BGT Developments Limited v Hewson
[2020] NZHC 2818
•28 October 2020
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2020-470-97
[2020] NZHC 2818
BETWEEN BGT DEVELOPMENTS LIMITED
Applicant
AND
STEVEN PAUL HEWSON, VICTORIA HEWSON AND FL TRUSTEES 2013
LIMITED AS TRUSTEES OF THE HEWSON FAMILY TRUST
First RespondentsFENTON McFADDEN
Second Respondent
Hearing: 27 October 2020
By telephone conference
Counsel:
D Fraundorfer and T Conder for Applicant
Judgment:
28 October 2020
[REDACTED] JUDGMENT OF WHATA J
This judgment was delivered by me on 28 October 2020 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors: Holland Beckett Law, Tauranga
BGT DEVELOPMENTS LIMITED v HEWSON [2020] NZHC 2818 [28 October 2020]
[1] This matter came before me as a matter of urgency on the Duty Judge list. It is an application for freezing orders without notice, including the following orders:
(a)an order freezing the Proceeds of sale of the property located at 56F Plummers Point Road, Whakamarama being legally described as Record of Title 845578 Lot 3, Deposited Plan 526521, as held (whether in part or in the full sum) by the law firm of Fenton McFadden, acting on behalf of the respondents in the sale transaction; and
(b)in the event that the Proceeds have been transferred out of the Fenton McFadden trust account, an order that Fenton McFadden provide copies of any trust account documents that exist showing where the Proceeds were transferred to and details of any property or properties that were acquired by way of the Proceeds; and
(c)in the event that the Proceeds have been transferred out of the Fenton McFadden trust account to another New Zealand based bank account or accounts in the power and control of the respondents, an order freezing in each account the lesser of:
(i)the amount of the proceeds transferred into that account; or
(ii)the full amount held in that account; or
(d) or in the alternative an order prohibiting the respondents from selling, transferring or otherwise distributing the Proceeds, until further Order of the Court or determination of the substantive proceeding; and
(e)an order directing that the Proceeds be held in the applicant's solicitor's trust account pursuant to an appropriate solicitor's undertaking until express agreement between the parties, further Order of the Court or the final determination of the substantive matter in proceedings; or
(f) in the further alternative directing that the Proceeds or an equivalent sum be paid into Court until express agreement between the parties,
further Order of the Court or the final determination of the substantive matter in this proceeding; and
(g)an order that any amount ordered to be payable to the applicant in this proceeding be distributed from the Proceeds held by the Court in reduction of that sum; and
(h)in any event and order that service of the above orders on the first- named and second-named first respondents be effected by personal service on the third-named first respondent, FL Trustees 2013 Limited and via email upon Steven Paul Hewson [redacted] and Victoria Hewson [redacted]; and
(i)costs.
Background
[2] The applicant, BGT Developments Limited (BGT), claims that on 8 June 2020, the Trustees of the Hewson Family Trust (the Trust) entered into a sale and purchase agreement of a property located at 56 Plumbers Point Road, Whakamarama, being legally described as Record of Title 845578, Lot 3, Deposited Plan 526521 (the Property). The sale price was for $950,000 subject to satisfaction of the due diligence clause by 30 October 2020 and an optional completion date of 31 December 2020.
[3] BGT claims that, in breach of that agreement, the Trust sold the Property to another party. It is also claimed that, in reliance on this contract, BGT started the process of due diligence, receiving formal offers for purchase of parts of the land. BGT received no indication from the Trust, it says, that it was unhappy with the contract or considered it to be at an end.
[4] BGT further claims that then, without warning, on 16 October 2020, Mr Brian Edward Gillett (Mr Gillett) happened to be talking to another neighbour and discovered the property had already been sold to someone else. Mr Gillett undertook some searches and found out that the Trust had already sold the property to a third party on 15 October 2020 (third party sale). It is said that Steven Paul Hewson
(Mr Hewson) had previously informed Mr Gillett that this third party was attempting to “undercut him” yet had reassured Mr Gillett that the Trust was bound by the contract. BGT has quantified its loss at $1,684,532.04 (inclusive of GST).
The application for freezing orders
[5] Freezing orders are sought on the basis that the Property has been sold and the proceeds of sale are either in the hands of the Trust’s lawyers or have already been placed into the hands of the trustees. BGT claims that the Trust does not otherwise own any real property and that whatever property it has will be dissipated. It is understood that the Hewsons will be shortly travelling to Spain to live there permanently. Given that the only substantive asset, known to BGT that the Trust owns, are the proceeds of the sale of property, freezing orders are sought.
Assessment
[6] Rule 32.5 of the High Court Rules 2016 provides for freezing orders in the context of a prospective judgment debtor. The Court of Appeal in Hannay & Ors v Mount & Ors set out the threshold test for this rule:1
[19] Under the Rules, the High Court has the jurisdiction to make freezing orders restraining the removal or disposition of assets. Rule 32.5(4) of the High Court Rules provides that the Court may make a freezing order against a judgment debtor or a prospective judgment debtor if:
… the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because—
(i)the judgment debtor, prospective judgment debtor, or another person might abscond; or
(ii)the assets of the judgment debtor, prospective judgment debtor, or another person might be—
1. removed from New Zealand or from a place inside or outside New Zealand; or
2. disposed of, dealt with, or diminished in value (whether the assets are in or outside New Zealand).
[20] The threat of disposal of the assets, or diminution of their value, is essential to the application for a freezing order. Freezing orders (also known
1 Hannay & Ors v Mount & Ors [2011] NZCA 530 at [19]-[22].
as Mareva injunctions) are thus a valuable protective measure for those commencing civil proceedings. The essential basis of a freezing order is to prevent the dissipation of assets by an actual or prospective judgment debtor, when such dissipation has the effect or object of denying the claimant or judgment creditor satisfaction of their debt. Wasting assets are therefore not usually satisfactory as the subject of a freezing order, for it would defeat the protective purpose of such an order if the property under restraint were not to maintain its value.
[21] Before an order is granted, the Court must be satisfied that the applicant for the freezing order has a “good arguable case on an accrued or prospective cause of action” against the respondent. In order to establish a good arguable case, the applicant must show that the cause of action is at least tenable. In Wing Hung Printing, this Court, in the context of interpreting the phrase “good arguable case” in r 6.29 of the High Court Rules dealing with jurisdiction where there has been overseas service without leave, stated:
… the good arguable case test does not require the plaintiff to establish a prima facie case. This recognises that disputed questions of fact cannot be readily resolved on affidavit evidence. On the other hand, there must be a sufficiently plausible foundation established ...
[22] We consider that a similar test should apply in the present context. A good arguable case against the respondent is therefore established if the allegations in the proposed claim are capable of tenable argument and are supported by sufficient evidence, bearing in mind the early stage at which the application is likely to be brought.
(footnotes omitted)
[7] “Balance of convenience” and the “interests of justice” have also been identified as relevant factors to be considered. And, unless there are special circumstances, the Court must also require an undertaking as to damages.2
[8] In terms of good arguable case, Mr Gillett deposes that Mr Hewson signed a Heads of Agreement on behalf of the Trustees of the Hewson Family Trust and that he (Mr Gillett) signed it for BGT. He claims that under this agreement:
(a)BGT was to complete due diligence by 30 October 2020;
(b)the completion date was 31 December 2020; and
2 See High Court Rules 2016, r 32.6(4).
(c)special conditions included – “that in the absence of a more formal agreement this agreement will be considered binding on the parties.”
[9] In this regard, the agreement specifically records (the italicised parts are handwritten):
We hereby acknowledge and agree to the following forming the basis of a Standard Call Option Agreement to sell the Property to the Buyer whose intention is to either attain a Resource Consent, Develop and/or sell this property:
Legal Description: 13.66ha, Lot 3 being a subdivision of Lot 7 DPS 87727
Property Address: 56F Plummers Point Road, Whakamarama Due Diligence Date: 30 October 2020
Option Completion Date: 31 December 2020 Purchase Price: $950,000.00 plus GST Special Conditions:
If the remaining house lot 56e (Lot 2) is sold prior to the due diligence date and the Seller or the purchaser of the remaining lot 2 wanted a bit more surrounding land to build a shed then a boundary adjustment could be agreed to shift a bit to appease that sale. This would not affect the 13ha lot. The purchase price remains at $950,000 + GST.
The sellers personal property and belongings will remain on the lot until the seller is able to return to clear and dispose. This is to occur within 90 days after the quarantine period is lifted for international flights.
The Buyer agrees that no work is to be done within 30m of the boundary to the existing home on Lot 2. No works or activity on the land should detract from the sale or occupation of 56E, whilst the Hewson Family Trust own this property, 56E house lot.
The parties agree that in the absence of a more formal agreement this agreement will be considered binding on the parties.
[10] Mr Gillett also deposes that he undertook due diligence of the property in accordance with the agreement. This involved, among other things, exploring potential uses of the property. He also quantified the potential opportunity gained from purchasing the property at about $2.7m and that he stood to benefit from the purchase in the sum of approximately $1.7m.
[11] Mr Gillett also refers to correspondence between the parties which tends to suggest that negotiations were ongoing about some of the final conditions of any sale, but that Mr Hewson confirmed that he already had a deal with BGT. A formal draft sale and purchase agreement was then drawn up by Mr Gillett, which he proposed to have signed at the same time due diligence was complete. Mr Gillett also refers to receiving a call from a neighbour about the sale of the property to a third party and then discovering that the property had been sold.
[12] I am satisfied, based on the plain wording of the Heads of Agreement, (though without the benefit of argument for the respondents) there is a tenable argument, supported by sufficient evidence, that the Trust agreed not to sell the property pending the completion of the due diligence by Mr Gillett. The quantum of damages claimed, however, appears disputable – based as it is on what appears to be a hypothetical sale only. But I accept that there is a sufficiently tenable case that the quantum of damages could be substantial. Given the proximity of the present application to the actual sale of the Property, I am also satisfied that it is likely that the Trust has an asset, being the proceeds of sale, against which the freezing order can properly attach.
[13] I am also satisfied that there appears to be a real and appreciable risk that the asset will be dissipated, as Mr and Mrs Hewson have moved to Spain. Mr Gillett gives direct evidence of discussions he had with them about their desire to move to Spain and evidence that they left for Spain in late March 2020. He refers to helping them with organising a range of matters regarding their belongings that had been left on their land because they had moved to Spain. The Heads of Agreement refers to their belongings and international travel. Mr Gillett also refers to telephone conversations with Mr Hewson, who he understands was in Spain at the time.
[14] There is also evidence that the sale was handled by local solicitors, Fenton McFadden, and that they were likely to have come into possession of the Proceeds. A search was also undertaken in respect of other potential property held in the name of the Trust or the Hewsons. Nothing was located. Mr Gillett is aware that they may still have interests in machinery, storage containers and other assets of this kind, but he notes they may have already been sold.
[15] As to the balance of convenience and interests of justice, for the reasons just canvassed, I am satisfied that the balance of convenience and interests of justice favour a freezing order provided the respondents have had an opportunity to oppose an on- notice application.
[16]Finally, I have a signed undertaking as to damages.
[17] Given the foregoing, I am satisfied that the following freezing order may be made prohibiting the respondents from selling, transferring or otherwise distributing the Proceeds, until further Order of the Court or determination of the substantive proceeding. The value of the proceeds covered shall not exceed the value of the applicant’s claim.
[18] I am not satisfied that I should make the other orders sought without notice, which bear more directly on the position of the second respondent. The remaining orders sought will therefore proceed on notice to the second respondent. However, I understand the second respondent has received an advance copy on a Pickwick basis, so this can be dealt with expeditiously. Furthermore, my expectation is that if the proceeds are still held by it or are within its control, no steps will be taken in breach of these orders.
[19] In this regard, I direct that a telephone conference be convened before me with a representative of the second respondent by no later than 3pm Friday 30 October 2020.
Service
[20] BGT seeks service on email addresses because Mr and Mrs Hewson are resident overseas. Such service is governed by rules 6.27-6.29 of the High Court Rules and no submissions were filed in respect of those rules. I therefore reserve my position on service. My expectation is, however, that the second respondent will be in a position to advise as to an address for service. If not, then an order of the kind sought by the applicant will come into focus. Furthermore, given the active engagement of the second respondent in advising on the sale, substituted service might reasonably be effected on the second respondent and the proposed email addresses.
[21] The applicant and the respondents otherwise have leave to come back to this Court to have the orders modified or set aside on short notice.
[22]Costs are reserved.
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