Arriesgado v Gallagher Family Investments Limited
[2020] NZHC 232
•21 February 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1713
[2020] NZHC 232
BETWEEN MARIA THERESA ARRIESGADO AND VICENTE MARIO HIZON REYES
Plaintiffs
AND
GALLAGHER FAMILY INVESTMENTS LIMITED
First Defendant
LIAM GALLAGHER
Second DefendantCHRISTOPHER JAMES TAYLOR, SANDRA DIANE TAYLOR AND BRETT RONALD HOWSE
Third Defendants
Hearing: 19 February 2020 Appearances:
M Lloyd, for the Plaintiffs
No appearance by or on behalf of the Defendants
Judgment:
21 February 2020
JUDGMENT OF GORDON J
This judgment was delivered by me on 21 February 2020 at 3 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Leigh Judd Law,
Counsel: M Lloyd, Auckland
B Manning, Auckland
ARRIESGADO v GALLAGHER FAMILY INVESTMENTS LTD [2020] NZHC 232 [21 February 2020]
Introduction
[1] The plaintiffs, Maria Arriesgado and Vicente Reyes (the Reyes) seek judgment by way of formal proof against the first and second defendants, Gallagher Family Investments Ltd (GFI) and Liam Gallagher, respectively.1
[2] The Reyes are the owners of an apartment at 30 Heather Street, Parnell, Auckland (the complex) which is a unit title development under the Unit Titles Act 2010 (UTA).
[3] In this hearing, the Reyes seek orders against GFI and Mr Gallagher in relation to four accessory units in the complex.
Jurisdiction
[4] If a unit title dispute relates to the title of land, only the High Court has jurisdiction to hear it.2 The definition of land in the Act is taken from the Land Transfer Act 2017, which includes estates and interests in land and buildings and other permanent structures on land. A dispute about a stratum estate is, due to s 18 of the UTA, a dispute about land for the purposes of the provision. The matter in dispute is about titles to the stratum estate (the accessory units).
Background
[5] Mr Reyes has sworn an affidavit on behalf of himself and his wife, Ms Arriesgado. His evidence is that he and his wife are the owners of apartment 6/principal unit F (PU F), a carpark which is accessory unit 21 (AU 21) and a storage room which is accessory unit 23 (AU 23), all situated within the complex.
[6] From March 2008 until June 2018, GFI was the owner of apartment 17/principal unit Q (PU Q) and accessory units AU 19 (carpark), AU 24 (storage
1 The first and second defendants have not filed a statement of defence. The third defendants have done so, and accordingly this hearing only relates to the claim against the first and second defendants.
2 Section 173(1)(b).
room), AU 25 (storage room), AU 26 (storage room), AU 29 (five carparks) and AU 30 (one carpark) all within the complex.
[7] At all material times, Mr Gallagher was the sole director and shareholder of GFI.
[8] The third defendants, Christopher Taylor, Sandra Taylor and Brett Howse were, at all material times, the trustees of the Sheehan Trust. On or about 24 April 2018, the Sheehan Trust entered into an unconditional agreement with GFI for the purchase from GFI of PU Q and AUs 19 and 26. There is a letter of 26 April 2018 from the solicitor for the Sheehan Trust to GFI’s solicitor emphasising that the Sheehan Trust was only purchasing PU Q and AUs 19 and 26 and that AUs 24, 25, 29 and 30 (then attached to the title of PU Q) needed to be removed from the title. This would enable the Sheehan Trust to have its finance approved in order to complete its purchase of PU Q and AUs 19 and 26.
[9] Mr Reyes says that over the period from April 2018 to June 2018, GFI, through its director, Mr Gallagher, attempted unsuccessfully to sell its remaining AUs 24, 25, 29 and 30 to other owners of principal units within the complex. He says that in early June 2018, those efforts having been unsuccessful, Mr Gallagher approached them and asked if GFI could transfer those four accessory units temporarily onto their title of PU F.
[10] Mr Reyes says that they knew Mr Gallagher from having seen him in and around the building but did not know him well. Mr Reyes says that Mr Gallagher told them that GFI had get AUs 24, 25, 29 and 30 off the title of PU Q before it could settle the sale of that principal unit to the trustees of the Sheehan Trust. Mr Reyes says that Mr Gallagher was very anxious and stressed about the situation and they felt sorry for him. Consequently, they very reluctantly agreed to the transfer of the four AUs onto their title on the strict understanding it would be a temporary transfer and would not involve the Reyes in any risk or expense. Mr Reyes says that Mr Gallagher assured them it would not, and that he would have his solicitor document the arrangement between them so as to fully protect the Reyes.
[11] On 7 June 2018, Mr Gallagher took the Reyes to the office of his solicitors, Skeates Law Ltd. They signed an agreement for the sale of the four AUs from GFI to them and two agreements (one for AU 25 and one for AUs 24, 29 and 30) for the sale of the AUs back to Mr Gallagher. Mr Skeates had prepared an agreement in relation to the transfers of the accessory units from GFI to the Reyes (the Main Agreement). The Main Agreement is to the effect that AUs 24, 25, 29 and 30 would be transferred from the title of PU Q (GFI’s apartment) onto the title of PU F (the Reyes’ apartment) on the following terms and conditions:
(a)“The Reyes declare that whilst they hold the Accessory Units on their title to Unit F they hold the Accessory Units on trust for Liam”;
(b)The Reyes were to enter into sale and purchase agreements (the Secondary Agreements) contemporaneously with the Main Agreement to sell the AUs back to Mr Gallagher and/or his nominee for nominal sums, so as to enable Mr Gallagher and/or his nominee to transfer the AUs onto the title of another principal unit within the complex should that become possible;
(c)Mr Gallagher was to indemnify and personally guarantee the Reyes in respect of all costs and liabilities incurred in relation to the transfer of the AUs to the Reyes; the holding of the AUs on trust by the Reyes for Mr Gallagher; and the sale of the AUs back to Mr Gallagher and/or his nominees;
(d)If Mr Gallagher and/or his nominee failed within six months of the date of the Main Agreement (that is by 7 December 2018) to purchase the AUs back from the Reyes so as to be able to transfer them onto the title of another PU within the complex, then the Reyes, at their option, were able to cancel the agreements to sell the AUs back to Mr Gallagher and/or his nominee.
[12]On 14 June 2018, AUs 24, 25, 29 and 30 were transferred to the Reyes.
[13]Mr Reyes says that around the time of the transfer of ownership of AUs 24, 25,
29 and 30 they began experiencing difficulties in connection with those AUs. Mr Gallagher became very difficult to find and/or to contact. In addition, GFI and/or Mr Gallagher failed or refused to pay all or some of the Body Corporate levies in relation to the AUs and the Reyes were required to pay them.
[14] Further, it became apparent that GFI and/or Mr Gallagher had done building and electrical works in AU 24 before the transfer of the ownership to the Reyes of which the Reyes had no knowledge. The Body Corporate took issue with the Reyes about this work. They were required by the Body Corporate to carry out remedial works and obtain compliance documentation for that work. Mr Reyes further says that GFI and/or Mr Gallagher made no attempt to sell or otherwise have the AUs transferred off the title of the Reyes’ principal unit and, in fact, leased out all or some of those AUs and obtained income from them for themselves.
[15] Mr Reyes said that the whole situation became very stressful for them and in December 2018 they approached Mr Skeates to seek his assistance. That was unsuccessful. The Reyes then engaged Mr Lloyd, who appears today on their behalf, who attempted to make contact with Mr Gallagher, who did not respond.
[16] Ultimately, on 12 April 2019, Mr Lloyd wrote to Mr Gallagher to the following effect:
(a)That the main agreement was, pursuant to s 53 of the UTA, null and void and that the Reyes had been, since 14 June 2018, the full legal and equitable owners of AUs 24, 25, 29 and 30;
(b)Alternatively, and in the event that the Main Agreement was not null and void pursuant to s 53 of the UTA, with more than six months having passed since the Main Agreement was entered into, the secondary agreements giving Mr Gallagher and/or his nominee the right to purchase the AUs back from the Reyes were cancelled.
[17] Shortly after that letter, on 18 April 2010, the Reyes negotiated and entered into a lease agreement with a third party in respect of AUs 29 and 30 (carparks), those carparks having previously been leased to that third party by GFI and/or Mr Gallagher.
[18] The Reyes have now decided they want to sell their apartment in the complex, including all of the AUs that had been transferred to them. However, they are concerned that if they did attempt to sell, GFI or Mr Gallagher might cause difficulty by asserting ownership rights over the AUs that had been transferred to them by GFI. They have therefore issued these proceedings.
The claims
[19] The Reyes have pleaded two alternative causes of action in relation to GFI and Mr Gallagher. In the first cause of action, under s 53 of the Act and/or s 71 of the Contract and Commercial Law Act 2017 (CCLA) they seek:
(a)A declaration or order that the main agreement was void ab initio and of no legal effect;
(b)A declaration or order that they are the full legal and equitable owners of AUs 24, 25, 29 and 30 and have been so since 14 June 2018 when the AUs were transferred to them;
(c)An order that GFI and/or Mr Gallagher accounts to them for all income that it/he has received from the four AUs from the period 14 June 2018 until 18 April 2019 in respect of AUs 29 and 30 and until the date of judgment in respect of AUs 24 and 25; and
(d)Costs on a 2B basis.
[20] In the second, alternative cause of action (premised on the basis that the agreement between them and GFI and Mr Gallagher was not void ab initio), they seek:
(a)A declaration that on or about 12 April 2019 they validly cancelled Mr Gallagher’s right to purchase the four AUs back from them for nominal
sums and that since that time they have been the lawful owners of the four AUs;
(b)An order that GFI and/or Mr Gallagher account to them for any income received by GFI and/or Mr Gallagher from AUs 29 and 30 up until 18 April 2019 and in respect of AUs 24 and 25 until the date of judgment; and
(c)Costs on a 2B basis.
The Unit Titles Act 2010
[21]Relevant provisions of the UTA are as follows:
(a)Accessory Unit means a unit that is designed for use with any principal unit … and that is shown on a unit plan as an accessory unit (for example, a garage or a carparking space);3
(b)Accessory units are bought and sold with the principal units to which they relate (although they may be transferred between principal unit owners of the unit title development;4
(c)Owner in relation to any unit –
Means the person or persons for the time being registered as owner of the stratum estate in the unit under the Land Transfer Act 2017 …;5
(d)Ownership interest in relation to a particular unit means the ownership interest assigned to that unit …6
3 Section 5.
4 Section 53.
5 Section 5.
6 Section 5.
Provisions under which relief is sought
[22]I set out s 53 in full, being the provision of the Act that is relied on:
53 Independent dealings with accessory units restricted
(1)Except where it is transferred to the owner of a principal unit shown on the same unit plan, no accessory unit or any interest in it may be sold, leased, mortgaged, or otherwise disposed of or dealt with except as part of a sale, lease, mortgage, disposition, or other dealing that includes a principal unit or a corresponding interest in a principal unit.
(2)No record of title relating to an accessory unit may be created except as part of a record of title relating to a principal unit.
(3)No principal unit that is for the time being included in the same record of title as an accessory unit (not being a record of title created under section 200(1)(b)) and no interest in that principal unit may be sold, leased, mortgaged, or otherwise disposed of or dealt with except—
(a)as part of a sale, lease, mortgage, disposition, or dealing that includes the accessory unit or a corresponding interest in the accessory unit, as the case may be; or
(b)if there is a concurrent sale of the accessory unit in accordance with subsection (1).
(4)If an accessory unit is being transferred independently of a principal unit to a person who is the owner of a principal unit shown on the same unit plan, the instrument of transfer in respect of the accessory unit must contain a request to the Registrar for the accessory unit to be included in the record of title for the principal unit.
(5)On the registration of the instrument of transfer referred to in subsection (4), the accessory unit becomes subject to all mortgages and charges and other registered interests or caveats or notices of claim to which the principal unit is subject.
(6)If an accessory unit is for the time being included in the same record of title as a principal unit, the accessory unit must not be transferred apart from the principal unit while it remains subject to any mortgage, charge, other registered interest or caveat or notice of claim entered on the register.
(7)Despite anything to the contrary in the Land Transfer Act 2017, any purported sale, lease, mortgage, disposition, or dealing with any unit in contravention of subsection (1) or (3) is void.
(8)Nothing in subsection (7) affects the devolution of any unit on the death of the owner of the unit to the administrator of that owner.
[23] As noted, the Reyes also rely on the CCLA. The relevant provisions of that Act are:
(a)Illegal contract – means a contract governed by New Zealand law that is illegal at law or in equity, whether the illegality arises from the creation or the performance of the contract;
And includes a contract that contains an illegal provision, whether that provision is severable or not. This section is subject to s 72.7
(b)Illegal contracts have no effect – every illegal contract is of no effect;
No person is entitled to any property under a disposition made by or under an illegal contract.
This section and s 74 apply – despite any rule of law or equity to the contrary; but
Subject to the provisions of this subpart and of any other enactment.8
Submissions
First cause of action - agreement is void ab initio
[24] Mr Lloyd, appearing for the Reyes, submits that the provisions of the UTA which I have set out above, essentially prohibit any form of dealing with AUs independently of a PU.
[25] He submits that the sale, for nominal sums, of the AUs by GFI to the Reyes was lawful and valid as both GFI and the Reyes were owners of a PU at the time. Mr Lloyd further submits that the transfer of the AUs onto the Reyes title was similarly lawful and valid, with the registration itself creating their bona fide legal ownership of the AUs.9
7 CCLA s 71.
8 CCLA s 73.
9 Land Transfer Act 2017, s 51.
[26] However, Mr Lloyd goes on to submit that the main agreement, which purports to give Mr Gallagher the beneficial or equitable ownership of the AUs, independently of a PU, was, and is, invalid because the UTA prohibits any form of ownership or interest in an AU independently of a PU. As a consequence, Mr Lloyd submits that the main agreement was void ab initio under s 53(7) of the UTA and/or s 73 of the CCLA.
(Alternative) Second cause of action – if the main agreement was not void ab initio
[27] In this cause of action Mr Lloyd refers to the failure by Mr Gallagher to exercise his right to repurchase the AUs from the Reyes within six months of the date of the agreement (that is by 7 December 2018). In that case the Reyes had the option to cancel Mr Gallagher’s right to repurchase those AUs. The evidence is that Mr Gallagher did fail to exercise his right to repurchase and the Reyes did exercise their option to cancel the right to repurchase.
[28] Therefore, Mr Lloyd submits that even if the main agreement was not void ab initio, the Reyes have been the full legal owners of the AUs since the date of cancellation on 12 April 2019.
Discussion
[29] In the absence of any authorities on the issue, what is necessary is a plain and purposive reading of the provisions of the UTA.
[30] Section 53 does not prohibit ownership of an AU independently of a PU. Section 53 prohibits dealings with an AU except where that dealing includes a dealing with a PU. It seeks to prevent ownership of an AU independently of a PU by prohibiting in broad terms dealings which might lead to that outcome. The transfer of the AUs from GFI to the Reyes was authorised by the exception in s 53(1) permitting the transfer of AUs between the owners of PUs in the same unit plan. GFI was, at that time, an owner in the unit plan as were the Reyes. I therefore accept Mr Lloyd’s submission that the agreement between GFI and the Reyes to sell the four AUs to the Reyes was lawful and not prohibited by s 53.
[31] Turning them to the Main Agreement. It purported to give Mr Gallagher a beneficial interest in the four AUs. I accept that that beneficial interest was an interest for the purposes of s 53(1). I also consider that the entering into the Main Agreement purporting to give Mr Gallagher a beneficial interest in the AUs was a dealing with that interest for the purposes of s 53(1). The word “deal” is sufficiently broad to cover such a transaction. The Main Agreement was therefore a dealing with an interest in the four AUs which was not a part of a dealing that included a principal unit.
[32] The next question is whether such a dealing was permitted by the exception in the opening words of s 53(1). Could this be seen as a transfer to the owner of a principal unit? The answer to that question is “No”. Mr Gallagher was not the owner of a principal unit. The owner of PU Q was GFI. The exception in s 53(1) therefore did not apply. There was thus a contravention of s 53(1).
[33] Under s 53(7) any purported dealing with any unit in contravention of s 53(1) is void.
[34] The Reyes therefore succeed on their first cause of action. The Main Agreement is void ab initio and s 71 of the CCLA is engaged. It is therefore not necessary to consider the second cause of action which was pleaded in the alternative.
Relief
[35]I make the following declarations and orders:
(a)A declaration that the Main Agreement was void ab initio and of no legal effect under s 53(7) of the Act and/or under s 71 of the CCLA;
(b)A declaration that the Reyes are the full legal and equitable owners of AUs 24, 25, 29 and 30 and that they have been so since 14 June 2018 when the AUs were transferred to them;
(c)An order that GFI and/or Mr Gallagher account to the Reyes for all income that it/he has derived from the AUs from the period of 14 June 2018 when they were transferred to the Reyes, up until 18 April 2019
in respect to AUs 29 and 30, and up until the date of judgment in respect of AUs 24 and 25.
Costs
[36] Although the statement of claim refers to 2B costs, Mr Lloyd now seeks full solicitor-client costs. He submits a claim for such costs is supported by Mr Gallagher’s conduct. Mr Gallagher would not engage with the Reyes and caused them to incur expenses in relation to the Body Corporate. Further, he has not responded to any of Mr Lloyd’s correspondence or returned phone messages.
[37] In my view the Reyes are entitled to reasonable solicitor-client costs. I make such an order. Mr Lloyd is to file a memorandum on behalf of the Reyes setting out full details of those costs. I will then consider the issue of costs on the papers, noting again that my order is that the Reyes are entitled to reasonable solicitor-client costs.
Gordon J
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