Clear White Investments Limited v Otis Trustee Limited

[2017] NZHC 1458

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-2504 [2017] NZHC 1458

BETWEEN

CLEAR WHITE INVESTMENTS

LIMITED Plaintiff

AND

OTIS TRUSTEE LIMITED Defendant

Hearing:	3, 4, 5, 6, 7 April 2017
Appearances:	J Heatlie & J P M Wood for Plaintiff D W Grove for Defendant
Judgment:	28 June 2017

JUDGMENT OF PAUL DAVISON J

This judgment was delivered by me on 28 June 2017 at 3pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Rainey Law, Auckland

CLEAR WHITE INVESTMENTS LTD v OTIS TRUSTEE LTD [2017] NZHC 1458 [28 June 2017]

Introduction

[1]      On 20 July 2016, the plaintiff (CWIL) settled its purchase of a rural property situated at 40 Te Kauwhata Road, Te Kauwhata (the property) on which it had intended to develop a residential subdivision. By a contemporaneous transaction it on-sold the property to the defendant Otis Trustee Limited (Otis).  CWIL alleges that the amount Otis paid for the property on settlement was less than its real value and that, rather than a sale, the transaction was, in substance, a short-term financing arrangement. CWIL says that it was the common intention of the parties that it would be entitled to buy back the property upon repayment of borrowings together with a financing fee.  CWIL says that Otis has, however, refused to adhere to the financing arrangement, has refused to recognise its right to buy back the property, and has retained the property in order to undertake the development project itself.   CWIL says that Otis has in effect hijacked both the property and the development opportunity for itself.

[2]       Otis disputes CWIL’s claim and says that there was no financial arrangement and that it purchased the property outright from CWIL. Otis says that while the possibility of CWIL re-purchasing the property was discussed at the time and prior to its purchase, nothing was ever finalised or agreed that would entitle CWIL to either buy  back  the  property,  or  by  which  CWIL has  any  proprietary  interest  in  the property.

[3]      CWIL pleads  three causes  of action.  First, it  alleges  that  Otis  holds  the property for CWIL pursuant to an institutional constructive trust and its refusal to acknowledge CWIL’s entitlement to buy back the property amounts to equitable fraud.   Secondly, it alleges that having regard to the arrangements by which the property was transferred to Otis, it is estopped from denying CWIL’s right to buy it back.  Thirdly, CWIL alleges that the transaction is a credit contract pursuant to the Credit Contracts and Consumer Finance Act 2003 (the CCCF Act), and says that Otis has applied oppressive terms and acted oppressively, justifying and requiring the re- opening of the credit contract and the granting of relief.

[4]      As regards the first and second causes of action, CWIL seeks a declaration that Otis holds the property on constructive trust on terms that would entitle CWIL to buy back the property within a period of four months of judgment being delivered, and upon repayment of the sum paid by Otis to settle the purchase together with a reasonable fee for its provision of finance.  Alternatively, CWIL seeks a declaration that it has a continuing proprietary interest in the property equivalent to its financial contribution by having paid a $200,000 deposit, the increase in value of the property that had accrued at the time of the transfer to Otis, and for the provision of information relating to the development such as resource consent applications, cost estimates, design review reports, and feasibility studies.   As a further alternative, CWIL initially sought an accounting of profits to recognise its contribution to Otis’s development opportunity.  However, at the hearing CWIL abandoned this claim for relief.

[5]      In relation to the CCCF Act cause of action, CWIL seeks an order reopening the credit contract, an order restraining Otis from further developing or damaging the property, and an order that Otis transfer the property to CWIL upon the same terms as sought as regards the first and second causes of action. CWIL further seeks an order  restraining  Otis  from  further  developing  the  property,  an  order  that  Otis transfer the property to CWIL upon the payment of a sum applied to settle the purchase together with a financing fee, an inquiry as to damages it has suffered by reason of Otis’s oppressive conduct, or alternatively judgment for a sum equivalent to an account of profits to recognise its contribution to Otis’s development opportunity.

Background

Te Kauwhata property

[6]      The property at the heart of the dispute between the parties is rural land comprising 5.868 hectares located at 40 Te Kauwhata Road, near the township of Te Kauwhata. Apart from a single house and some farm buildings, the property is in pasture. As  of December 2015,  the property was owned  by Allan and  Gaylene Wheeler. In terms of the Waikato District Council District Plan, the property is

located in stage two of the Te Kauwhata West Living Zone which the District Plan provided would be due for subdivisional development only after 80 per cent of the land located in the adjacent stage one of the Living Zone was developed.

[7]      On 15 December 2015, Alan and Gaylene Wheeler entered into a written agreement for sale and purchase of the property with CWIL “and/or nominee”. Mr Peter Chevin signed the agreement on behalf of CWIL writing, “as director only” after his signature. The purchase price was $2,000,000 with settlement set for 1 July

2016. The  agreement  provided  for  the  payment  of  a  deposit  of  $200,000  upon execution  of  the  agreement.  The  agreement  further  provided  that  the  purchaser would have access to the property from the date of the agreement for the purpose of showing the property to consultants and advisers, and for the carrying out of site and geological surveys.

[8]      The agreement also contained a “due diligence” condition by which it was conditional upon the purchaser being satisfied with the outcome of an investigation of  the  property  with  respect  to  a  number  of  specified  matters  including,  title, financial suitability and commercial viability of the purchaser’s proposed investment in the property,  and the zoning.   The date for satisfaction of  the due diligence condition was six weeks after the date of signing of the agreement.

CWIL and Mr Peter Chevin

[9]      The plaintiff, CWIL, is a company effectively controlled and managed by Mr Chevin.  Mr Chevin was a director of CWIL. Prior to entering into the agreement, Mr Chevin had accumulated an extensive background of experience in property subdivision and development. However, he also had a chequered commercial history, having been bankrupted three times: in 1989, 1997, and most recently in 2006. Although he had been discharged from bankruptcy when he signed the purchase agreement in December 2015, he was at that time prohibited from being a director of a company or being engaged in the management of a company.

[10]     On 8 February 2008 Mr Chevin had been prohibited by the Registrar of

Companies from being a director or being involved in the management of a company

for a period of four years pursuant to s 385 of the Companies Act 1993. In an explanatory statement the Registrar said:

In prohibiting Mr Chevin from acting as a director or in the management of companies, the deputy registrar of companies found that Mr Chevin had acted recklessly in his management of Gridlock and Wyndham. He allowing Gridlock to enter into an unconditional contract to buy an $18 million property when he had not secured finance for the purchase, and then immediately advancing a resulting $2.25 million GST refund away to other related parties. The purchase ultimately failed. ...

[11]     On 11 October 2012, Mr Chevin was convicted of being involved in the management of a company while prohibited and pursuant to s 382 of the Companies Act 1993, he automatically became subject to a further five year ban from acting as a director or being involved in the management of a company.

[12]     Also at the time when Mr Chevin signed the agreement for purchase of the property for CWIL, he was awaiting sentencing in the High Court on nine charges of theft by a person in a special relationship laid under s 220 of the Crimes Act 1961 to which he had pleaded guilty on 8 August 2016.1 The charges arose from his involvement in related party transactions undertaken in connection with the business conducted by Mutual Finance Limited and Viaduct Capital Limited. The criminal

charges arose from events that took place in 2009 and 2010, when Mr Chevin was an undischarged bankrupt and was also prohibited from being a director of a company or involved in the management of a company.

[13]     More recently, as an automatic consequence of being convicted on 8 August

2016 on the nine charges of theft by a person in special relationship, Mr Chevin was prohibited pursuant to s 382 of the Companies Act 1993 from directly or indirectly taking part in the management of a company or acting as a director of a company for a further period of five years until August 2021.  Following his brother-in-law, Mr Jason Harvey, being appointed the sole director of CWIL on 31 January 2017, Mr Chevin resigned as the director on 3 February 2017.

[14]     CWIL itself had limited financial resources, and Mr Chevin had arranged to borrow the money required for the payment of the deposit from Mr Patrick Peoples

1 Mr Chevin was sentenced on 28 February 2017 to nine months’ home detention: [2017] NZHC 285.

of Schick Civil Construction Limited, with whom he had had previous business dealings. No formal documentation evidencing the borrowing was entered into, but Mr Chevin says it was agreed that the money was to be repaid around August 2016 following settlement of the purchase by CWIL.  At the time that CWIL entered into the  purchase  agreement  and  arranged  to  borrow  the  $200,000  required  for  the deposit, neither CWIL nor Mr Chevin had any arrangements in place to finance the balance of the purchase price of $1,800,000 due on the settlement date of 1 July

2016.

[15]     Although the property was not zoned for immediate subdivision, Mr Chevin was confident that he and CWIL could nevertheless obtain the necessary subdivision and resource consents from the Waikato District Council that would  enable the development of the property to proceed. Almost immediately after the agreement was entered into, he set about engaging consultants to prepare the necessary reports and an application for resource consents. He arranged the engagement of the consultants using Northern Investors Trust, a trust that he effectively controlled and was  using  as  an  administrative  entity  in  relation  to  this  and  other  property

investments that he was involved in.2

[16]     In early 2016 he engaged Mr Christopher Dawson of Bloxam Burnett & Olliver (BBO), a firm of engineering, planning and surveying consultants, in relation to the land use and subdivision consents required for developing the property.  On 14

February 2016, on behalf of Northern Investors Trust, Mr Chevin signed a consultation agreement with BBO in which the fees for the preparation of some preliminary applications were set out. The engagement agreement provided that, until payment of its fees, BBO would retain intellectual property and copyright in all drawings, specifications, and other documents it prepared, and that ownership of the data and factual information collected by BBO and paid for by Northern Investors Trust would be the property of the client following payment. The agreement further provided that, “the client shall have no right to use any of these documents where any or all of the fees and expenses remain payable to the Consultant.” Subsequently,

on 1 April 2016, BBO wrote to Northern Investors Trust setting out a fee offer to

2      Northern Investors Trustee Limited is the corporate trustee of Northern Investors Trust.

cover the further work required to be undertaken in the preparation of a scheme plan, together with related surveying, civil engineering and contract management work.

[17]     It is apparent that Mr Chevin had decided he needed to have made some significant progress towards securing the necessary approval from the Waikato District Council for the subdivision development project before he would be able to attract involvement of the people from whom he was hoping to arrange finance to enable CWIL to settle the purchase of the property.  He did this without either CWIL or himself having sufficient funds to pay the consultants’ fees, and without making any arrangements to defer payment of their fees. When the consultants sought payment,  Mr  Chevin  repeatedly  put  them  off  by  making  promises  to  arrange payment, when he was clearly unable to do so.  Despite not having funds with which to pay the consultants, Mr Chevin nevertheless pressed them to progress the application and as a consequence, by mid-July 2016, unpaid consultants’ fees had accumulated, totalling approximately $150,000. In this manner, Mr Chevin manipulated the consultants, using them as the effective financiers of the preparation of the subdivision application.

[18]     On  23   May  2016,   BBO  submitted   a  comprehensive   application   for subdivision consent to the Waikato District Council. The application was made in the name of Northern Investors Trust and sought consent for a 68-lot residential subdivision. Mr Chevin had previously obtained consents from the Waikato District Council for two other subdivision applications for properties located in the Te Kauwhata area where both were “non-complying activities” and he was confident of the success of this latest application, subject to the imposition of acceptable conditions.

[19]     During June 2016, on Mr Chevin’s instructions, BBO prepared an amended application for subdivision consent with 62 lots, reduced from the initial 68. This followed discussions between BBO and staff of the Waikato District Council. A senior planner had indicated that the Council was comfortable with the proposal in relation to the staging issue and did not see the stage two designation as being an obstacle to the granting of consent. The amended plan was sent by BBO to Mr

Chevin on 28 June 2016, for his approval before it would be incorporated into an amended scheme plan for submission to the Council.

[20]     With the property settlement then just days away, on 21 June 2016 Mr Chevin again approached Mr Peoples requesting that he step in and become the purchaser of the property:

Pat,

I have firm confirmation from Kingsley Turner that he is able to arrange ALL of the balance of the funding for the site at 40 Te Kauwhata Road site with you as the borrower.

Further this facility would not be from a bank and as such would have no impact on your ability to arrange funding from banks for other projects.

In essence this is as follows. Purchase price is $2.0M

We have already put in $200,000.

KT can arrange the balance needed for settlement, [probably] as one first mortgage of $1.8m.

We would need this in place for 5-6 months.

We would have a purchase agreement with you to buy back the site for

$2.2M. Plus your interest costs plus an additional interest component that you feel is acceptable. We had previously stated that this would be 10% above your cost of funds (I think).

This would give you a return of around 18%.....but of course this deal has you putting in no funds ….so, I am not sure what to calculate the return against.

We  would  continue  to  push  the  consent  process  and  as  usual  we  are extremely confident of getting this granted (as you know our track record on consent applications is a solid 100%)

So, we would very much like to progress this forward with you asap if we can get agreement.

Thanks

Peter Chevin Development Consultant Northern Investors Trust

[21]     And on 28 June 2016, just two days before settlement was due, he again emailed Mr Peoples:

Pat,

[Can] you come back to me on the discussions about the end sale price of the sections if [you] [were] to purchase the land and be the land developer.

Thanks

Peter Chevin Development Consultant Northern Investors Trust

[22]     As appears from his email to Mr Peoples, Mr Chevin had approached Mr Kingsley Turner from whom he had previously arranged finance for development projects, seeking finance for the balance of the settlement money. Mr Chevin says that Mr Turner required the borrower to be an independent high-net-worth individual other than Mr Chevin  or any of his  associated  entities.  Mr Chevin  realistically acknowledges that Mr Turner’s requirements were because of Mr Chevin’s financial history of bankruptcies and because he was facing criminal charges, which made him an undesirable party to such a borrowing transaction.

CWIL fails to settle

[23]     On 1 July 2016 CWIL failed to settle the purchase of the property. On 4 July

2016 the vendor’s solicitors promptly issued and served a settlement notice pursuant to the agreement, requiring settlement to take place on 20 July 2016. The agreement provided that, in the case of default of settlement by the purchaser following the service of a settlement notice, the vendor could cancel the agreement and retain the deposit paid by the purchaser.

[24]     Telfer Young (Waikato) Limited had previously prepared a valuation report for the property. With the default settlement date of 20 July 2016 looming, Mr Chevin was coming under considerable pressure to arrange finance for the settlement or risk losing the $200,000 deposit.   On 8 July 2016 Mr Chevin emailed Telfer Young requesting that a new and updated valuation report be prepared based on the assumption that there was no deferral for development of the land. Mr Chevin said in his email that:

This will give you the ability to issue the valuation quickly at an amount north of $2.0m.

…

Gents…I need this issued today please.

I have to settle on Tuesday next week.

[25]     Telfer Young cooperated and prepared a further valuation report dated 9 July

2016 addressed to Mr Chevin’s proposed  source of loan finance,  Mr Turner of Property Finance NZ Limited. The valuation report described Mr Turner as the instructing party and stated that it had been prepared for mortgage lending purposes. The valuation also stated that it had been prepared “as if the land had immediate development potential as per land zoned ‘Stage 1A’ of the Te Kauwhata West Living Zone without resource consent for subdivision.”

[26]     Although the amended scheme plan had reduced the number of residential lots to 62, Telfer Young’s valuation was again based on a 68-lot subdivision. Telfer Young valued the property at $2,350,000 plus GST, if any.

[27]     Telfer  Young  noted  in  their  report  that  they  had  not  undertaken  an environmental audit of the property, and commented that their report was conditional upon the land and buildings being unaffected by harmful contaminants which may impact on value.

[28]     Mr Chevin provided the revised Telfer Young valuation to Mr Turner, and, on

15 July 2016 Mr Turner made a written loan offer to Mr Timothy Edney, another person with whom Mr Chevin had had previous dealings and whom Mr Chevin had also approached for assistance by stepping in as the borrower of the funds required for settlement. Mr Turner’s loan offer was made through his company, Dunstan Securities  Limited  (Dunstan),  and  offered  a  loan  to  Mr  Edney  personally  of

$1,600,000 for a nine month term to assist with the purchase of the Te Kauwhata property.  Security was to be given by way of a first mortgage over the property and the loan offer was made subject to a list of special conditions to be satisfied prior to the loan being advanced. Together with other requirements, the special conditions required Mr Edney to: provide a comprehensive statement of his financial position; satisfy Dunstan that the property would be treated as being stage one of the Te Kauwhata West Living zone rather than stage two; and the Telfer Young valuation

was to be readdressed to Dunstan. The loan required the payment of an acceptance fee of $5000, an establishment fee of $35,000, a structuring fee of $16,000, and interest to be paid at 12.85 per cent with monthly interest payments of $17,133. The loan offer was made subject to expiry at 10.00 am on 18 July 2016.

[29]     Mr Edney declined to become involved in the transaction.  On the morning of

18 July 2016 shortly after 8.30 am, Mr Chevin sent an email to Mr Turner advising that, despite going back and forth with Mr Edney, he could not rely on him to proceed. Mr Chevin said in his email that he had raised another $450,000 but was struggling to get any more funding in the time he had available. He said that he wished to proceed on the basis of Mr Turner lending the money to his  brother-in law Mr Jason Harvey, with Mr Chevin’s interests putting in the $450,000 together with the $200,000 already paid as the deposit. He asked Mr Turner if they could get started straight away as he had to have the settlement money in CWIL’s solicitor’s trust account around midday the following day.   Mr Turner responded in an email sent to Mr Chevin at 9:24 am on 18 July saying:

Damn

I’m sorry Peter but I can’t do that.

I had 2 other private people lined up ready to come in with funds and had told both I had a high net worth borrower to compensate for the land being in a  peripheral  location,  un  consented  and  highly  geared.  I  can’t  now  go without the mitigating factor.

Also still concerned about the stage 2 zoning designation. Kingsley

Otis and Mr McKay

[30]     Mr Chevin then approached Mr Ian McKay, the principal and director of Otis. Mr Chevin says that he approached Mr McKay as he was on a list he kept of high-net-worth individuals.   Mr Chevin considered that he might be interested in stepping into the transaction and becoming the borrower of the loan funds on offer from Mr Turner settling the purchase, and thereby taking a fee. Mr Chevin knew Mr McKay from an earlier transaction whereby Mr McKay had purchased a property from Mr Chevin with a written option to buy it back.

[31]     In  his   evidence  Mr  Chevin  said  that  he  telephoned  Mr  McKay  at approximately 9.45 am on 18 July. So it appears that he approached Mr McKay shortly after he learned that Mr Edney was not interested in becoming involved as the borrower and after he had received a negative response from Mr Turner to his suggestion that Mr Harvey become the borrower. Mr McKay confirms that he and Mr Chevin had previous dealings in 2006 in relation to a property in Wellington. In that transaction, Mr McKay’s interests entered into two back-to-back written agreements for the sale and purchase of properties at the same time.  Pursuant to the first agreement, Mr McKay’s interests purchased the property from Mr Chevin’s interests for the sum of $3,000,000 plus GST (if any) with settlement due on 3

December 2006. Pursuant to the second agreement, Mr McKay’s interests agreed to sell the property back to Mr Chevin’s interests for a sale price of $3,500,000 plus GST (if any), with a settlement date of 4 August 2007. The second  agreement included a term that Mr Chevin guarantee the performance of the agreement by the purchaser.

[32]     Both men agree that Mr Chevin telephoned Mr McKay on the morning of 18

July 2016, two days before the date on which CWIL was required to settle the purchase pursuant to the vendor’s notice. Mr Chevin says that he telephoned Mr McKay to discuss the prospect of him becoming involved in a deal with Mr Turner. He says that he explained to Mr McKay the conditions that had been imposed by Mr Turner and that the loan would only be made available to an approved and independent person who would step in and become the borrower and guarantor. Mr Chevin further says that he suggested that the financing arrangements could be achieved by Mr McKay agreeing to being appointed as a director of CWIL and that he offered to pay Mr McKay a fee of $200,000 to become involved.

Mr Chevin’s account of the initial 18 July telephone conversation

[33]     As the two men differ in their respective accounts of their conversations and dealings on Monday 18 July, it is convenient to set them out separately. Mr Chevin says that having proposed to Mr McKay that he become a director of CWIL approximately two minutes into the telephone conversation, Mr McKay interrupted him and suggested that he might be prepared to advance the funds on the same terms

as had been offered by Mr Turner together with a fee of $200,000. Mr Chevin says that Mr McKay said that he was prepared to advance $1,400,000 toward the settlement of the property for a term of three months and otherwise on similar terms as had been proposed by Mr Turner, with CWIL contributing the further $400,000. Mr Chevin says that Mr McKay told him that he had the funds required for the transaction readily available in his bank account. Mr Chevin says that they generally agreed that what Mr McKay was suggesting would be the best way forward. Mr Chevin says that Mr McKay also told him that he had funds of around $7,000,000 that “were not doing much”, and that he could potentially also fund the civil works required to develop the property. Mr McKay requested details and information regarding the property and matters were left on the basis that Mr Chevin would assemble that information and provide it to him straight away.

Mr McKay’s account of the initial 18 July 2016 telephone conversation

[34]     Mr McKay says that when he was first telephoned on 18 July, Mr Chevin explained to him that he had a property at Te Kauwhata under contract, the price was

$2  million,  and  he  had  paid  a  deposit  of  $200,000.    He  says  that  Mr  Chevin explained that he had been issued with a property settlement notice which would expire in two days time on 20 July. Mr Chevin said he had $400,000 to $450,000 that he or CWIL was going to contribute to the settlement and asked Mr McKay if he would urgently assist in providing short term funding to enable CWIL to complete the purchase. He says he was asked whether he was prepared to act as the sole director of CWIL and also provide personal guarantees to the company’s bank in relation to the purchase of the property. He says Mr Chevin offered him the sum of

$200,000 to front for his company and explained that he had been bankrupted three times and was facing criminal fraud charges, which meant that he could not front the company himself to settle the purchase. According to Mr McKay, Mr Chevin further explained that the vendor of the property had issued a settlement notice and he had until 20 July 2016 to complete settlement. If he could not obtain the funds required to settle, the contract to purchase the property would be at an end.

[35]     Mr McKay says that Mr Chevin told him that CWIL had arranged to obtain finance of $1,400,000 for a term of three months for the purchase from Mr Turner.

Under that arrangement CWIL was to be required to pay a $70,000 facility/funding fee and interest at 12.5 per cent per annum.

[36]     Mr McKay says he did not interrupt Mr Chevin with an offer to purchase the property, but listened very intently to what he had to say before responding and telling Mr Chevin that he had no interest in becoming involved as the director of CWIL.  Mr McKay says that he then told Mr Chevin that he might be interested in funding the purchase of the property directly, on the same basis as proposed by Mr Turner’s company, but including the fee of $200,000 offered by Mr Chevin for underwriting the debt. Mr McKay says that he advised Mr Chevin that he was not interested in having any hands-on involvement in the development project as he has a young family and lives north of Auckland, well away from the property.   Mr McKay says that Mr Chevin told him that he had engaged an experienced team of professional consultants and had spent in the order of $150,000 in consultants’ fees to that date.  Mr McKay says that he was only interested in the proposal if there was a significant equity buffer, either by way of direct capital equity or some value added by way of consultants’ fees paid up to date and in the future. He says that the fact that Mr Chevin told him that CWIL had paid the consultants, meant that Mr Chevin and the company had every incentive to maximise the return on the project.

Valuation and project information is provided

[37]     Shortly after their initial telephone conversation, Mr Chevin sent Mr McKay a series of emails attaching information regarding the project. This included: an assessment of the costs of the civil engineering works; pricing for the standard houses proposed for the development; the proposed subdivision layout plan; and a copy of correspondence  from  BBO in  which  they commented that  the Waikato District Council Senior Planner did not consider the stage two designation to be an obstacle to the granting of a consent. Also forwarded was a copy of the agreement for sale and purchase of the property.  Mr McKay responded by requesting a copy of the settlement notice and asking Mr Chevin to arrange for a loan agreement to be prepared for a three month term, with the Otis Family Trust named as the lender. Mr Chevin forwarded him a copy of the settlement notice and asked if was possible for the term to be extended to expire on 30 November 2016 so as to provide a one month

buffer for any delays. Mr Chevin also gave Mr McKay a copy of the Telfer Young valuation report in which the property was valued at $2,350,000 on the assumption that the land had immediate development potential as if  designated “Stage 1A” notwithstanding that it was in fact designated as stage two.

[38]     At 3:30 pm on 18 July, Mr McKay emailed Mr Chevin saying:

Hi Peter,

To simplify the structure given time constraints try the following.

McKay interests buy the land with a simultaneous S&P to your entity at a price reflecting fees commissions etc.

Both contracts are less the $650,000 equity that you are to contribute. The buyback S&P in 4 months.

Your thoughts, Thanks Ian

Agreement entered into for purchase by Otis

[39]     Later that evening at 7:59 pm Mr McKay sent Mr Chevin a further email to which he attached a spreadsheet, saying:

Hi Peter,

see attached spreadsheet with the numbers of the deal based on discussions

[to date] to make sure we are all on the same page.

Thanks Ian

[40]     The spreadsheet referred to two agreements for sale and purchase as follows:

S&P # 1         Clear White Investments sell to Otis Trust settle 20th June,

2016

Sale price $1.4   (Note Clear White will carry the $650,000 equity until buy back)

Clearwhite will buy back on or before the 20th November,

2016

The buyback S&P will have both a $200,000 deposit and settlement balance due on the same date. Ie 20th November,

2016.

Buyback price $1,833,333

S&P #2          Buy back price being             3 months     4 months

Fee  $200,000     $266,666.67

Funding Fee  $70,000       $93,333.33

Interest 12.5%pa  $52,187.50    $73,333.33

$322,188     $433,333.33

Buy back $1,833,333.33

Meeting at café – Tuesday 19 July 2016

[41]     The two men arranged to meet at a café in Albany on the morning of 19 July

2016 to discuss the matter further. Clearly, no agreement had yet been reached at that time.   Mr McKay says that the purpose of the meeting was to further discuss the details  of  the  proposal  he  had  made  the  previous  evening  as  set  out  on  his spreadsheet.    At  the  commencement  of  their  conversation,  Mr  Chevin  told  Mr McKay that he and CWIL were no longer able to contribute the $400,000 that he had spoken about the previous day. Again, the two men differ in their accounts of their conversation. Mr Chevin says that Mr McKay reacted to this news by remaining enthusiastic about being involved and offering to fund the whole of the amount required for the settlement. However, Mr McKay says that his first reaction to this information was to advise Mr Chevin that Otis “was out”, and that he had no interest in taking the matter further. Mr McKay says that, at that point, Mr Chevin said that he had his back to the wall, he had no other means of settling the purchase, and that he was going to lose both the deposit of $200,000 and the $150,000 he had already paid to the consultants.   Mr McKay says that Mr Chevin went on to say that he expected  that  the  vendors  would  cancel  the  contract  the  next  day  and  that  the property was Mr McKay’s to purchase if he wanted it.

[42]     Mr McKay says that he did not respond enthusiastically as claimed by Mr Chevin, but rather that he initially reflected for a short while before offering to purchase the property for $1.8 million which he knew to be Mr Chevin’s break-even figure, and that he was otherwise facing cancellation the next day. Mr McKay says that he and Mr Chevin then discussed and agreed that Mr McKay would purchase the  property  for  $1.8  million  with  GST  being  zero  rated.  The  sale  was  to  be

unconditional and would be settled the next day.  Mr McKay says that it was also agreed that, in addition, he would pay any late settlement costs, given that it was an outright sale of the property to Otis. Mr McKay says that Mr Chevin commented that he himself had nothing to gain from paying the late settlement costs, as he would be better off simply walking away from the purchase.

[43]     Mr McKay says that there was no discussion of any buy-back arrangement being part of his purchase, as it was an outright sale to Otis so as to prevent a cancellation of the CWIL purchase contract due to occur the following day. He says that he had attended the meeting expecting a discussion as to the terms upon which he would provide short term funding of $1.4 million to enable the settlement to proceed and walked out of the meeting without having any idea of just what he would do with the property. He says that after it was agreed that Otis would purchase the property, Mr Chevin expressed interest in it, saying he would still like to buy the property back.   Mr McKay says that he responded by making it very clear to Mr Chevin that he had no idea what he or Otis would do with the property.  He says the matter was taken no further.

[44]     Mr McKay says that, although he made no arrangements or commitment to Mr Chevin as regards the future of the property, there were obvious advantages in the two men working together on the development project in the future. He says that Mr Chevin had a good knowledge of the property and had contacts with house building companies, as well as extensive intellectual property by means of his expenditure of $150,000 on consultants. Nevertheless, says Mr McKay, he made no commitment to Mr Chevin that provided any basis for him to now claim an arrangement was made entitling CWIL to buy back the property.  He says there was no discussion or commitment about any future working relationship between them regarding the development of the property. He says that he made it clear to Mr Chevin that any future collaboration on the development and any sale of the property back to CWIL were matters that he was not prepared to make any commitment on.

[45]     Mr Chevin’s account of the discussion and outcome of the meeting at the café on 19 July differs significantly from Mr McKay’s. He says that what came out of the meeting was simply an agreement for Mr McKay’s interests to lend the full amount

required for the settlement to proceed, and there was no arrangement discussed or agreement reached for Mr McKay or Otis to purchase the property outright.

[46]     Mr Chevin says that when he advised Mr McKay that he was no longer able to contribute the $400,000 sum that he had earlier said he would contribute to the settlement sum, Mr McKay had remained enthusiastic about being involved and had confirmed  that  he  or  Otis  were  willing  to  fund  the  full  amount  required  for settlement to occur. Mr Chevin says that the amount required for the settlement was ultimately $1,811,000, being the balance of the purchase price plus a small penalty for late settlement. He says that his arrangements with Mr McKay would obviously have to be amended to provide for the additional $411,000 that was required over and above the $1.4 million funding that had been the basis of his initial request.  He says that he envisaged that the term of the loan would remain at four months, being the term he had previously discussed. He says the only issue that remained outstanding, and which needed to be agreed on, was the finance fee for the additional sum of $411,000 that was to be added to the loan. He says that, despite this issue not being discussed and agreed at the meeting, he was confident that he and Mr McKay would agree to adopt a similar formula to that which had been agreed in relation to the initial proposal for a $1.4 million loan. He says that he considered that there was little scope for any issues to arise in relation to the finance fee and penalty interest.

Events following the meeting

[47]     Following the meeting, at 2:12pm Mr Chevin emailed his solicitors, saying:

We have agreed the deal with Ian McKay to settle this property tomorrow. Can  you  please  request  a  settlement  statement  from  the  Vendor  for settlement tomorrow. Details of the deal with Ian McKay to follow.

[48]     At 2:40pm Mr McKay sent a reply email to Mr Chevin which he copied to

Mr Chevin’s solicitors saying:

Thanks Peter,

As discussed can you prepare a S&P whereby Clear White Investments sells to Otis Trustee Limited for $1.8million Plus GST zero rated.

… The Agreement is unconditional with settlement tomorrow the 20th July,

2016.

Thanks Ian.

[49]     Mr Chevin’s  solicitor,  Mr Matthew Carson, responded  to  Mr McKay by email at 2:46 pm asking whether the terms of the buy-back had been agreed on between Mr McKay and Mr Chevin.

[50]     Mr McKay responded by return email at 2:46 pm stating that, at that stage

they were “just focusing on settling tomorrow”.

[51]     Mr Chevin’s solicitors emailed a draft agreement for sale and purchase of the property to Mr McKay at 3:48 pm. Further emails were exchanged between Mr McKay  and  Mr  Chevin  in  relation  to  property  and  development  information requested by Mr McKay, including a comprehensive geotechnical report and a financial feasibility study. Later that evening at 5:00 pm Mr Chevin emailed Mr McKay saying:

I am coming under some pressure from my lawyer to get the buy-back agreement sorted.

[Can] you please [throw] down some thoughts and we can get this started.

[52]     Mr McKay responded at 8:30 pm saying:

I can understand his concerns but I am not sure of what structure we will agree on. I am looking at areas where I [may be] able to add value in sales etc as I have some contacts there.

I also have an interest in some of the Warkworth stuff but that is down the track.

Let me sleep on it and flesh out some thoughts tomorrow.

[53]     The agreement for sale and purchase between CWIL as vendor and Otis as purchaser  was  executed  and  dated  on  20  July  2016.    The  purchase  price  was

$1,811,463.78, being exactly the same amount as CWIL was required to pay to settle its purchase of the property. The agreement was unconditional and contained no reference to any buy-back agreement or arrangement. Prior to settlement on 20 July, further emails were exchanged between the parties and their respective solicitors. However, there were no further communications regarding a buy-back arrangement. That day, Mr Chevin contacted Mr Dawson of BBO, advising him that the purchase

had been settled and proposing a plan to move forward with preparation of the application for the subdivision consent. At this point Mr Chevin was confronted by BBO and the landscape architect that he had engaged on the project, regarding their outstanding fees. Mr Dawson wrote to him on 25 July 2016 advising that his firm was unwilling to do any further work for Mr Chevin until all their outstanding invoices were paid in full.

[54]     The situation regarding the payment of consultants’ fees is further evident in an email sent by Mr Michael Graham of Mansergh Graham Landscape Architects Limited who similarly wrote to Mr Chevin on 25 July 2016 saying:

Peter,

Quite frankly I have no tolerance for this. You agreed to our terms and conditions.

You have not honoured the contract for payment of works that have already been undertaken. You have on more than one occasion promised to make payment on invoices in a timely manner and have failed to do so.

You  have  required  a  high  level  of service  which  has  been  provided  by Mansergh  Graham after  your  personal  guarantee  that  historical  financial difficulties were an aberration.

The release of the assessment report with only part payment received was the last concession you will receive from MGLA.

No further work will be undertaken by MGLA until full settlement of outstanding invoices has been received.

Michael Graham

(Emphasis in original)

Meeting on 28 July 2016

[55]     On 28 July 2016 Mr Chevin and Mr McKay met again at a café in Albany. They discussed the subdivision project. Mr McKay asked Mr Chevin about the state of the subdivision application and the expected time required to obtain the necessary consent and approvals from the Council. Mr McKay says that at that time he was trying to decide whether to enter into an agreement that would enable Mr Chevin and CWIL to buy back the property, and whether CWIL would have any realistic ability to settle a purchase in four months’ time. Mr McKay says that he was concerned at

the prospect of finding out in three or so months that CWIL was in fact unable to settle a purchase of the property, which was a situation that he had encountered with Mr Chevin in relation to their prior Wellington property transaction.   Mr McKay explained in his evidence that, for those reasons, he was trying to ascertain from Mr Chevin what CWIL’s key project milestones were in terms of progressing the project and so he had asked Mr Chevin to provide the milestone dates.  Mr McKay says that as the meeting was ending, he suggested that they meet again so that he could put a proposal to Mr Chevin as regards the possible terms of a buy-back arrangement. Mr McKay says that no agreement had been reached about a buy-back and his purpose in attending the meeting was to get information regarding the subdivision project and then put a proposal together for a buy-back on commercial terms that would work for Otis.

[56]      Mr  Chevin  says  that  at  this  meeting  he  provided  Mr  McKay  with information regarding progress of the subdivision project and he shared his thoughts about the possibility of a separate application for subdivision of a part of the land adjacent to Te Kauwhata Road that was not included in the most restricted area and which could be subdivided more readily into eight or nine lots. Mr Chevin says that during this meeting he repeated his concern to finalise the terms of a buy-back arrangement. He says that Mr McKay undertook to get back to him with a draft agreement  incorporating  his  proposal  for  the  additional  fees  and  says  that  they agreed to meet again in around 10 days’ time.

[57]     Significantly, Mr Chevin did not tell Mr McKay during the meeting that he had not paid the consultants who had worked on the project, or that Mr Dawson had recently advised him that his firm was not prepared to do any further work, or that the landscape architects engaged on the project had also recently informed him that they too would do no further work until their invoices were paid.

[58]     In an email Mr Chevin sent to Mr McKay on 2 August 2016 regarding a further meeting and the provision of milestone information relating to the development, he raised the buy-back issue saying:

My large concern here is that the buy-back is not documented at all, we need to get on to this, even in a simplistic form.

The 9 August meeting

[59]     Another meeting was then arranged for 9 August and once again the two men met at a café in Albany. At the meeting Mr McKay gave Mr Chevin a draft option agreement that he had prepared as a basis for their discussion. The draft agreement referred to CWIL wishing to buy back the property from Otis, and was expressed as being “subject to contract”. The draft agreement was in the following terms:

Draft Agreement between Clear White Investments Limited And

Otis Trustee Limited

Clear White Investments Limited (CWIL) wishes to buy back the property at

40 te Kauwhata Road. From Otis Trustee Limited OTL

This agreement is subject to contract.

OTL will provide CWIL with an option to buy back the land. The option shall expire on the 20th November, 2016

The buy back price shall include the land value price of $1.815 million plus Fees of $433,333 in lieu of the $1.4 million funding as agreed.  Ie 2,233,333 on or before the 20th November, 2016.

In addition;

The $415,000 additional funding shall receive a  10% share of expected profit of $5.9 million.  Ie $590,000 payable upon the exercise of the option but payable ??

Secured by way of a second mortgage over the property??

Mr Chevin and [CWIL] shall be responsible for the attainment of all milestones.

Mr Chevin and [CWIL] shall be responsible for all consultants’ costs up to

the point of the option being exercised.

The option shall expire in the event that any one or other of the following milestones not be fulfilled.

1.     Lodgement  of  the  RC  for  an  8  unit  sub  division  by  the  1st

September, 2016

2.Completion of services and issuance of 224C and relocation of the existing farm dwelling onto one of the 8 subdivided Lots.  All of these works are to be completed by the 15th November, 2016

3.    The  68  Lot  Subdivision  RC  is  resubmitted/off  hold  by  the  15th

September, 2016

4.    RC issued for the main 68 Lot subdivision by mid November, 2016

5.    Repay consultants fees by ??date

Any extension of time shall be at OTL discretion and attract a pro rata increase in fees and costs.

[60]     Mr Chevin said in evidence that during the meeting on 9 August he had expressed concerns about the milestones that Mr McKay wished to impose. He considered that it was quite likely there would be a delay in achieving the initial estimates he had given, as he had been having trouble progressing matters as quickly as he had hoped because a number of the consultants engaged on the project were no longer prepared to undertake any further work unless their outstanding fees were paid. Mr Chevin says that he told Mr McKay that there was approximately $150,000 owing to consultants.  He says Mr McKay offered to advance the money needed to pay the consultants so that the project could proceed.  Mr McKay says that this was the first he had heard that the consultants had not been paid and further says that, had he known this before the meeting on 9 August, he would have provided for the consultants’ fees in his first draft agreement.

[61]     Mr Chevin says that during the meeting he outlined a strategy to Mr McKay that he had already commenced working on, which involved subdivision of a part of the property that he expected he could get approval for quickly, thereby increasing the underlying value of the property for the purpose of financing the settlement of a buy-back in November 2016. He says that when he explained this, Mr McKay expressed concern as to whether CWIL would then be able to secure consent for 68 sections.

Mr McKay contacts Mr Dawson of BBO – 9 August 2016

[62]     Also on 9 August, and following the meeting with Mr Chevin, Mr McKay telephoned Mr Dawson to enquire about the subdivision application, to ascertain what fees were outstanding, and determine what was required to be paid to get BBO to resume their work. Mr Dawson, who gave evidence before me, confirmed that Mr McKay had telephoned him on 9 August and asked him to gather up all outstanding

invoices from the various consultants engaged on the project so that arrangements could be made for them all to be settled so that work on the project could resume.

[63]     Following the meeting on 9 August, Mr McKay emailed Mr Chevin a revised version of the draft agreement which he entitled “Draft Option Agreement” and which included a new provision that Otis would pay or underwrite consultants’ fees of around $150,000. Both the initial and the revised versions of the draft option agreement were incomplete documents and did not purport to record  concluded terms of an agreement. The draft agreement however, does illustrate the state of the discussions which were taking place at that time. Significantly, in my view, the essential terms of the draft option agreement were directed at creating an option to be granted to CWIL to buy back the property for a specified price which included the sum paid by Otis, together with fees, and a 10 per cent share of the forecasted profit of the subdivision project. The proposed option would expire either on 20 November

2016 or earlier, in the event that CWIL failed to achieve any of the project “milestones” specified in the option agreement. These milestones were the same as set out in the initial draft except that CWIL was also to have repaid advances made to settle the outstanding consultants’ fees by a yet to be specified date.

[64]     From the contents of the first draft option agreement and the revised version, it is clear that Mr McKay was proceeding on the basis that no agreement had been concluded which entitled CWIL to buy back the property. While he was willing to engage in discussions with Mr Chevin as to the terms of a buy-back option, there were still some significant terms which were yet to be agreed on, including those relating to CWIL’s ability to progress the development project according to a timetable that Mr McKay considered would provide confidence that CWIL would be in a position to exercise the option and settle the buy-back on 20 November 2016. Mr McKay was wary of the prospect of granting an option until November and then finding after three or four months that CWIL was unable to settle, leaving Otis with an incomplete project and a property that would be difficult, if not impossible, to sell for a sum that would enable it to recover the purchase cost and consultants’ fees it would have expended.

[65]     Mr Chevin says that over several days following the meeting he provided detailed information regarding the development to Mr McKay at his request, including: his assessment of the feasibility of a more conservative “Plan B” type of subdivision; a peer review report which reviewed the subdivision application; and a copy of the subdivision application.   Mr Chevin says that he would never have provided this information and continued to work to progress the application, if he had  considered  that  anyone  other  than  CWIL  was  the  beneficial  owner  of  the property and was undertaking the development.

[66]     In my view, Mr McKay’s approach is consistent with a situation in which no concluded or enforceable arrangements had been entered into entitling CWIL to buy back the property. Mr McKay had no immediate plans or intentions as regards the property. He was willing to engage in discussions with Mr Chevin about the prospect of CWIL buying the property back, provided that the terms of that arrangement left Otis in a satisfactory and secure position by which it could realistically expect to recover the capital it had invested, together with the fees it considered were justified by having rescued CWIL, thereby avoiding a substantial loss. So far as Mr Chevin is concerned, in my view he was well aware that the only way in which he and CWIL could extract anything from the project was to continue to involve himself in the project and to “live on his wits”, despite having no money to meet essential costs and despite there being no concluded arrangement to buy back the property.  I consider that Mr Chevin’s actions are entirely consistent with him trying to utilise the only leverage he  had  left,  namely his  knowledge of the project  and  his  contacts,  to engineer a position from which he and CWIL could extract some financial benefit.

The further negotiations during August – September 2016

[67]     On 11 August 2016 Mr Chevin emailed Mr McKay attaching a marked up version of the draft option agreement. The changes he proposed included extending the option date to 20 December 2016 and deferring payment of the $433,333 fee until settlement of the 45th house sold in the development. As regards the 10 per cent profit share proposed by Mr McKay, Mr Chevin suggested a fixed sum of $99,081. And as regards the milestones proposed by Mr McKay, Mr Chevin said “if these

milestones are to be as onerous as you have outlined in terms of the option expiring,

then we must have the dates pushed out.” Mr Chevin amended the milestone dates by adding a month to each of them.

[68]     Mr McKay responded to Mr Chevin in an email sent later that day saying:

Hi Peter,

My initial concerns with the proposal for discussion are as follows

The initial funding was for 4 months. You now propose 5 months with no change in the return to Otis. Further that fee is now not paid for 12-24 months.

The loss of this first month flows directly from the fact the consultants refuse to work on the project due to their non payment. This contradicts what you advised me from the outset. Ie you advised all consultants were paid up to date.

That there are arrears in costs which I will now need to address significantly changes the risk profile for Otis. Ie you were to cover all of these costs de risking Otis’ position.

That Otis had to pay an additional $415,000 I do not see as at the same level of risk as the initial $1.4 million.

Yet you propose to pro rata the fee.

All in all the terms of the original agreement sees Otis going backwards through no fault of its own. That Otis was to consider entertaining a buy- back was to be on more favourable terms not worse.

Food for thought

Thanks    Ian

[69]     Also on 11 August 2016, Mr Dawson emailed Mr McKay advising that he had assembled his firm’s outstanding invoices, as well as those of the landscape and traffic consultants. He said that he looked forward to working with Mr McKay and getting the project back on track. Mr McKay responded in an email to Mr Dawson at

3:36 pm on 11 August 2016 saying:

Hi Chris,

Just to keep you updated. I am still having dialogue with Mr Chevin but hope to have a plan to move forward with by the end of tomorrow.

Note he hasn’t paid the $25,000 geotec report either. I can only wonder what he did pay.

Thanks Ian

[70]     On Friday 12 August  2016  Mr Chevin  and  Mr McKay had  a telephone conversation during which Mr McKay says he told Mr Chevin that Otis would not agree to the counter proposals he had set out in his email of 11 August and by his amendment to the draft option agreement. Mr Chevin disputes this, saying that he had understood from the conversation that Mr McKay was to get back to him with a response to the comments he had made on the draft agreement.

Comment regarding Mr McKay’s intentions following café meeting on 9 August

[71]     It is apparent that when Mr McKay telephoned Mr Dawson on 9 August

2016, sometime shortly after his meeting with Mr Chevin, he not only discussed arrangements to assemble the outstanding invoices of all the consultants involved in the project, but also the possibility of Otis becoming directly involved in the subdivision project.

[72]      There followed another email sent by Mr McKay to Mr Chevin on 12 August

2016 at 4:19 pm. There is a dispute between the parties concerning this email, as Mr Chevin was later to say that he had not received it until it was re-sent to him as an attachment to an email he received from Mr McKay on 19 August 2016. In the end, nothing turns on whether or not Mr McKay’s 4:19 pm email of 12 August was sent and received on that date or not, as in any event, there can be no doubt that it was re- sent and received by Mr Chevin on 19 August. In the email, Mr McKay wrote:

Hi Peter,

I have  a  reluctance  to  pay the  outstanding or  ongoing consultants  fees. Clearly, you have lost their confidence going forward as the work has ground to a stop.

I do not believe that you can effect a purchase of the property circa $2.3 plus million in the next three months.

I am not prepared to idly sit by waiting for the inevitable nor do I feel obliged legally or otherwise to do so.

My intuition suggests that a reduction in the intensity of the project is warranted to expedite the process and drastically change the RC as lodged.

I feel it best to address a deal whereby I acquire any useable IP either with yourself or the Consultants and we each go our separate ways.

Given the history I made a promise to myself that if you misled me in any way then separate directions was unavoidable.

That $125,000 of [consultants’] fees has not been paid when you expressly told me that there were no outstanding fees is a deal breaker and I feel quite rightly so.

Thanks   Ian

[73]     On Monday 15 August, Mr McKay sent an email to Mr Dawson and copied in the other consultants engaged on the subdivision project including the landscape architect, Mr Michael Graham, and Mr Alasdair Gray, a traffic engineer. Mr McKay asked Mr Dawson to arrange a meeting with Mr Gray and said he wanted to resolve the outstanding invoices and review the project in light of the peer review report. He said:

In the main I wish to see a revised plan whereby the intensity of the project is reduced (circa 4 Lots?) in an endeavour to enable the project to proceed.

I had previously had vague discussions with Mr Chevin [about] buying the property back off  me. The  fact  that  consultants fees  had  not  been  paid directly contradicted what I had been advised by Mr Chevin when I acquired the property.

Accordingly, Mr Chevin will not be involved in the project moving forward. It is my intention to pay all outstanding consultants fees and take possession

of the IP. Can you check for me your respective terms of engagement to establish how best this will be achieved.

ie do I take an assignment of the debt or indeed do you retain the IP being unpaid and you are able to sell me the IP accordingly.

You may be able to guide me of the appropriate structure going forward. Many thanks

Ian McKay

[74]     Later  on  15 August,  Mr  Dawson  advised  Mr  McKay  that  BBO  had  no concerns about the intellectual property issue, and that once all the outstanding debts were cleared, “all of our IP is yours to use as you see fit.”  Arrangements were then made for an initial meeting between Mr McKay and the consultants on 18 August to discuss progressing the subdivision application.

[75]     It is clear from Mr McKay’s earlier email to Mr Dawson on 15 August, and also from his email to Mr Chevin dated 12 August, that by this stage he had decided to discontinue discussions with Mr Chevin about possible buy-back arrangements, and that Otis would thereafter proceed with the subdivision project without any further involvement by Mr Chevin.

[76]     On the basis of the emails produced in evidence, it would appear that either Mr Chevin had not have received Mr McKay’s email of 12 August, or if he did he had overlooked it, because on 16 August 2016 he emailed Mr McKay referring to their telephone conversation on 12 August, saying that he had been expecting to hear back from him in response to his proposals and amendments to the draft option agreement.

[77]     On 18 August Mr McKay met with the project consultants. At this meeting arrangements were made for all the outstanding BBO fee invoices to be readdressed to Otis. Copies of outstanding invoices issued by the Waikato District Council were also to be provided so that the Council’s processing fees for the subdivision application could be paid and steps taken to substitute Otis as the applicant in place of Mr Chevin’s entity, Northern Investors Trust.

[78]     Matters between the parties came to a head on Friday 19 August 2016. In an email he sent at 7:24 am that morning, Mr Chevin asked Mr McKay for a response to his comments on the draft option agreement. Mr McKay emailed a reply at 8:47 am saying “I felt my reply to you last Friday made it very clear that there will be no buy- back.”

[79]     Mr Chevin responded later that morning by email sent 10:45 am saying:

Ian,

I have no idea what you are talking about.

I have not heard from you at all since our telephone conversation last friday.

I emailed you this morning and previously on 16/08/2016.  I have not had any other correspondence from you other than that below (of this morning).

You have not replied.

I have in the interim undertaken the following work.

1.   The new surveyor has been instructed and a subdivision application for the 4 lots on Te Kauwhata will be lodged on or before 01/09/2016.

2.   I have been in discussions with a new funder with the aim to be able to settle with you on or before the 20/11/2016.  These are progressing very well.

3.   The subdivision of the 4 lots is all that is needed to effect settlement with you.

These milestones are in accordance with your offer that you presented [me]

on the meeting of 11/08/2016.

You emailed me this offer on that day.

Whilst I commented back to you on the finer terms of that offer, I have in the interim been progressing the project.  You agreed on the [phone] to respond back to me in those finer terms.

My stance is that we have a buy back arrangement in place and agreed in

[principle]. The fine detail has yet to be mutually agreed.

Thank you

Peter Chevin

[80]     Mr McKay responded in an email sent at 11:54 am on 19 August, to which he attached a copy of his email to Mr Chevin of Friday 12 August, saying:

Peter,

You are just playing games. I wrote to you last Friday and forwarded the same email to you at 9.45 this morning.

A copy of the email text follows.

I deny that there was at any stage an agreement to a buy back. Humour me and articulate the date of the agreement and the terms. Thanks   Ian

[81]     Mr Chevin replied to Mr McKay in an email sent at 12:05 pm on 19 August saying that he had never received Mr McKay’s email of 12 August. He also said that he had been progressing the project and wished to sort the matter out amicably, adding:

… for the record we do have an agreement and we are proceeding on that basis.

[82]     Mr McKay responded almost immediately by email at 12:13pm, saying:

Hi Peter,

Let me be totally clear. There is no buy back and there never was any agreement for a buy back.

You  are  invited  to  articulate  the  terms  you  assert  were  agreed  to  and articulate a date when the alleged agreement was made.

Thanks   Ian

[83]     Shortly following his receipt of Mr McKay’s 12:13 pm email on 19 August, Mr Chevin instructed his solicitors to lodge a caveat on the title of the property and said that he would send them a copy of the draft agreement he had been given by Mr McKay at their meeting on 9 August 2016.

[84]     Later on 19 August, and shortly following the email exchange between Mr McKay and Mr Chevin, Mr Dawson emailed Mr McKay attaching copies of his firm’s outstanding fee invoices which had been readdressed to Otis. He also attached correspondence from the Waikato District Council enclosing an invoice for their outstanding processing charges. That day, Mr Dawson also advised the Council that BBO’s  client  had  changed,  and  that  Mr  Chevin  was  no  longer involved  in  the project. He further advised that Mr McKay was the firm’s new client and that it was planned to get the subdivision project back on track, which would involve reducing the number of lots in the proposal.

[85]     It is clear from the emails exchanged between Mr Dawson and Mr McKay from the afternoon of 19 August, that BBO having been informed that Otis had purchased the property and following arrangements to settle their fee accounts, were, at Mr McKay’s request, moving promptly to reactivate and progress the subdivision application. Mr Chevin also proceeded on the basis that CWIL continued to have an interest in the property. On 23 August he sought to engage another firm of surveyors and  emailed  David  McKracken  Surveyors,  saying that  Northern  Investors  Trust needed a quick and simple subdivision consent lodged with the Council by the last day of August. Mr McCracken responded expressing confusion, saying that he was aware  that  BBO  were  already  engaged  to  prepare  and  manage  the  subdivision

application.  Mr McKracken said in evidence that thereafter he heard nothing further from Mr Chevin.

[86]     Mr Chevin and CWIL’s solicitors lodged a caveat against the title of the property on 23 August 2016. The interest claimed supporting the caveat was: “By virtue of a constructive trust created on or about 20 July 2016 pursuant to which the registered proprietor holds the property as trustee on trust for the caveator as beneficiary.” By judgment dated 25 November 2016 Associate Judge Bell held that

CWIL did not have a caveatable interest in the property:3

While it may have arguable claims against Otis arising out of negotiations between 18 and 20 July 2016 and the failure of any firm financing arrangement to eventuate, those claims could not result in the court granting relief recognising a current interest in the property. Clear White can hope for only monetary relief  at best. Accordingly it  does not  have  a caveatable interest in the land.

Soil contamination on the property

[87]     As Mr Dawson and BBO resumed work on the project they soon discovered that a contamination report prepared by the engineering firm GHD which had been relied on by Mr Chevin and Northern Investors Trust for the purpose of the subdivision application lodged in May 2016 was not considered suitable for use in

2016. Mr Dawson reported to Mr McKay that he had spoken to the author of the report, Mr Wijnand Udema, who had said he had told Mr Chevin very clearly that the report was not suitable for use in support of the subdivision application, but that Mr Chevin had not acted on that advice.

[88]     In an email sent to Mr Chevin on 4 February 2016, Mr Udema of GHD referred to the 2008 site investigation report and the finding of elevated contaminant concentrations which would require disposal of the contaminated soil before work commenced on the property.  In a subsequent email he sent to Mr Chevin on 15 June

2016, Mr Udema referred to discussions between them and said:

As discussed previously – the approach of updating the 2008 report and recommending, validation sampling to assess the suitability for residential land use after development had inherent risk – in that council may not accept the approach. Our proposal recommended engaging with council first to

3      Clear White Investments Ltd v Otis Trustee Ltd [2016] NZHC 2823 at [71].

discuss this. It is clear from the response from council that the approach is not acceptable, and that soil sampling will be required. Furthermore, they have also outlined that a Contaminated Land Management Plan would be required – as itemized in our proposal.

[89]     It appears that Mr Chevin had not previously told Mr Dawson what Mr

Udema had said.  Mr Dawson emailed Mr McKay on 24 August 2016, advising:

We had a good discussion yesterday with Wijnand Udema from GHD. He was the author of the contamination report for the Travers Road site in

2006.4

The original report (now 10 years old) was not fit for purpose in a 2016 consenting environment and GHD had told Peter [Chevin] that very clearly, however Peter did not take their advice and tried to pass it off as a modern, up to date report.

Wijnand has undertaken to send me through a fee proposal for a proper contamination  assessment  of  the  site  under  the  NES  guidelines  so  that Council will be happy with it.

…..

[90]    When Mr Chevin provided Mr McKay with documents and information regarding the property following their initial discussions of 18 and 19 July 2016, he had not included a copy of the March 2016 GHD report in which the presence of contamination was found and reported on. Under cross-examination, Mr Chevin explained that at that time he did not consider the contamination report to be relevant to the negotiations regarding Mr McKay’s willingness to purchase the property in order to “warehouse the land on a buyback” arrangement, adding that he did not think the contamination of the property was a serious issue. However he was also confronted in cross-examination with the email sent to him by Mr Udema on 15 June

2016.

[91]     While not providing Mr McKay with the GHD report on contamination, on

18 July 2016 Mr Chevin did provide him with a copy of an estimate by Knaggs

Construction Limited, dated 15 July 2016, for the cost of the civil works of the

4      The March 2016 report referred to is produced in evidence. It was prepared by GHD Limited for Northern Investors Trustees Limited to assess contamination risks at the property and to update a site investigation report undertaken by GHD in 2008, not 2006 as referred to in Mr Dawson’s email. The report concluded that the soil contaminant concentrations detected for heavy metals were above the selected human health guidelines, and recommended: “To enable the proposed subdivision works to commence it is recommended that the soil validation sampling is undertaken to demonstrate suitability for residential land use……”

project. This costing included a sum of $65,000 as an allowance to remove contaminated material. However Mr Chevin made no mention to Mr McKay of any issues relating to a need for further testing for contamination, as had been reported to him by Mr Udema in his 15 June 2016 email.   As a consequence of Mr Chevin withholding the March 2016 GHD report, and not informing Mr McKay that GHD had advised him that a full up to date Contaminated Land Management Report would be required by the Council, Mr McKay was left with the impression that site contamination was not a major problem and that the $60,000 allowed for by Knaggs Construction was a reliable indication of the likely cost of any remediation.

[92]     Mr McKay explained in his evidence that he only became aware of the presence of arsenic contamination of the soil at the property on 26 August 2016 when he engaged GHD to undertake testing of the soil and the preparation of a report to support the Otis application for consent to subdivide and develop the property. The GHD report commissioned by Otis in August 2016, is dated November 2016. That report concluded that the soil contamination concentrations detected for lead and arsenic are above the applicable human health guideline values, and represent a risk to human health. Based on the findings, GHD advised that approximately 26,844

m2 of the site is affected by arsenic above the soil NES5  remedial target level of

20mg/kg, and that topsoil removal to a depth of 100mm would yield an estimated quantity of 2,684m3 for removal and disposal. The report further noted that a sampling programme would be necessary following removal of the target topsoil to determine the presence of any remaining contamination.   Mr McKay further explained in evidence that there is a possibility that more than 100mm depth of topsoil may need to be removed to achieve effective remediation.

[93]     Otis has produced a contractor’s quote for removing the contaminated soil. The estimated cost of removing the soil to a depth of 100mm is around $240,000 plus  GST.  That  would  be  the  first  stage  and  would  be  followed  by  testing  to determine whether further soil would also need to be removed. Mr Chevin accepted in cross-examination that in his experience up to 300mm may need to be removed to ensure that all the contaminated soil was removed and that the potential cost of doing

so would exceed $700,000 plus GST.

5      National Environmental Standard.

[94]     On 30 August 2016, BBO provided Mr McKay and Otis with a fee offer to cover their services  for  completion  of the planning process  and  the design  and management of the civil works, including the survey of titles for the subdivision.

[95]     On 7 September 2016, Mr McKay sent an email to Mr Chevin requiring him to remove the horses that were being adjisted on the property and also requiring the occupants of the house on the property to vacate it immediately. The horses on the property belonged to Mr Chevin’s daughter. Mr Chevin interpreted this message from  Mr  McKay  as  indicating  that  he  was  endeavouring  to  take  over  the development and was ignoring any suggestion that a buy-back arrangement had been agreed to – at least in principle. Mr Chevin responded by email to Mr McKay the same day saying:

Ian

This email is sent on a without prejudice basis.6

Firstly, you will be aware that we have lodged a caveat on the title to protect our obvious legal interest in the land.

Your stated position is quite wrong and we have gone to great lengths to confirm this from a legal point at our end.

Your continued pursuit of denial of the buy back arrangements only makes the inevitable cost to you in this matter greater.

Can I suggest that we arrange a meeting at our lawyers with a view to concluding the buy back sooner than later. Clearly your stance indicates that we will have difficulty in working over the medium term to complete the buy back as arranged and an early exit for you may well be better for all.

[96]     Mr McKay responded by another email sent on 7 September 2016:

Peter,

Also on a without prejudice basis.

You are welcome to make a without prejudice offer at any time you choose albeit this is not my preferred option.

Given the project continues and has changed without your involvement the earlier the better.

Short of that, given my intimate knowledge of the background to events I

have no concerns that the Caveat will be sustainable.

6      Both parties produced these emails in evidence, and waived privilege.

In the meantime, the horses are preventing access to the site for development works and need to be removed ASAP. The same with any occupants of the house.

We ask that these concerns be addressed immediately.

[97]     By letter dated 14 September 2016, Mr Chevin and CWIL’s solicitors wrote to  Otis’s  solicitors  claiming that  Otis  held  the property as  a trustee  of CWIL’s contribution to the property including the deposit paid, and asserting that a buy-back arrangement had been made at or around the time of the transfer of the property on

20 July 2016. They claimed that the parties were, at all times, proceeding on the basis of Otis being party to a structured finance arrangement rather than being an outright purchaser of the property. These claims were promptly rejected by Otis. CWIL issued these proceedings on 5 October 2016.

[98]     Otis submitted its own application to the Council in October 2016 seeking subdivision approval for 62 residential lots. Although the March 2016 GHD contamination report was submitted to the Council with this application it was accompanied by advice that, because of concerns about contamination, a further and updated report was being obtained which would be submitted as soon as available.

The current state of the development project

[99]     As matters stood at the date of hearing, the application by Otis for resource consent was still to be determined.  Mr Dawson said in his evidence that although BBO and Otis have endeavoured to push ahead with the application as quickly as possible, they have had to address technical questions from the Council in relation to storm water, waste water and traffic issues. Mr Dawson explained that in his opinion the CWIL application was pushing the limits in terms of the number of lots it was seeking approval for and would have encountered significant challenges in obtaining approval.

The Otis open offer of settlement

[100]   By letter of 8 November 2016, Otis and Mr McKay forwarded a settlement proposal to CWIL made on an open basis. The proposal was for CWIL to purchase

the property with settlement due on 20 November 2016. The settlement sum being

$2,520,234, made up as follows:

(a)       $1,811,463: settlement sum paid by Otis on 20 July 2016.

(b)      $266,667: underwrite fee based on Mr Chevin’s original proposal of

$200,000 for three months and extrapolated on account of the actual four month period.

(c)       $93,333:  funding  fee  based  on  Mr  Chevin’s  original  proposal  of

$70,000 for three months and extrapolated on account of the actual four month period.

(d)$73,333: interest on the amounts referred to in (a), (b) and (c) at 12.5 per cent.

(e)       $99,081:  funding  costs  on  the  additional  $400,000  to  settle,  as proposed by Mr Chevin in his email of 11 August 2016.

(f)       $176,357: repayment of consultancy fees paid by Otis. [101]   The offer was not accepted or taken up by CWIL.

CWIL’s theory of the case

[102]   Ms Heatlie, for Mr Chevin, submits that Mr Chevin and Mr McKay reached agreement in the course of their meeting on 19 July, whereby Mr McKay offered to advance both the $1.4 million and the additional $400,000 required for settlement of the property. She says that this is apparent because Mr McKay remained enthusiastic, despite being told by Mr Chevin that he was no longer in a position to contribute

$400,000 towards the settlement sum. Ms Heatlie says that thereafter all that was required to be decided was the fee to be applied to the additional $400,000 and the penalty interest required to be paid on settlement of the purchase. On that basis, Mr Chevin understood that an agreement had been reached and he had advised his solicitors that he and Mr McKay had agreed a deal to settle the purchase. Ms Heatlie

further submits that the agreement for sale and purchase of the property between CWIL and Otis was, in substance, the first stage of a structured loan arrangement. She submits that the sale to Otis was the means by which Otis took security for the loan advance and it was included in the agreement that CWIL had the right to purchase the property back from Otis in four months on 20 November 2016, by repaying the loan and paying the fees and interest. That loan structure was only employed at Mr McKay’s suggestion and, using Mr McKay’s words, in order: “to simplify the structure given time constraints.”   The details of the fee and interest were left unresolved by the parties because they were necessarily, and by reason of the  attendant  time  constraints,  focusing  their  attention  on  the  need  to  get  the purchase settled.  Both parties proceeded on the basis that they would agree on the outstanding details once the settlement had been effected.

[103]   Ms Heatlie says that, thereafter, Mr McKay refused to enter into a written agreement to evidence the buy-back agreement despite being repeatedly requested to do so by Mr Chevin. She says that Mr McKay led Mr Chevin to believe that entering into a formal written buy-back agreement was a mere formality and that the delay in doing so was because he said he was taking time to consider other ways in which he might add value to the development. On that pretext, says Ms Heatlie, Mr McKay extracted valuable information regarding the project from Mr Chevin and positioned himself and Otis to take over the project. Relying on these assurances, Mr Chevin allowed the transfer to Otis to proceed. Ms Heatlie says that Mr Chevin would not have agreed to an outright sale to Otis for an undervalued price of $1,800,000, nor would he have agreed to a sale without there being an agreement that gave CWIL the right to buy the property back in four months. She says that having regard to its payment of the $200,000 deposit, the obligation to repay the lenders of the deposit money, and the increase in value brought about by Mr Chevin’s efforts, Mr Chevin and CWIL could not afford to walk away from the purchase.    She further submits that, since settling the purchase, Mr McKay and Otis have pursued the subdivision project themselves and have effectively hijacked the property and the development opportunity.

[131]   When comparing and considering which of the two versions I should accept as reliable, it is relevant to first have regard to the context of the discussion that took place on 19 July at the Albany café.   By the time Mr Chevin made his initial approach to Mr McKay on 18 July 2016, he was in a desperate commercial and

financial situation, which was entirely of his own making. That situation is relevant to any review of what happened in the course of the negotiations between the two men.  If  Mr  Chevin  could  not  come  up  with  the  funds  necessary  to  settle  the purchase, he and the company stood to lose the $200,000 deposit that had been borrowed, as well as the value of whatever time and funds had been expended on the subdivision  project  and  the  business  opportunity  it  provided.  While  subsequent events have shown that Mr Chevin’s plans for the project were unrealistically optimistic and  ambitious, it is relevant to note when considering his motivations as at 18 July that he had assessed the profit achievable from the project as being just under $6,000,000.

[132]   Mr Chevin’s desperate and precarious situation as at 18 July 2016 had its origins back on 15 December 2015 when he had signed the agreement for sale and purchase by which CWIL agreed to pay $2,000,000 for the property with settlement on 1 July 2016.   Although the agreement was conditional on the purchaser undertaking a due diligence investigation of the property to determine its financial suitability and commercial viability for the purchaser’s proposed subdivision development,  the  agreement  contained  no  condition  making  it  subject  to  the purchaser  arranging  finance  on  acceptable  terms.  Significantly,  CWIL  and  Mr Chevin had to borrow the entire $200,000 deposit required by the agreement and had made no arrangements to borrow the balance of $1,800,000 required to settle the purchase.

[133]    Mr  Chevin  was,  at  the  time,  prohibited  from  being  involved  in  the management of a company and from being a director of a company.  As I have noted above, on 11 October 2012 he was convicted of being involved in the management of a company while prohibited, and pursuant to s 382 of the Companies Act 1993 automatically further prohibited from acting as a director or being involved in the management of a company for a period of five years. Mr Chevin claims not to have been aware of the prohibition at the time he signed the agreement on behalf of CWIL.   He says he knew nothing of the prohibition until much later, when he learned in late January 2017 that his s 220 Crimes Act convictions entered on 8

August 2016 had resulted in an automatic prohibition. Whether or not Mr Chevin knew that he was subject to a prohibition is not clear. Nevertheless, his actions in

signing   the   agreement   by   which   CWIL  would   purchase   the   property   and subsequently having CWIL declare the agreement unconditional without having first arranged the necessary finance and without any prospect of being able to borrow the finance, was to say the least, reckless.  With his extensive history of financial failure and  having been  bankrupted three times,  he had  no  ability to  either  borrow or guarantee borrowings from any bank or lending institution.

[134]   Mr Chevin explained in his evidence that once the agreement to purchase the property became unconditional and CWIL thereby became liable to settle on 1 July

2016, he had backed himself to arrange the finance required for settlement. With no ability  himself  to  borrow  or  arrange  the  finance  from  any  bank  or  financial institution,  Mr  Chevin  was  limited  to  seeking  finance  from  a  small  number  of persons with whom he had had previous financial dealings. It is clear from the evidence and the email correspondence between Mr Chevin and his potential sources of finance that even those persons were not prepared to lend money directly to either him or CWIL.  Mr Chevin initially sought to get around this problem by looking to arrange for a suitable person willing to either accept appointment as director of CWIL and personally guarantee the borrowings, or to step in as the purchaser and developer and front for CWIL or himself, while he continued to actually manage and run the subdivision project.

[135]   As I have previously described, Mr Chevin had discussions about finance for the purchase with Mr Turner, Mr Peoples and Mr Edney in an endeavour to find a way of arranging the required settlement money. Despite his efforts, by the morning of 18 July 2016, he had failed to arrange anything and had run out of options. As his last “throw of the dice”, he contacted Mr McKay to try to get him to agree to step in as borrower and guarantor and, when that did not work, he tried to get Mr McKay to lend the required settlement money. In each case he proposed that Mr McKay and his company would be well compensated by way of a $200,000 finance fee.  When that further strategy was also rejected by Mr McKay, he had exhausted all his possible options to fund the purchase of the property. It was at this point that Mr McKay offered to purchase the property with Otis as the purchaser.   I consider that the evidence establishes that Mr Chevin agreed, as it was the only way by which the settlement of CWIL’s purchase could be achieved and cancellation of the purchase

agreement avoided.  It is clear that Mr Chevin operates his business activities with little or no capital backing and is prepared to take huge commercial risks.  I have no doubt that  when  confronted with  the certainty of losing the CWIL deposit  and cancellation of the purchase agreement on one hand, and the possibility of dealing with Mr McKay and having an ongoing involvement in the development,  from which he thought he could possibly attract some financial benefit, he did not hesitate to adopt the latter course.

[136]   While I accept that the possibility of a buy-back by CWIL was discussed between the two men, I find that nothing was finalised or agreed between them regarding a buy-back.   The subject of a possible future buy-back was entirely put aside and left to be discussed again at a later stage, after Otis had completed the purchase.   I find that there was no promise or commitment made by Mr McKay regarding a buy-back, and that nothing said or done by Mr McKay would have indicated to Mr Chevin that either he or CWIL had any certainty of being able to buy back the property.   At most, all that Mr Chevin had was a hope that through his ongoing co-operation with Mr McKay an opportunity would arise that would enable him and CWIL to participate in the development, or extract a fee or other financial benefit.

[137] As matters transpired following settlement, Mr McKay did engage in discussions with Mr Chevin about the possibility of CWIL buying the property and as to the terms upon which that might occur, but no agreement was ever reached and no promise was ever made to allow CWIL to purchase the property back in the future. While Mr McKay approached those discussions in good faith, they were justifiably terminated by him following his discovery that Mr Chevin had misled him in relation to the consultants’ fees and as to the presence of significant soil contamination on the property.

[138]    In rejecting Mr Chevin’s account of the crucial meeting of 19 July 2016 and accepting Mr McKay’s, I have had regard to a number of matters that inform my assessment of Mr Chevin’s credibility and reliability in general. Mr Chevin’s commercial background has been characterised by successive failures resulting in bankruptcies. He has clearly been engaged in the active and direct management of

company  business  for  CWIL,  as  well  as  other  entities,  contrary  to  the  legal prohibition that he was subject to. The more recent ploy of appointing his brother-in- law as the director of CWIL in January 2017 and  claiming that he takes instructions from his brother-in-law is unmasked by the extensive evidence which shows that Mr Chevin was making decisions and actively managing all aspects of the CWIL business. These actions, in my view demonstrate his willingness to artfully mislead those with whom he does business and to do whatever he considers best suits his ends.

[139]   Further, there are specific examples of Mr Chevin acting deceptively in his dealings with the consultants. Mr Chevin manipulated, exploited and misled the consultants by engaging them to undertake extensive work on the subdivision project when he and his interests had no ability to meet their fees. This illustrates his general lack of probity and reflects poorly on his credibility.

[140]   Apart from Mr Chevin’s lack of credibility, there were also aspects of his evidence that indicated that Mr McKay’s account of the crucial discussion at the meeting on 19 July is to be preferred and accepted over Mr Chevin’s. The first such matter is the absence of any written agreement providing for CWIL to buy the property back from Otis upon repayment of the loan money. Although Otis took a transfer of the property, had this been for the purpose of Otis taking security while the loan was outstanding,  I consider that, having regard to the  commercial and property experience of these parties, the documentation would have been prepared to record that, notwithstanding the time pressures. It would have been a simple matter to record either in an agreement or even by way of an exchange of correspondence that the transaction was in the nature of a financing arrangement and that CWIL had the right to buy back the property upon repayment of the loan and any agreed financing fee.

[141]    When Mr Chevin and Mr McKay had been involved in an earlier transaction in  which  Mr  McKay’s  company  provided  short  term  finance  to  Mr  Chevin’s company,  the  transaction  was  documented  by  means  of  two  formal  written agreements for sale and purchase, one of which contained the terms upon which it was agreed that a buy-back would take place subject to compliance with conditions.

Similarly, when Mr Chevin proposed in his email of 21 June 2016 to Mr Peoples that he become the purchaser, it was on the basis that a written agreement for sale and purchase  would  be  entered  into  entitling CWIL to  buy back  the property upon repayment of the loan plus a finance fee. Here however, despite both men being experienced in business and despite Mr Chevin’s prior use of that method of transferring a property to be held as security coupled with a formal written buy-back agreement, at no stage during the discussions on 19 July did he suggest that was required. Furthermore, while Mr Chevin did raise the issue of buy-back after the settlement on 20 July and he did request the preparation of a buy-back agreement, he did not do so on the basis that a buy-back had already been agreed on or that the preparation of a written buy-back agreement formed part of the arrangements entered into on 19 July. In my view, the absence of any reference to a buy-back arrangement, either   by   being   recorded   formally   in   an   agreement   or   less   formally   in correspondence, is a clear indication that Mr Chevin’s account of the conversation is both unreliable and incorrect.

[142]   Mr Chevin says that he would never have agreed to transfer the property for the same amount as CWIL was required to pay to settle its purchase, as that would be at a significant undervalue, having regard to the original purchase price of $2 million and the amount expended on consultants, as well as time applied in progressing the subdivision development. However, that proposition fails to recognise that by 19

July Mr Chevin simply had no alternative. If he had allowed the settlement date to pass without effecting settlement, the vendors would have cancelled the agreement and forfeited the deposit, leaving Mr Chevin and CWIL with nothing to show for the time and effort put into the subdivision project and with a liability to repay Mr Peoples the $200,000 sum he had advanced to fund the payment of the deposit.  In addition, given Mr Chevin’s optimistic view of the prospects of the success of the development, I consider that he would have been strongly motivated to avoid cancellation of the purchase contract, even if it meant that the sale price would yield no more than CWIL was required to pay in settlement of the purchase. Although Mr McKay expressed uncertainty as to what he would do with the property, continuing with the subdivision application and the development was a likely way forward. As I have said, Mr Chevin must have considered that he would have a good chance of remaining involved because of his knowledge of the project. From that position, he

would  have  seen  himself  as  able  to  work  with  Mr  McKay  on  the  project  and negotiate a fee or a share in the profit. However, I am not satisfied that the sale of the property to Otis at $1.8 million was at an undervalue.  The Telfer Young valuation at

$2.35 million cannot be regarded as a realistic and reliable valuation of the property as it stood in July 2016. The valuation was prepared based on an assumption that the property was immediately able to be approved for subdivision as if it was in the stage one zone, when in fact it was in the stage two zone. While Mr Chevin was confident of obtaining the Council’s approval for the subdivision application and had made some progress towards doing so, that approval was yet to be obtained. Moreover, the rating value of the property was only around $800,000 and the only way for Otis to recover the purchase price of $1.8 million would be to invest more money in order to obtain approval for the subdivision and thereafter either sell the approved development package to another developer or undertake the development itself.

[143]   Furthermore, the valuation was based on a 68 lot subdivision and despite the reduction to a 62 lot subdivision, Telfer Young appears not to have been informed of this change by Mr Chevin, despite it having been made in June 2016, well before he requested them to prepare a revised and increased valuation based on the assumption that the property was able to be approved for subdivision as being in stage one rather than stage two.  Similarly, Telfer Young had not been advised of the possible extent of the soil contamination issue and had not factored that aspect into their valuation report.

[144]   I consider that Mr Chevin, as a result of his own actions, had found himself with little or no bargaining power when dealing with Mr McKay and his current claim that he would never have sold outright for $1.8 million to Otis, in my view, is little more than a self-serving reconstruction, which he has fashioned to suit his present situation.

[145]   By contrast, Mr McKay’s actions and communications following the meeting on 19 July and the settlement of the purchase on 20 July are all consistent with him proceeding on the basis that an outright sale and purchase had taken place. He does not  dispute  that  there  were  discussions  about  the  possibility  of  a  buy-back

agreement, but says that there was certainly no concluded agreement, promise or commitment that such buy-back agreement would be entered into.

[146]   The emailed communications passing between Mr McKay and Mr Chevin and his solicitors from 19 July onwards are consistent with there being no concluded buy-back arrangement or agreement coupled with the purchase of the property by Otis. When asked by Mr Chevin’s solicitor whether the terms of the buy-back had been agreed, Mr McKay immediately responded that they were only focusing on settling  the  purchase  at  that  stage.  Similarly,  when  responding  to  Mr  Chevin’s request that he “throw down some thoughts and we can get this started”, Mr McKay responded saying that while he could understand Mr Chevin’s concerns, he was not sure of what structure the parties should use. I consider that both Mr Chevin’s and Mr McKay’s emails clearly establish that no agreement regarding a buy-back had been reached or entered into. For his part Mr Chevin spoke of wishing to “get this started.” He must  have  been  referring to  starting the process  of discussing and negotiating the terms of a buy-back and he certainly was not suggesting that an agreement had already been reached. In Mr McKay’s case, he speaks of being unsure of what structure, “we will agree on.” That is a clear indication that no agreement had yet been entered into regarding a buy-back and the subject remained for future discussion. Furthermore, in email communications between Mr Chevin’s solicitors and Otis’s solicitors on 20 July and prior to settlement, no mention was made by Mr Chevin’s solicitors of any collateral arrangement for a buy-back of the property by CWIL. All communications were in terms consistent with the transaction being an outright purchase by Otis.

[147]   When  Mr  Chevin  and  Mr  McKay  met  on  9 August  to  discuss  working together on the subdivision project and a possible buy-back arrangement, Mr McKay presented his typed “Draft Agreement”, in which he referred to CWIL having an option to buy back the property.  The wording of this document is consistent with there being no previously concluded buy-back agreement. This was the meeting at which Mr Chevin informed Mr McKay that, contrary to his earlier statements, the project consultants had not been paid and were still owed around $150,000. By engaging in discussions regarding the terms of a buy-back arrangement and what would be the applicable finance fees, Mr McKay and Mr Chevin were addressing the

possibility of Otis only retaining the property for a short time and therefore treating the funds employed in the purchase as being a loan to CWIL in respect of which finance fees and interest would be charged. The fact that they engaged in these discussions does not alter the true character of the initial transaction which was conducted as an outright sale and purchase. By entering into these negotiations, Mr McKay was proceeding, in good faith, to follow through with his earlier arrangement with Mr Chevin, that he and Otis would entertain the possibility of CWIL buying back the property, if suitable terms could be agreed.

[148]   I also consider that Mr Chevin had intentionally misled Mr McKay when he told him that $150,000 had already been paid in meeting consultants’ fees for the project. Mr McKay says that Mr Chevin told him that from the outset, before Otis had entered into the agreement to purchase the property. It was clearly a statement intended to convey to Mr McKay that considerable value had been added to the development project by the expenditure of that sum, thereby making the proposal for Otis to become involved more attractive. Subsequently, when meeting on 9 August to discuss  the  draft  agreement,  Mr  Chevin  revealed  for  the  first  time  that  the consultants had not been paid and that a sum of approximately $150,000 was outstanding. As a direct consequence of learning this, Mr McKay prepared a revised draft option agreement that same day in which he included an additional provision that would have seen Otis either paying or underwriting the consultants’ fees of approximately $150,000 as part of the buy-back option agreement then under negotiation.

[149]   However, a major issue then arose when Mr McKay discovered that there was soil contamination on the property which Mr Chevin had not told him about. Mr McKay reconsidered his position and whether he wished to continue to have any further involvement with Mr Chevin. This led to Mr McKay sending Mr Chevin the email of 11 August 2016 expressing his concerns and meeting with Mr Dawson to discuss the subdivision project to ascertain what was required if he were to decide to progress it himself. This was a rational and sensible commercial approach for him to take, having lost all confidence in Mr Chevin. By doing so he did not hijack the project as Mr Chevin alleges. There is simply no evidence to suggest that Mr McKay had earlier employed a strategy of purchasing the property with the intention of

ignoring  any  buy-back  arrangement  in  order  to  take  over  the  development  for himself and Otis. In fact, to the contrary, Mr McKay in my view acted with commercial integrity throughout, including when dealing with Mr Chevin and the development project consultants.

[150]   Having  ascertained  the  position  of  the  subdivision  application  from  Mr Dawson and concluded that Mr Chevin had misled him in relation to the payment of consultants’ fees and other matters, Mr McKay advised Mr Chevin by his email of

12 August 2016 that he had no confidence in his or CWIL’s ability to be in a position to purchase the property back from Otis in some three months’ time. That being the case, there was simply no point in continuing with negotiations regarding a buy-back and treating the past purchase as if it were a loan which warranted a finance fee and a percentage share of the development profit.

[151]   As I have noted earlier, Mr Chevin says he did not receive Mr McKay’s 12

August email on that date. He says that he saw that email for the first time on 19

August. At that time, Mr Chevin for the first time alleged that a buy-back agreement had been entered into “in principle” with only the finer details yet to be agreed. I consider that to be a clear acknowledgement that there was never any concluded agreement as to the terms of a buy-back agreement.  The “fine detail” that he refers to, was in fact much more than that, as is apparent from the draft option agreement setting out a series of preconditions for a buy-back and which was expressly “subject to contract”.   I consider that this description of the situation by Mr Chevin lends further support to Mr McKay’s position.

[152]   Quite apart from  the inherently implausible nature of his account of the crucial discussions between Mr McKay and himself and his woeful commercial history in which he has exhibited a deplorable level of probity, he did not impress me as a reliable witness. In the course of his evidence, he sought to advance quite untenable propositions regarding making arrangements for finance and sought to justify his misleading of the contractors and his manipulation of those around him. His claim to now be working for CWIL and acting upon instructions given to him by his brother-in-law flies in the face of evidence which shows him to still be the effective controlling mind behind the plaintiff.   For all those reasons, I find Mr

Chevin’s evidence to be unreliable, and I prefer the evidence of Mr McKay wherever their accounts differ as to what transpired between them.

[153]   In summary, for the reasons I have set out, I find that, contrary to CWIL and Mr Chevin’s claim, there was never any agreement entitling CWIL to buy back the property after it had sold and transferred it to Otis on 20 July 2016. I further find that the sale to Otis was an outright sale and not part of a structured loan transaction by which Otis took a transfer of the property to hold it as security for the loan. Put simply, I find that the $1.8 million sum paid by Otis was consideration for the purchase of the property and was not advanced by way of a loan to CWIL. The subsequent discussions and negotiations between Mr Chevin and Mr McKay regarding the terms on which Otis might be prepared to sell the property back to CWIL after three or four months were never more than negotiations which, in the end, did not result in an agreement.

Application of the legal principles relied on by the plaintiff

[154]   Here CWIL submits that its transfer of the property to Otis on 20 July 2016 was  made  on  a  non-consensual  basis,  falling  within  the  third  of  the  three propositions described by the Court of Appeal in Paugra. CWIL claims that Otis hi- jacked  the  property and  development  by misleading  CWIL,  by promising    that following the transfer CWIL would be entitled to purchase the property back from Otis. Ms Heatlie submits that the present case is analogous to the circumstances that arose in Avondale Printers wherein Mahon J held that a constructive trust had arisen by law  where  it  would  be  a  fraud  for  the  legal  owner  to  assert  his  beneficial

interest.13

[155]   However, in Avondale Printers, Mahon J made a factual finding by which he rejected the claim made by the purchaser of the property, that the purchase had been made without any arrangements having been entered into which had led to another party having a right  of purchase abandoning  their right  on  the strength  of oral

promises.  His Honour said:14

13     Citing Bannister v Bannister [1948] 2 All ER 133 (CA).

14     Avondale Printers & Stationary v Haggie, above n 10, at p 164.

What the plaintiff relies upon is the common intention of the parties evidenced by the promise or undertaking of Haggie which was acted upon by Thomas in permitting Haggie to complete the land purchase, and it is clear from the decision in Gissing v Gissing that conduct in breach of a common intention, even where no concluded oral contract is proved, will be sufficient to create a constructive trust, provided always that the conduct of the legal owner is fraudulent in equity or at law.

In the present case these conditions in my opinion are fulfilled.

[156]   Mahon J described the question as being whether the transferor would have parted with his property but for the oral undertaking of the transferee and observed that a renunciation of the promise or a disavowal of a common intention will operate in equity as a fraud. Mahon J observed that the existence of a constructive trust is not necessarily dependent upon agreement or common intention, although it usually is. His Honour observed that a constructive trust will also arise where it would be a fraud for the legal owner to assert their beneficial interest and commented that the key to this type of inquiry lies in the question whether the transferor would have parted with their property but for the oral undertaking of the transferee.   If the answer is in the negative, “then renunciation of the promise or disavowal of the common intention will operate in equity as a fraud on the transferor and entitle him

to the appropriate remedy.”15

[157]   In addition to addressing whether or not the plaintiff has established the existence of a common intention between the parties that the transfer of property was undertaken as part of a short term financing transaction, I have also considered whether Otis’s refusal to transfer the property back to CWIL amounts to a fraud on CWIL.

[158]   Here CWIL has failed to prove any parol statements made by Mr McKay, either prior to or subsequent to the transfer, which would provide a basis for the application of the principles described by Mahon J in Avondale Printers. I find that CWIL as transferor has not shown that it would not have transferred the property to Otis but for an oral undertaking made by or on behalf of Otis to transfer the property back to CWIL upon repayment of money advanced as a loan and the payment of a

reasonable financing fee. As I have said, in my view CWIL proceeded to transfer the

15     At 145.

property to Otis pursuant to a written agreement for sale and purchase by which Otis purchased the property outright and thereby became both the legal and beneficial owner. Otis made no representation or promise and gave no undertaking to either CWIL or Mr Chevin that amounted to an undertaking or commitment entitling CWIL to buy back the property, or to redeem the property by repayment of a loan of the purchase price and a financing fee.  Accordingly, I find that Otis’s refusal to transfer or agree to sell the property back to CWIL does not involve a renunciation of a promise to do so.  In my view, Otis’s refusal does not operate as a fraud on CWIL thereby entitling it to a remedy.

[159]   Accordingly, the plaintiff’s submission that the transfer was non-consensual also fails. The sum paid by Otis for the property was not at “undervalue” as the plaintiff alleges, but rather reflected the commercial reality and context in which CWIL was on the very brink of cancellation of the agreement and losing both its deposit and the opportunity to develop the subdivision that Mr Chevin had already invested considerable time in. With a sale to Otis, and with Mr McKay being willing to discuss the various possibilities for the property which included possibly selling it back to CWIL after negotiating a substantial finance fee, or alternatively proceeding to undertake the development itself, Mr Chevin would have seen an opening to use his detailed knowledge of the development and negotiate himself and CWIL into regaining an interest in the property and the development project. That being the case, I consider that Mr Chevin’s claim that he and CWIL would not have sold the property for $1.8 million in the absence of an arrangement with Otis entitling it to be purchased back, has no credibility or foundation, and I reject it.

[160]   This is shown by Mr McKay’s evidence under cross-examination:

Counsel: So you got a pretty good deal then, didn’t you, Mr McKay?

Mr McKay: I don’t believe so at all, and in hindsight it’s far from a good deal. I’ve paid $1.8 million for piece of land that is heavily contaminated. And I’ve had to, because I was misled in terms of consultants, I’ve had to pay in excess of $200,000 to try to get a resource consent with no guarantees of getting a resource consent. I’ve taken immense risk that I never envisaged that I would have to do. I have spent a significant amount of time to try to overcome the problems or the peer review. So I am…its absolutely wrong to say I’ve got a great deal. I’ve been dropped in it....

….Nobody else is going to buy a property which a premium had been paid for, in my eyes, that is heavily contaminated and has a peer review which is damning, in terms of the subdivision, and the peer review which the council have indicated that they will notify and the council, and the advice I got

…was that not only would it be notified but the council would oppose the

application.

[161]   Mr  Chevin  had  signed  the  purchase  agreement  on  behalf  of  CWIL and committed the company to what became an unconditional contract. His conduct in relation to this transaction closely replicated his previous reckless commercial behaviour that had caused substantial losses and which had led to him being prohibited from being involved in the management of a company or as a director in

2008. Here in relation to the purchase agreement and the subdivision development project he again acted rashly by committing CWIL to a contract without any realistic prospect of either the company or himself being able to borrow the money necessary to complete the purchase. By his actions in relation to the property and the subdivision development, Mr Chevin put those with whom he dealt at considerable financial and commercial risk. The purpose of the statutory prohibition imposed by s 382 of the Companies Act is to protect the public from the very kind of reckless and irresponsible behaviour that is likely to cause loss to others. While Mr Chevin may well have been unaware of the prohibition, that state of affairs is yet a further factor that reflects adversely upon him, and illustrates his lack of knowledge of some fundamental legal provisions relating to commerce and business. Having been bankrupted three times, it could be expected that Mr Chevin would have learned something from that process and experience and have taken care to obtain legal advice regarding his legal position, and the existence of any statutory restrictions on his ability to be involved in the management of a company or to be a director.

[162]   Consequently, I direct the Registrar to forward a copy of this judgment to the Registrar of Companies to take whatever action is considered appropriate regarding the conduct of Mr Chevin described in this judgment.

The Otis counterclaim

[163]   Otis brought a counterclaim in the event that the Court were to find the existence of an agreement entitling the plaintiff to buy back the property. Having

found in favour of Otis, and that there was never any agreement entitling CWIL to buy back the property, it is now unnecessary to address the counterclaim.

Conclusion

[164]    In light of my findings as set out above, all three of the plaintiff’s causes of action necessarily fail. There was no common intention such as the plaintiff alleges; there was no representation of any kind such as would  give rise to  Otis being estopped  from  denying  any  buy-back  arrangement  or  asserting  its  legal  and beneficial ownership of the property; there was no loan transaction amounting to a credit contract which would engage the Credit Contracts and Consumer Finance Act

2003 and its provisions relating to re-opening of credit contracts found to be oppressive.

[165]   Accordingly, all three of the plaintiff’s claims fail, and are dismissed.

[166]   The  defendant  is  awarded  costs  on  a  scale  2B  basis  together  with disbursements. Counsel are to file and serve memoranda as to costs.

[167]   In  their  memoranda  as  to  costs,  I direct  that  counsel  are  to  address  the application of s 384 of the Companies Act to Mr Chevin in relation to costs.

[168]    The defendant is to file and serve a costs memorandum within 10 working days of the date of delivery of this judgment. The plaintiff is to file and serve a costs memorandum within a further seven working days after receipt of service of the defendant’s costs memorandum. Upon receipt of both memoranda, I shall determine

costs on the papers.

Paul Davison  J