Benetti Holmes Ltd v Molloy HC Auckland CIV 2010-404-5698
[2010] NZHC 1796
•27 September 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-005698
UNDER the Land Transfer Act 1952
IN THE MATTER OF an application to remove Caveat Nos.
8566659.1, 8566285.1 and 8572359.1
BETWEEN BENETTI HOLMES LTD First Applicant
ANDCPG HOLDINGS LTD Second Applicant
ANDHAMISH JAMES CLARKE Third Applicant
ANDGEORGE IAN VICTOR MOLLOY Respondent
Hearing: By memoranda
Appearances: Mr F Power for applicants
Mr D Smyth for respondent
Judgment: 27 September 2010 at 4 pm
JUDGMENT OF LANG J [re Costs]
This judgment was delivered by me on 27 September 2010 at 4 pm, pursuant to Rule
11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:
Rennie Cox, Auckland Ewart & Ewart, Auckland Counsel:
Mr D Smyth, Auckland
BENETTI HOLMES LTD AND ORS V MOLLOY HC AK CIV-2010-404-005698 27 September 2010
[1] On 2 September 2010 Associate Judge Doogue made an order by consent removing a caveat that Mr Molloy had registered against a property owned by the first applicant, Benetti Holmes Limited. On 21 September 2010 I made orders by consent removing two further caveats that Mr Molloy had registered against properties owned by the second and third applicants. Those orders brought this proceeding to an end, and it is now necessary to fix costs in relation to it.
[2] Counsel for the applicants contends that Mr Molloy had no right to lodge the three caveats in the first place. He also argues that the applicants have succeeded in this proceeding because they have obtained the orders that they sought. For that reason, he seeks indemnity costs for his clients. In the alternative, he seeks an order requiring Mr Molloy to pay costs on a Category 2B basis.
[3] Mr Molloy opposes any order for costs being made against him. He contends that he had a right to lodge the caveats, and that the matter was ultimately settled on terms that he had suggested from an early stage. For that reason he argues that he should be entitled to an award of costs in his favour.
[4] I propose to deal with both arguments by considering briefly the merits of the case for each party, together with the issue of whether or not the proceeding was necessary.
The merits
[5] The issues that have given rise to this proceeding arise out of the dealings between Mr Molloy and the third applicant, Mr Clarke. Mr Molloy and Mr Clarke met when they were both working together as real estate agents out of the same office on the North Shore. Mr Clarke subsequently left the real estate agency to become a property developer, but from time to time thereafter Mr Molloy referred properties to him for consideration as candidates for redevelopment.
[6] Mr Molloy says that, in or about May 2009, Mr Clarke suggested that they should enter into a joint venture in which they would purchase properties for redevelopment. Mr Clarke was to be responsible for finding properties and carrying
out the re-development work upon them. Mr Molloy was to provide the funds for the venture. They were to share equally in any profits derived from the venture. Mr Molloy says that he agreed to this proposal, and thereafter advanced funds to Mr Clarke on numerous occasions to enable him to purchase and redevelop residential properties. These included the three properties that were the subject of this proceeding.
[7] Mr Clarke denies that the parties entered into a joint venture. He says that Mr Molloy made unsecured advances to him, and that the purpose of those advances was to fund both Mr Clarke’s property development projects and his personal living expenses. He says that it was agreed that he would make loan repayments to Mr Molloy on the settlement of property sales, and that those repayments would consume 50 per cent of the net sale proceeds of each property until such time as the loans had been repaid in full. In consideration for the advances, Mr Clarke says that he agreed to give Mr Molloy the first opportunity to sell the properties. If he did not obtain a sale within a reasonable time, however, Mr Clarke would be free to engage another agent.
[8] It is against that factual background that the competing arguments arise. Mr Molloy contends that the applicants have at all material times held the properties on trust for Mr Clarke and Mr Molloy as joint venture partners. Mr Clarke denies that that is the case, and maintains that Mr Molloy never held any caveatable interest in the properties.
[9] It is obviously not possible in the absence of full evidence and argument to reach any firm conclusion regarding the precise nature of the relationship between Mr Clarke and Mr Molloy. That issue may need to be undertaken in the future if Mr Clarke and Mr Molloy cannot reach final agreement regarding the manner in which the proceeds of sale are to be divided between them.
[10] For present purposes, it is clear that arguments run both ways. Counsel for Mr Clarke relies upon a document in which the parties recorded the advances that Mr Molloy made to Mr Clarke. This is headed “I Ian Molloy have loaned Hamish Clarke the following amounts of money on the following dates”. That document
supports Mr Clarke’s argument that the advances were loans, and that those loans did not give rise to any caveatable interest in the properties on the part of Mr Molloy. Although Mr Molloy has provided an explanation for the circumstances in which that document came to be designed, it may not entirely explain the wording used.
[11] On the other hand, Mr Molloy advanced very significant sums of money to Mr Clarke between May 2009 and February 2010. In total, he advanced the sum of just over $459,000. Of this, the sum of approximately $106,000 has been repaid.
[12] I accept the submission for Mr Molloy that it is difficult to accept that Mr Molloy would make these advances on an unsecured basis unless he was also to share in any profit that the advances might produce. I consider that there is sufficient evidence to establish a joint venture of the type for which Mr Molloy contends.
[13] Two aspects of the relationship between Mr Molloy and Mr Clarke are important in the present context. First, Mr Clarke had sole responsibility for deciding how he would spend the monies that he received from Mr Molloy. He was not required to account to Mr Molloy in any way in relation to the manner in which those funds were used. Secondly, Mr Clarke purchased all of the properties were in his own name or in the names his companies. These factors mean that Mr Molloy’s interest in the joint venture was vulnerable to the actions of Mr Clarke.
[14] I accept that, of itself, the right of a party to share in profits from a joint undertaking may not give rise to fiduciary obligations on the part of the other party to the undertaking. The factors to which I have referred are arguably sufficient, however, to suggest that Mr Clarke and Mr Molloy were in a relationship that imposed fiduciary obligations upon Mr Clarke.
[15] As I suggested to counsel during the hearing, the following passage from the judgment of Tipping J in Chirnside v Fay [2007] 1 NZLR 433 (SC) may assume relevance in this context:
[92] The resulting fiduciary relationship is not one from which a party is unable to withdraw, albeit withdrawal will usually require appropriate arrangements to be made in consideration of the severance of the joint interests and the release of the parties from their duties of loyalty to each
other. Because there is, as yet, no contract between the joint venture parties, each will ordinarily be free to withdraw, on giving the other notice to that effect. On the giving of that notice duties of loyalty for the future will come to an end but confidentiality obligations may remain; and any assets, tangible or intangible, held on behalf of the joint venture will still usually be held on trust for both the erstwhile joint venturers. Appropriate steps will be necessary to agree, or obtain some external resolution as to how those assets are to be dealt with. There is, in a general sense, some analogy with the steps necessary when a formal partnership is dissolved.
[16] This passage suggests that in situations such as the present Mr Clarke and his companies may hold the properties on trust for both himself and Mr Molloy.
For these reasons the situation is not nearly as straightforward as counsel for the applicants suggested. Mr Molloy may well have been able to establish that he held a caveatable interest in the properties owned by the applicants.
Was the proceeding necessary?
[17] Mr Clarke contends that the proceeding was necessary because the existence of the caveats was acting as a deterrent to potential purchasers of the properties. In the absence of any firm offer by Mr Molloy to remove the caveats, Mr Clarke says that he had no option but to apply to the Court for orders that they be removed.
[18] That submission is not, however, entirely correct.
[19] Mr Molloy lodged the caveats against the properties on 12 August 2010. Twelve days later, on 24 August 2010, his counsel wrote to the solicitors acting for Mr Clarke and said:
Caveats
My instructions are that there are sales of joint venture properties pending. Mr Molloy does not oppose sales as the purpose of the joint venture was to generate profits. Provided the following terms apply, all joint venture properties may be sold:
1.Mr Clarke identifies the firm which is to act upon the sale of each property;
2. He provides an irrevocable authority to that firm to act upon the sale;
3.From the sale, mortgages, any commission payable to a licensed real estate agent and reasonable legal fees due as a result of the sale only are deducted he agrees to the sale being concluded.
4.Any amount remaining after sale must be held by the solicitor appointed under the irrevocable authority pursuant to an undertaking to be given by that solicitor to hold the funds pending agreement by the parties (Molloy/Clarke) or order of the Court
[20] I take this letter to amount to an offer to withdraw the caveats provided the proceeds of sale of each property were dealt with in the manner specified in the letter.
[21] On 25 August 2010 Mr Clarke’s solicitors rejected this offer and advised Mr Molloy’s counsel that they had been instructed to apply to the Court for an order that the caveats be removed. They then filed the application on 30 August 2010, and successfully obtained an order abridging the time within which Mr Molloy was to file any documents in opposition.
[22] In his notice of opposition, filed on 2 September 2010, Mr Molloy said:
The respondent does not oppose the making of the order numbered 1(a) in the application provided the proceeds of sale of the properties referred to at paragraph 2 of the application (the properties) are dealt with as follows:
(a) any mortgage registered before the respondent lodged his caveat is discharged upon settlement of the sale;
(b) real estate agent commission is paid;
(c) reasonable legal fees incurred in connection with the settlement of the sale to be paid;
(d) the balance be held in trust pending resolution of the respondent’s claim.
[23] The agreed terms on which Associate Judge Doogue removed the first caveat on 2 September 2010 largely reflect those suggested in both the letter dated 24
August 2010 and the notice of opposition that Mr Molloy filed. The same can be said for the terms upon which I discharged the other two caveats on 21 September
2010.
[24] That being the case, it is arguable that there was no need for the applicants to file this proceeding. It should also have been possible for them to reach agreement with Mr Molloy regarding the terms upon which the caveats could be removed well before the hearing on 2 September 2010.
[25] Balanced against that, however, is the possibility that the caveats may not have been necessary either. Mr Molloy could easily have put Mr Clarke on notice that he would lodge caveats or apply for an injunction in the event that Mr Clarke did not provide appropriate undertakings regarding the manner in which the proceeds of sale were to be distributed. Had he taken that step before lodging the caveats, both parties may have been saved a great deal of expense.
[26] Mr Molloy and Mr Clarke have both been prepared to take action to protect their interests before endeavouring to achieve a negotiated outcome. In doing so they have cost each other a considerable amount of money. That factor persuades me that costs should lie where they fall.
Result
[27] There will be no order as to costs.
Lang J
0
0
1