Autumn Tree Limited v Bishop Warden Property Holdings Limited
[2018] NZHC 969
•7 May 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2017-404-1944 [2018] NZHC 969
BETWEEN AUTUMN TREE LIMITED
Applicant
AND
BISHOP WARDEN PROPERTY HOLDINGS LIMITED Respondent
Hearing: 04 May 2018 Appearances:
B Rooney for Applicant
J K Mahuta-Coyle for RespondentJudgment:
7 May 2018
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me 07 May 2018 at 3.00pm
Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors:
Fortune Manning, Auckland
Natalie Tabb, North Harbour
AUTUMN TREE LIMITED v BISHOP WARDEN PROPERTY HOLDINGS LIMITED [2018] NZHC 969 [7 May 2018]
Introduction
[1] Bishop Warden Property Holdings Ltd (Bishop Warden) has applied for a stay of execution of a judgment delivered by Hinton J on 17 November 2017.1 In that judgment, Hinton J ordered the removal of a caveat registered by Bishop Warden against land owned by Autumn Tree Ltd (Autumn Tree) at 18 Appleyard Crescent, Meadowbank (the property). Bishop Warden seeks the stay to preserve its position pending the outcome of Bishop Warden’s appeal against Hinton J’s judgment.
[2] Autumn Tree opposes the application on the basis that the caveat has already been removed and the property subdivided into two separate titles, one of which has been on-sold. As a result, there is nothing left to stay. Autumn Tree also says Bishop Warden’s application is really an application for an interim injunction preventing Autumn Tree from selling the remaining title on which completion of a new dwelling is imminent. It opposes that application.
Preliminary matters
[3] It is uncontested that:
(a)On 20 November 2017, the order directing the removal of the caveat was sealed and served on Bishop Warden;
(b)On 15 December 2017, Bishop Warden lodged its appeal to the Court of Appeal;
(c) On 19 December 2017, the caveat was removed from the title;
(d)On 19 January 2018, the title to the property was cancelled and two new titles were issued;
1 Autumn Tree Ltd v Bishop Warden Property Ltd [2017] NZHC 2838.
(e)On 26 February 2018, Bishop Warden filed and served its application for a stay of Hinton J’s judgment, together with a supporting affidavit from Matthew Blomfield, Bishop Warden’s director, sworn on 23
February 2018, to which was annexed an affidavit of Xioayuan Niu sworn on 1 February 2018;
(f)On 27 February 2018, a code compliance certificate was issued by the Auckland Council for a new dwelling that had been constructed on one of the new titles;
(g)On 2 March 2018, the sale of the property with the new dwelling was settled;
(h)On 7 March 2018, Autumn Tree filed and served a notice of opposition to Bishop Warden’s application for a stay, together with an affidavit of Lanhua Zhang sworn on the same date.
[4] In a Minute dated 26 March 2018, Peters J:
(a) Set down Bishop Warden’s application for hearing on 4 May 2018;
(b)Directed that, in light of what had happened with the property, Bishop Warden should reconsider its application for a stay without delay and that, in the meantime, counsel should liaise regarding the directions they sought and file a consent memorandum on what had been agreed.
[5] There was no communication between Bishop Warden and Autumn Tree following Peters J’s Minute. Rather, on 30 April 2018, counsel for Bishop Warden filed and served Bishop’s Warden’s submissions in support of the original application.
[6] On 3 May 2018, counsel for Autumn Tree filed and served Autumn Tree’s submissions and a further affidavit from Ms Zhang sworn on the same date.
[7] At the commencement of the hearing before me on 4 May 2018, Mr Mahuta- Coyle for Bishop Warden submitted that the affidavit of Ms Zhang of 3 May 2018 was
inadmissible and should not be read. He said the affidavit should have been filed at the same time as the notice of opposition and that if the affidavit were considered issues of natural justice might arise because Bishop Warden had not had an opportunity to respond to it.
[8] After hearing submissions from Mr Rooney for Autumn Tree, I ruled that the affidavit of Ms Zhang of 3 May 2018 was admissible and would be read. I accepted Mr Rooney’s submissions that much of the content of Ms Zhang’s affidavit concerned matters that were within the exclusive knowledge of Autumn Tree and that, notwithstanding the directions of Peters J of 26 March 2018, Bishop Warden had made known its approach to the application only on 30 April 2018. In those circumstances, it was in the interests of justice that the further evidence filed by Autumn Tree should be taken into account.
The substantive application
[9] Although Bishop Warden took no steps to amend its application following the directions of Peters J of 26 March 2018, at the hearing before me on 4 May 2018,
Mr Mahuta-Coyle said that, following the lifting of the caveat and the subsequent subdivision of the property into two titles and the sale of one of the subdivided properties, Bishop Warden accepted that a stay of execution of Hinton J’s judgment would not be effective. Accordingly, the focus of Bishop Warden’s application was on the interim relief sought in the notice of application which Bishop Warden recognised should have been made in terms of r 12(3)(b) of the Court of Appeal (Civil) Rules 2005.
[10] Mr Mahuta-Coyle said that the relief Bishop Warden sought was an order in the nature of an injunction preventing Autumn Tree from transferring, selling or otherwise disposing of its residual interest in the property pending the hearing of Bishop Warden’s appeal to the Court of Appeal against Hinton J’s judgment. The hearing proceeded on that basis.
[11] In support of this application, Mr Mahuta-Coyle handed up undertakings by
Bishop Warden itself and by Bishop Warden’s parent company, Bishop Warden Ltd,
to compensate Autumn Tree for any damages sustained through any injunction made against Autumn Tree by this Court. The undertaking by the parent company was accompanied by a valuation indicating that the equity value of that company in September 2017 was between $3.28 million and $3.969 million.
Background facts
[12] Before considering the factors to be taken into account when deciding whether to grant the relief sought, it is necessary to set out the relevant background facts. In summary:
(a)At least until 2 August 2017, Ms Niu owned 20 per cent of the shares of Autumn Tree and was its sole director. The other shareholders were Junje Zhao, who held 50 per cent of the shares and, Gaiyu Ma, who held the remaining 30 per cent of the shares.
(b)In the proceeding before Hinton J, Mr Zhao and Ms Zhang, Ms Ma’s daughter, swore affidavits stating that in the morning of 3 August 2017:
(i)Ms Niu told Ms Zhang that she had resigned her directorship of Autumn Tree and wished to surrender her shares in the company to Ms Zhang and wished Ms Zhang to take over as director;
(ii) Mr Zhao gave instructions to Autumn Tree’s accountants to have Ms Niu’s shares transferred to Ms Zhang and to have
Ms Liu removed as a director of the company and Ms Zhang added as a director.
(c)The Companies Register recorded the transfer of the 20 per cent shareholding from Ms Niu to Ms Zhang at 11.54am and the registration of Ms Zhang as a director at 1.10pm. The Register did not record Ms Niu being removed as a director until 10.21am on 5 August 2017 but with effect from 3 August 2017.
(d)At about 6.00pm on 3 August 2017, Ms Niu and Mr Blomfield signed an unconditional agreement for the sale and purchase of the property (agreement). Under the agreement, the purchase price was $1.1 million, a deposit of $5,000 was paid, and settlement was to take place on 3
August 2019.
(e)On 4 August 2017, Bishop Warden lodged a caveat against the title to the property to protect its interest under the agreement.
(f)Annexed to Mr Zhao’s affidavit was a valuation of the property obtained in March 2017 which valued the property at $3.35 million upon completion of the first dwelling then under construction. According to Mr Zhao and Ms Zhang, Ms Niu was aware of this valuation;
(g) Ms Niu did not give evidence. According to her affidavit of 1 February
2018, she was in China and not able to be contacted.
[13] Hinton J’s decision of 17 November 2017 held that Ms Niu did not have authority from Autumn Tree to enter into the agreement with Bishop Warden and that the agreement was therefore invalid.2 In reaching that decision, Hinton J proceeded on the basis that Ms Niu was a director of Autumn Tree at the time the agreement was concluded but that, at that time, Ms Zhang was also recorded as a director on the Companies Register.
[14] In reaching her decision, Hinton J considered s 18 of the Companies Act (see
Schedule to this decision) and held that:
(a)Ms Niu did not have actual authority to sell the property on behalf of Autumn Tree. Her Honour also noted that a sale of Autumn Tree’s only asset would constitute a major transaction under s 129 of the
Companies Act and would require a special resolution passed by 75 per cent of the company’s shareholders;3
(b)Ms Niu did not have apparent authority under s 18(1)(b) of the Companies Act to sell the property on behalf of Autumn Tree because such a power of sale by a sole director is not customary in terms of s 18(1)(b)(iii) of the Companies Act;4
(c)Because both Ms Niu and Ms Zhang were on the Companies Register as directors at the time the agreement was signed, it could not be said that Autumn Tree had held out Ms Niu as having authority to sell the property on behalf of the company in terms of s 18(1)(c) of the Companies Act because it is not customary for one of two directors unilaterally to enter into such a major transaction;5
(d)Even if one of the provisions of s 18(1) of the Companies Act had applied, there was a strong case that the proviso to s 18(1) applied6 because Bishop Warden was well aware of sufficiently suspicious circumstances to have deemed knowledge that Ms Niu did not have authority to enter into the agreement.7
[15] In support of its appeal against Hinton J’s decision and in its application for a stay or interim relief Bishop Warden has filed new evidence which, Bishop Warden contends, suggests that Hinton J may have been misled. That evidence is Ms Niu’s affidavit of 1 February 2018 in which, among other things, Ms Niu:
(a)Denies that she has resigned as a director of Autumn Tree and notes she has not signed any document to that effect;
3 Autumn Tree Ltd v Bishop Warden Property Ltd [2017] NZHC 2838 at [37]-[38].
4 Autumn Tree Ltd v Bishop Warden Property Ltd [2017] NZHC 2838 at [47].
5 Autumn Tree Ltd v Bishop Warden Property Ltd [2017] NZHC 2838 at [61]-[62].
6 I read Hinton J’s reference to the proviso to s18(1) as referring to s 18(1)(e).
(b)Denies telling Ms Zhang she had resigned as a director of Autumn Tree and that she wished to transfer her 20 per cent shareholding to Ms Zhang;
(c)Asserts she was solely responsible for all matters regarding the development of the property;
(d)Denies having seen the valuation for the property referred to in the affidavits of Mr Zhao and Ms Zhang;
(e)Asserts that she was the sole director of Autumn Tree at the time the sale and purchase agreement was signed;
(f) Asserts she remains the only genuine director of Autumn Tree.
Contentions of parties
[16] For Bishop Warden, Mr Mahuta-Coyle says:
(a)If Ms Niu’s evidence proves correct, Ms Niu was the only director at the time the agreement was signed so did have authority to sign on behalf of the company.
(b)Autumn Tree has disposed of part of the property and is in the process of developing and preparing the remainder for sale and that such sale would prevent Bishop Warden from obtaining the relief sought in its appeal.
(c)Bishop Warden is not confident Autumn Tree, which is a single purpose company, would have adequate resources to compensate Bishop Warden if the Court of Appeal found in its favour but the remainder of the property had already been disposed of.
(d)The relief is sought for only a short period – until the Court of Appeal’s hearing of Bishop Warden’s appeal which is set down for 6 June 2018, and any prejudice would be minimal.
[17] For Autumn Tree, Mr Rooney says:
(a)The new evidence from Ms Niu cannot make any difference to the outcome of Hinton J’s decision which proceeded on the basis Ms Niu was a director of Autumn Tree at the time the agreement for sale and purchase was signed.
(b)Whether or not Ms Zhang was a validly appointed director is not relevant; the question of apparent authority is determined by what was recorded on the Companies Register at the relevant time and at that time Ms Zhang was recorded as a director of the company.
(c)The case for Bishop Warden is weak, inherently improbable and lacking in merit both as to substance and as to process given that Bishop Warden took 10 weeks after Hinton J’s decision was delivered before lodging its application and has taken no steps to enforce the agreement.
(d)While the development of the remaining property was unlikely to be completed for another two months and further time might be required to obtain a code compliance certificate from the Auckland Council, Autumn Tree did not wish to be constrained from selling the property earlier should the opportunity arise;
(e) Mr Blomfield himself had acknowledged in an email attached to
Ms Zhang’s affidavit of 3 May 2017 that Bishop Warden was a shelf company with no assets; accordingly, Autumn Tree had no confidence Bishop Warden would be able to make good on its undertaking as to damages. Mr Rooney had no comment on the adequacy of the undertaking offered by Bishop Warden Ltd.
(f)By contrast, money was an adequate remedy should the Court of Appeal find in favour of Bishop Warden and the valuation of the property showed that Autumn Tree would have adequate resources to compensate Bishop Warden in that unlikely event.
Discussion
[18] While in formal terms Bishop Warden’s application is for a stay, as Mr Mahuta- Coyle acknowledged, in reality it is an application for interim relief in the form of an injunction. It follows that the application should be considered against the three questions that are usually applied to the consideration for an interim injunction – as shown, for example, in the decision of the Court of Appeal in NZ Tax Refunds Ltd v Brooks Homes Ltd:8 is there a serious question to be tried; where does the balance of convenience lie; as a check, where does overall justice lie?
Serious question to be tried
[19] Ultimately, this is a question that will be determined by the Court of Appeal. While it is not for this Court to try to resolve conflicts of evidence on the facts, Mr Rooney’s submissions on this point have considerable force. It would seem unlikely the new evidence from Ms Niu could displace Hinton J’s findings that Ms Niu did not have actual authority to sell the property and that Ms Niu did not have apparent authority in terms of s 18(1)(b) of the Companies Act. Similarly, it would seem unlikely the new evidence could displace Hinton J’s finding that Ms Niu did not have apparent authority in terms of s 18(1)(c) of the Companies Act since her finding on that point was based on the fact Ms Zhang was recorded on the Companies Register at the relevant time.
[20] There is also the question of the application of s 18(1)(e) in relation to which Hinton J observed that Bishop Warden was well aware of sufficiently suspicious circumstances to have deemed knowledge that Ms Niu did not have authority to enter into the agreement. The large gap between the purchase price of $1.1 million and the valuation of the property as being worth $3.25 million, and the extraordinarily
8 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, 13 TCLR 531 at [12].
generous terms of a year-long settlement secured by a deposit of $5,000, all bear on this question.
[21] While I take Mr Mahuta-Coyle’s point that there is nothing inherently wrong with Bishop Warden entering into an agreement that is a bad bargain from the perspective of Autumn Tree, the terms of the bargain are relevant to the basis on which Bishop Warden advances its case: that Ms Niu had authority to sell the property. As the adage goes, if the deal is too good to be true, it probably is too good to be true.
[22] This factor weighs strongly in Autumn Tree’s favour. However, because this is the question to be determined by the Court of Appeal, I take this no further.
Balance of convenience
[23] Mr Mahuta-Coyle submits this factor is strongly in Bishop Warden’s favour since the period of the proposed injunction is short with the Court of Appeal hearing is only a month away. He says any prejudice to Bishop Warden would be minimal given the undertakings as to damages handed up at the hearing.
[24] Mr Rooney acknowledges that on current plans Autumn Tree is unlikely to dispose of the remainder of the property within the next two to three months but says the parties cannot know how quickly the Court of Appeal will give its decision and Autumn Tree does not want to be constrained in its ability to dispose of the property earlier if a willing purchaser should come on the scene. He also says damages are an adequate remedy if Bishop Warden’s appeal should succeed.
[25] I find this factor evenly balanced between the parties. On one side, the period of the proposed injunction is short and Bishop Warden’s application is now, albeit belatedly, supported by undertakings as to damages by Bishop Warden and its parent company. On the other side, Autumn Tree prevailed before Hinton J and had the caveat removed and has continued diligently to undertake the development of the property. It is understandably reluctant to risk having that progress interrupted.
[26] In addition, I am not persuaded by Mr Mahuta-Coyle that damages would be an inadequate remedy. In his affidavit of 23 February 2018, Mr Blomfield asserts that the damage to Bishop Warden would be all the profits it would have been able to generate through completion of the development of the property and that these would be large and difficult to quantify. Beyond these statements, Mr Blomfield offers no information of any concrete plans for the development.
[27] Given that one half of the development has been completed and sold and the other half is close to completion, Mr Blomfield’s statements cannot be given much weight. If Bishop Warden is simply looking to sell on the property, the values are reasonably capable of being determined. Bishop Warden has put forward nothing to support its contention that Autumn Tree may not have the resources to compensate Bishop Warden if Bishop Warden succeeds in its appeal.
Overall justice
[28] I consider that overall justice is strongly in Autumn Tree’s favour. Autumn Tree acted promptly to have the caveat removed once it became aware of it and has continued to progress the development diligently. Its actions are consistent with the evidence of Ms Zhang and Mr Zhao that they have been the drivers of the development and that Ms Niu was only ever a nominal director. Ms Niu’s assertion that she was the real driver of the company stands in some contrast to what happened with the development after she departed the scene and went to China. It would appear the development continued without significant interruption.
[29] On the other hand, Bishop Warden has been somewhat inconsistent in prosecuting its claims. There was a considerable delay between the delivery of Hinton J’s judgment and Bishop Warden’s application for a stay of execution. Bishop Warden has taken no steps to enforce the agreement it says is valid, despite the sale of half of the property to which the agreement applies.
[30] I consider it would not be consistent with the overall justice of the case to constrain Autumn Tree from carrying forward its development just because Bishop
Warden is continuing to advance its claims in circumstances where, as I have held, damages are likely to be an adequate remedy.
Result
[31] Bishop Warden’s application as modified by Mr Mahuta-Coyle at the hearing for an order preventing Autumn Tree from transferring, selling or otherwise disposing of its residual interest in the property pending the hearing of Bishop Warden’s appeal to the Court of Appeal against Hinton J’s judgment is dismissed.
[32] Autumn Tree is entitled to costs on a 2B basis. If the parties are not able to agree costs, Autumn Tree is to file a memorandum by 28 May 2018; any reply by Bishop Warden should be filed by 18 June 2018. Memoranda should not exceed 4 pages.
van Bohemen J
Schedule
Companies Act 1993
18 Dealings between company and other persons
(1)A company or a guarantor of an obligation of a company may not assert against a person dealing with the company or with a person who has acquired property, rights, or interests from the company that—
(a) this Act or the constitution of the company has not been complied with:
(b)a person named as a director of the company in the most recent notice received by the Registrar under section 159—
(i) is not a director of a company; or
(ii) has not been duly appointed; or
(iii) does not have authority to exercise a power which a director of a company carrying on business of the kind carried on by the company customarily has authority to exercise:
(c)a person held out by the company as a director, employee, or agent of the company—
(i) has not been duly appointed; or
(ii) does not have authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company customarily has authority to exercise:
(d)a person held out by the company as a director, employee, or agent of the company with authority to exercise a power which a director,
employee, or agent of a company carrying on business of the kind carried on by the company does not customarily have authority to exercise, does not have authority to exercise that power:
(e)a document issued on behalf of a company by a director, employee, or agent of the company with actual or usual authority to issue the document is not valid or not genuine—unless the person has, or ought to have, by virtue of his or her position with or relationship to the company, knowledge of the matters referred to in any of paragraphs (a), (b), (c), (d), or (e), as the case may be.
(2)Subsection (1) applies even though a person of the kind referred to in paragraphs (b) to (e) of that subsection acts fraudulently or forges a document that appears to have been signed on behalf of the company, unless the person dealing with the company or with a person who has acquired property, rights, or interests from the company has actual knowledge of the fraud or forgery.
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