providing such Capital before the equity holders can receive any distributions in regard to future profits related to the properties. As such, you will be responsible for repayment of such additional pro-rata Capital contributions above the initial purchase prices, as previously described, of the 5% equity interests which you are receiving free of initial charge, prior to receiving any equity distributions in regard to these 5% interests. In regard to future distributions to the equity holders of the various Edgewater and Carrington Holdings properties, if you have not fully paid off the total Capital amounts advanced by other sources in proportion to your total 15% equity interests, other than the value of the 5% sweat equity interests as herein defined, any distributions in regard to either the variousEdgewater or Carrington Capital advances. In regard to any such Capital advances provided by PH II, Inc., or its affiliates, or Paul K. Kelly personally, the amount of any such distributions which are used to extinguish your pro-rata responsibility for repaying such Capital advances will be grossed up by the personal tax rate of Paul K. Kelly. This grossing up procedure is necessary in order that PH II, Inc., its affiliates and/or Paul K. Kelly will receive, on an after tax basis, the same net amount which has been advanced by them. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Connecticut. All monetary amounts mentioned in this letter of Agreement are denominated in the currency of the United States of America. If this letter of agreement accurately reflects our understanding, please sign and return one original copy to me at PH II, Inc and keep the other copy for your files. Sincerely, Paul K. Kelly President Agreed to:---------------------- Robert B. Haig[82] The 1 July 1999 letter read as follows:PH II ENTERPRISES, INC. 33 Riverside Ave., 5th Floor Westport, Connecticut 06880 203-226-6288July 1, 1999 Mr. Robert B. Haig 127 Cedar Street Rehoboth, MA 02769 Dear Bob: This letter agreement will confirm our mutual understanding that effective July 1, 1999, you will have an option to acquire from PH II Enterprises, Inc., for a total aggregate purchase price of US$1.00 10 shares of common stock of Edgewater Corp. and 10 shares of common stock of Carrington Holdings, Inc. representing 5% of the 200 issued and outstanding common shares of Edgewater Corp. and Carrington Holdings, Inc., respectively, as of July 1, 1999, through June 30, 2049. This option is also assignable by you at any time to any members of your family who may be designated your heirs and/or beneficiaries. In addition, effective as of the date of this letter agreement, and for the period ending June 30, 2009, you will have the right to acquire from PH II Enterprises, Inc. 20 shares of common stock of Edgewater Corp. and 20 shares of common stock of Carrington Holdings, Inc., from PH IIEnterprises, Inc., for a total aggregate purchase price of US$223,300.00. the foregoing common stock share amounts represent 10% of the 200 issued and outstanding shares of common stock of Edgewater Corp. and Carrington Holdings Inc., respectively, of July 1, 1999. This option is assignable at any time during the option period to your designated heirs and/or beneficiaries. This letter agreement represents the full extent of the understanding between PH II Enterprises, Inc., and all of its affiliates, including PH II, Inc. and Paul K. Kelly, and Robert B. Haig in regard to the potential equity participation of Mr. Haig in common stock ownership of Edgewater Corp. and Carrington Holdings, Inc. In addition, this letter agreement supersedes any previous understandings by the aforementioned respective parties in regard to this subject matter. This agreement is subject to the laws of the State of Connecticut. If the foregoing accurately reflects our mutual understanding, please sign one copy of this letter and return it to me and retain the other copy for your files. Sincerely Paul K. Kelly President Agreed and Accepted:[83] The 11 October 2000 memo provided as follows:FAX MEMOOctober 11, 2000 TO: Bob Haig FROM: Paul Kelly Total Pages Sent: 1 RE: Appraisal of Carrington Farms Ltd. And Edgewater Developers Ltd. Bob: As we discussed when I was in N.Z., I am separating PH II Enterprises, Inc., the parent of Edgewater and Carrington, from PH II, Inc. for tax purposes. This will separate our N.Z. Land development companies from our U.S. manufacturing companies which have a different tax structure. In order to effect this restructuring, on a tax-free basis, we need to have an appraisal done for Edgewater Developers Ltd. And Carrington Farms Ltd. Please arrange to have an appraiser prepare appraisals for both companies showing current market values if both companies were sold in toto. I would doubt that either company would have a value exceeding our total investment, in N.Z. Dollars, due to the current depressed state of the N.Z. economy and the lack of property sales which we have experienced, as well as the continuing operating losses at both companies. Best regards, Paul[84] Mr Rossetti's e-mail of December 2003 said:To refresh your memory, the reason for this restructuring was that Edgewater Corp. (US) and Carrington Holdings (US) are both subchapter "S" corporations. Another subchapter "S" corporation, PH II Enterprises, owns each of these companies. According to IRS regulations, "any subchapter "S" corporation owned by another subchapter "S" corporation must be owned 100% by the owning subchapter "S" corporation, or you lose the tax pass through benefit of the subchapter "S" corporation. Therefore assuming one day Bob Haig will exercise his purchase option, I needed to set up a vehicle that owns the New Zealand assets, yet, will not penalize both of you with double taxation, once at the corporate level and then at the personal level for both you and Bob. I have therefore set up the two new LLC's, which now sit between the original "S" corporations mentioned above and the New Zealand entities to prevent this double taxation. These entities for the sake of convenience are called Carrington Capital, LLC and Edgewater Capital, LLC. Bob's option to purchase his share of Carrington and Edgewater will now be through exercising his option in these LLC companies.[85] Mr Haig's letter of 8 June 2005 read as follows:Dear Paul Thank you for your letter of the 6 th June. In my previous letter to you of 31 May 2005 I thought I had clearly outlined to you my position regarding restructuring. As advised, I consider the EDL has always been a Management company and has a continuing role to play in completing the project. I have to date assumed the role of CEO of EDL, irrespective of restructuring arrangements that have taken place over the years, and in respect to which, as you know, I have not been involved with. I am prepared to continue in the role of CEO of EDL, which in my opinion is the appropriate management entity to supervise completion of the project. The construction phase is still ongoing. However, it is also important to me that I have certainty with respect to my long term involvement with the "Carrington project". With respect to your counsel that I separate the issues between EDL and PHII, perhaps it is best that I refer back to the original verbal arrangement. You agreed from inception that our arrangement was for me to receive "10% ownership resulting in a couple of million US dollars for my retirement". The initial time frame for my input was to be 3-5 years and then my withdrawal. I also stated at the time, upon returning from our trip to New Zealand in August 1995 that because of the amorphous state of planning, design, site layout and construction requirement I would not enter into such a serious commitment with someone I did not trust. Upon selling and restructuring my businesses in the US and preparing to relocate to New Zealand you proceeded to modify the agreement via Jeff Gaynor's letter. Since that time as stated all company "machinations" werein your hands and I, as you are aware was alerted to those changes when they occurred from time to time. However the initial verbal agreement was still to stand and I never understood that any restructuring was to change the substance of our verbal arrangement. PH II was the entity which the OIC approved to complete the development via Carrington Farms Limited and Edgewater Development Limited. As you are aware in July 1998, for example, you provided me with a letter (on PH II letterhead) which confirmed that I had a 15% equity interest in Carrington Farms Limited and Edgewater Developers Limited, together with a note to PH II Inc which permitted me to become immediately the equity owner of 10% of Edgewater Developers and Carrington Farms Limited, which together with the 5% sweat equity interest totalled 15% of the equity of the combined enterprises. In summary I always understood that PH II via Carrington Farms Limited and Edgewater Developers Limited owned the "project". Subsequently in August 1998, that arrangement changed by virtue of a letter forwarded to me which stated that at the end of my third year of employment I would receive a perpetual $1.00 option to acquire such interests "at the value paid by PH II for such pro-rata equity interest, including the initial purchase price plus related closing and legal costs". Again in July 1999, the arrangement was varied once again, and while I signed the document, I did so in the belief that the original verbal arrangement was being mirrored by the July 1, 1999 document. Over the years I have taken our conversations and your letters in good faith that our original agreement was still in force. Now however, you are proposing the liquidation of EDL and in addition the ownership of Carrington Holdings has been "reconfigured" into other subsidiaries. Put simply Paul, I have understood for some years, that on payment of US$223,300.00 I get a 10% stake in the entire project. As to 5% I am entitled to have same transferred to me by way of sweat equity. Can you please confirm that you are in the position to transfer the sweat equity shares to me and also confirm that the shares have the value as represented in the July 1, 1999 letter? Please also confirm that if I pay US$223,300.00 I will have transferred to me 10% of the equity in the "Carrington project", whatever the ownership structure, based on the 1999 debt equity ratios. Could I please have a reply within ten days, as I wish any working relationship to be underpinned by having all other matters resolved with some certainty? Best Regards, Robert Haig[86] The e-mail of 9 June 2005 stated:From: Paul Kelly Sent: Thursday, June 09, 2005 4:51PM To: Judi/Bob Haig CC: Fred Rossetti; Jeffrey Gaynor Subject: Your letter of June 8 PERSONAL & CONFIDENTIAL (Transmitted by e-mail and fax) Dear Bob: That portion of your letter of June 8 which related to the CEO position at EDL was considered by the Board of Directors of EDL, at its meeting this morning. Thank you for your feedback in this regard. The major portion of your letter related to the July 1, 1999, option letter between you and PH II, Inc. As previously discussed with you, the restructuring you referred to is reflected in the attached e-mail, from Fred Rossetti, which I previously, in December, 2003, faxed to you after discussing the details with you on the phone. Basically, the terms of your option agreement are presently the same in substance, except that the number of "S" corporation shares referred to in the July 1, 1999, letter are now a like number of units in the LLC's. As a result of unexpectedly heavy borrowing, due to cost overrides, completion delays, operating losses, etc., both of the LLC's have negative book net worths as of this date. Regarding your question concerning value, you have previously indicated to me that you have been advised elsewhere that the exercise of the options, described in the July 1, 1999, letter, may have immediate material tax consequences for you, depending upon the equity fair market value, at the time of exercise. Appropriately, this is a matter regarding which you should be advised by your own tax professionals. Best regards, Paul[87] The letter of 28 August 2008 read:Edgewater Capital Corp. Carrington Capital Corp. 33 Riverside Ave. Westport, CT 06880 203-226-6288August 28, 2008 Via Certified Mail Mr. Robert Haig 720 Kendall Drive Marco Island, Florida 34145 Dear Bob: Edgewater Capital, LLC (EC), and Carrington Capital, LLC (CC), are successors to the agreement between you and PH II Enterprises, Inc., dated July 1, 1999. It has come to the attention of both EC and CC that a number of past actions were taken at the expense, or potential expense, of EC, where you were serving at the time as Chief Executive Officer, and CC, where you were serving at the time as a member of the Board of Directors. Prior to the granting of the options referred to in the aforesaid letter of July 1, 1999, affirmed and signed by both PH II Enterprises, Inc., and you, you had misrepresented yourself as an owner and shareholder of Carrington Farms Limited and Edgewater Developers Limited to the NZ Department of Immigration, as evidence of the required personal investment in NZ, in support of your application for residency. If the Board of Directors of PH II Enterprises, Inc., had been aware of this misrepresentation to a department of the government of New Zealand, you would not have been granted the options referred to in the aforesaid letter of July 1, 1999. Accordingly, since the options referred to in the aforesaid letter of July 1, 1999, were fraudulently obtained, they have been cancelled, ab initio, and you should not represent to any parties that you have an interest in the shares, or ownership, of either EC or CC, or any underlying properties relating to such. We also continue to be troubled by certain real estate transactions in New Zealand, which were undertaken without the full knowledge of, or full disclosure to, the Board of Directors of Edgewater Developers Limited, or were undertaken against the expressed directives of the Board and/or its authorized spokesperson. These transactions seemingly enriched other parties at the expense of Edgewater Developers, in an aggregate amount well in excess of $1 million. We trust that you will conduct yourself appropriately in the future in regard to the aforesaid matters. Sincerely, Paul K. Kelly For the Boards of Directors CC: Alan H. Aronson, Esq. – Akerman Senterfitt & Eldson