CNP Holdings Limited v Central Park Property Investment Limited
[2024] NZHC 2541
•5 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-636
[2024] NZHC 2541
BETWEEN CNP HOLDINGS LIMITED
Plaintiff
AND
CENTRAL PARK PROPERTY INVESTMENT LIMITED
First Defendant
NEIL JAMES TUFFIN
Second DefendantMARK GEOFFREY HUGHSON
Third DefendantMAAT CONSULTING LIMITED
Fourth DefendantMICHELLE JANE LOMAS
Fifth DefendantJODI ANNE TUFFIN
Sixth Defendant
Hearing: 26 August 2024 Counsel:
A S Ross KC / Y Lee for the Plaintiff
S Lowery / K Francis for the Defendants
Judgment:
5 September 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 5 September 2024 at 4 pm.
Pursuant to Rule 11.5 of the High Court Rules.
Solicitors/Counsel:
Lindsay Francis & Mangan
Bankside Chambers, Auckland Shortland Chambers, Auckland
…………………..
Registrar/Deputy Registrar
CNP HOLDINGS LIMITED v CENTRAL PARK PROPERTY INVESTMENT LTD [2024] NZHC 2541
[5 September 2024]
Introduction
[1] The first defendant, Central Park Property Investment Ltd (Central Park) was involved in the failed “Nido” development in Henderson, Auckland, intended to be a large format homeware store. Central Park raised capital from retail investors, who suffered losses.
[2] The fourth defendant, Maat Consulting Ltd (Maat), is a property management company. It promotes and establishes investment companies based on syndicated ownership, to purchase and hold commercial property. Maat then manages the property for the syndicate. Maat currently manages 11 properties under this model. Maat managed the entities that raised capital for the Nido development.
[3] The second and third defendants, Neil Tuffin (Mr Tuffin) and Mark Hughson (Mr Hughson) are directors of Central Park and Maat. The fifth and sixth defendants, Michelle Lomas (Ms Lomas) and Jodi Tuffin (Ms Tuffin) are directors of Odin Investment Ltd, a company involved in Central Park’s capital raising for the Nido development.
[4] The plaintiff, CNP Holdings Ltd (CNP), is a company controlled by Craig Priscott (Mr Priscott). Mr Priscott describes himself as an “activist investor”. Neither CNP nor Mr Priscott invested in the Nido development. Nonetheless, CNP has brought this proceeding seeking declarations that the defendants breached the Financial Markets Conduct Act 2013 (FMCA) when raising capital for the Nido development, together with compensation orders in favour of some of the retail investors.
[5] In particular, CNP alleges that the defendants breached various obligations under the FMCA in respect of the last of four capital raises by Central Park, of
$4.7 million, from retail investors. The retail investors’ losses are alleged to be approximately $4 million. None of the retail investors are parties to this proceeding. Mr Priscott’s position is that the proceeding is brought in the public interest and for no financial gain for CNP.
[6] The defendants have applied for an order striking the proceeding out on two grounds:
(a)CNP does not have standing as a plaintiff because CNP does not have a proper purpose in claiming the pleaded relief; and alternatively
(b)if CNP has standing, then the proceeding is an abuse of process because it is brought for an improper purpose:
(i)to pressure Maat into selling its business interests in the 11 properties it continues to manage to Mr Priscott’s interests; and/or
(ii)to drive Maat out of business.
[7]The application for strike-out raises two issues:
(a)Does Central Park have standing under ss 486 and 494 of the FMCA to apply for declarations that the defendants have contravened civil liability provisions of the FMCA, and for compensatory orders in favour of the retail investors?
(b)Is this proceeding an abuse of process because it is brought for a predominant purpose that is improper?
Strike-out principles
[8] Pursuant to r 15.1(1)(d) of the High Court Rules 2016 (HCR), the Court may strike out all or part of a pleading if it is an abuse of the process of the Court.
[9] The principles governing strike-out applications are summarised in the Court of Appeal decision in Attorney-General v Prince:1
1 Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.
(a)A strike-out application is to proceed on the assumption that the facts pleaded in the statement of claim are true unless those pleaded facts are entirely speculative and lack any foundation.
(b)It is only where, on the facts alleged in the statement of claim, however broadly they are stated, no private law claim of the kind or kinds advanced can succeed that it is appropriate to strike out the proceedings at a preliminary stage.
(c)The threshold for strike out is high. Before a proceeding may be struck out the causes of action must be so clearly untenable that they cannot possibly succeed.
(d)The jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material.
(e)The fact that an application to strike out raises difficult questions of law, and requires extensive argument, does not exclude the jurisdiction.
Standing
[10] The defendants’ primary argument is that this proceeding is an abuse of process; the defendants resort to an argument based on standing only if the abuse of process argument fails. I do not approach the case on that basis. The first issue is whether CNP has standing. If it does not, then the proceeding must be struck out and the issue of abuse of process does not arise.
Background and the pleadings
[11] The Nido development was funded by equity and debt, including a loan of approximately $25m from Pearlfisher Trustee Ltd (Pearlfisher). The equity funding came from four capital raises undertaken by three companies incorporated and managed by Maat.
[12] The last of those capital raises is the one in issue in this proceeding (the fourth capital raise). It occurred after Pearlfisher had issued a notice of default in respect of its loan (the default notice). In this proceeding, CNP alleges that the defendants are liable under the FMCA for failing to disclose the default notice in Central Park’s financial statements for the 2020 financial year and in its Product Disclosure Statement (PDS) registered on the Companies Office Disclose Register (the Register).
[13]CNP pleads, inter alia, that:
(a)this conduct by Central Park contravened s 82 of the FMCA, which prohibits offers of financial products where there is defective disclosure in the PDS or the Register entry;
(b)Mr Tuffin, Mr Hughson, Ms Lomas, Ms Tuffin and Maat knew of the defective disclosure and are liable under s 533 of the FMCA as accessories to Central Park’s breach;
(c)Central Park contravened s 461 of the FMCA because the financial statements contained material misstatements and omitted to include material information, and were therefore not prepared in accordance with generally accepted accounting practice.
[14] The defendants acknowledge that the default notice was not disclosed as pleaded. They deny that this contravened their obligations under the FMCA. The parties made submissions on the strength of CNP’s claims. It is unnecessary to make a preliminary finding on the merit of CNP’s claims in order to determine the application before the Court. I proceed on the basis that the substantive claims are reasonably arguable for the purpose of strike-out, as conceded.
The provisions of the FMCA which provide standing
[15]Section 486(1) of the FMCA relevantly provides:
486 When court may make declarations of contravention
(1)The court may, on the application of the FMA or any other person, make a declaration of contravention if it is satisfied that a person has—
(a)contravened a civil liability provision; or
(b)been involved in a contravention of a civil liability provision.
[16]Section 487(1) of the FMCA relevantly provides:
487 Purpose and effect of declarations of contravention
(1)The purpose of a declaration of contravention is to enable an applicant for a compensatory order or other civil liability order under section 497 to rely on the declaration of contravention in the proceedings for that order, and not be required to prove the contravention or involvement in the contravention.
[17]Section 494 of the FMCA relevantly provides:
494 When court may make compensatory orders
(1)The court may make a compensatory order, on application by the FMA or any other person, if the court is satisfied that—
(a)there is a contravention of a civil liability provision; and
(b)a person (the aggrieved person) has suffered, or is likely to suffer, loss or damage because of the contravention.
(2)The court may make a compensatory order whether or not the aggrieved person is a party to the proceedings.
[18]Section 497 of the FMCA relevantly provides:
497 When court may make other civil liability orders
The court may, on application by the FMA or any other person, make a civil liability order described in section 498 if the court is satisfied that a person has contravened, intends to contravene, or was involved in a contravention of a civil liability provision.
[19]Section 498 of the FMCA relevantly provides:
498 Terms of other civil liability orders
A civil liability order under section 497 may—
(a)direct the person in contravention, or the person involved in the contravention, to refund money or return property to a person who has suffered, or is likely to suffer, loss or damage because of the contravention (the aggrieved person):
(b)if an agreement has been entered into between the person in contravention, a person involved in the contravention, or an associated person of either of those persons (A), and the aggrieved person,—
(i)vary the agreement or any collateral arrangement as specified in the order and, if the court thinks fit, declare the agreement or arrangement to have had effect as so varied on and after a date before the order was made, as specified in the order:
(ii)cancel the agreement and, if the court thinks fit, declare the cancellation to have had effect on and after a date before the order was made, as specified in the order:
(iii)require A to take any action the court thinks fit to reinstate the parties as near as may be possible to their former positions:
...
[20] The defendants accept that the wording of these provisions, read literally, confers standing on “any other person” without qualification. For the defendants, Mr Lowery did not seek to qualify standing by a requirement that an applicant have a legitimate interest in the relief sought. Mr Lowery submitted that standing is disqualified if a person makes an application under the FMCA for an improper purpose.
The legal principles
[21] CNP has applied to the Court to exercise statutory powers under the FMCA. The principles applicable to standing when a court is asked to exercise statutory powers were considered by the Privy Council in Deloitte & Touche Ag v Johnson.2 Lord Millett said:3
In their Lordships’ opinion two different kinds of case must be distinguished when considering the question of a party’s standing to make an application to the court. The first occurs when the court is asked to exercise a power conferred on it by statute. In such a case the court must examine the statute to see whether it identifies the category of person who may make the application. This goes to the jurisdiction of the court, for the court has no jurisdiction to exercise a statutory power except on the application of a person qualified by the statute to make it. The second is more general. Where the court is asked to exercise a statutory power or its inherent jurisdiction, it will act only on the application of a party with a sufficient interest to make it. This is not a matter of jurisdiction. It is a matter of judicial restraint. Orders made by the court are coercive. Every order of the court affects the freedom of action of the party against whom it is made and sometimes (as is the present case) of other parties as well. It is, therefore, incumbent on the court to
2 Deloitte & Touche Ag v Johnson [1999] UKPC 25, [1999] 4 LRC 281.
3 At 288.
consider not only whether it has jurisdiction to make the order but whether the applicant is a proper person to invoke the jurisdiction.
Where the court is asked to exercise a statutory power, therefore, the applicant must show that that he is a person qualified to make the application. But this does not conclude the question. He must also show that he is a proper person to make the application. This does not mean, as the appellants submit, that the ‘has an interest in making the application or may be affected by its outcome’. It means that he has a legitimate interest in the relief sought.
[22] These principles must be applied to the statute in question and in the context of the case. For example, in Deloitte & Touche Ag, a provision of the companies legislation of the Cayman Islands provided for the removal of a liquidator of a company, but did not specify any express restriction on the classes of person who could make the application. The Privy Council held that standing did not extend to a contributory who was not also a creditor of the company.4
[23] Similarly, in Brake v The Chedington Court Estate Ltd, the Supreme Court of the United Kingdom held that the words “any other person” in a provision of the United Kingdom’s Insolvency Act 1986, which provided for applications in respect of the acts or decisions of a trustee of a bankrupt’s estate, were not to be given a literal reading. Standing was limited to classes of person specified by the Court whose various interests were adversely affected by the impugned conduct of the trustee or the trustee’s powers in question.5
[24] This contrasts with the position adopted by the New Zealand courts in respect of standing under the Fair Trading Act 1986 (FTA) and the Commerce Act 1986 (CA).
[25] The Commerce Commission or “any other person” may apply to a court for injunctive relief against contravention of ss 7 to 36 of the FTA.6 The courts have declined to read down the phrase “any other person”, permitting consumer protection legislation to be enforced by rival traders because it is in the public interest that consumers are not misled.7
4 At 288 and 289.
5 Brake v The Chedington Court Estate Ltd [2023] UKSC 29, [2023] 1 WLR 3035.
6 Fair Trading Act 1986, s 41.
7 See Taylor Bros Ltd v Taylors Group Ltd [1988] 2 NZLR 1 (CA) at 38–39; Real Estate Institute of New Zealand Inc v Lehmann t/a The Club & Syndicated Trusts (1995) 6 TCLR 638 at 641 (HC); and Bremworth Carpets and Rugs Ltd v Godfrey Hirst NZ Ltd [2023] NZCA 652 at [16].
[26] Similarly, s 81 of the CA provides that “any other person” may apply to the Court for injunctions restraining contravention of ss 27 to 46 of the CA. This reflects that the public is affected by the statute.8
Analysis
[27] The public interest in consumer protection under the FTA and CA justifies a broad assessment of what amounts to a legitimate interest in the relief sought to constitute standing. Any member of the public ought to be able to enforce the legislation.
[28] The FMCA can be characterised as consumer protection legislation; one of its two main purposes is to promote the confident and informed participation of businesses, investors and consumers in the financial markets.9 That supports a broad reading of the words “any other person” in ss 486, 494 and 497 of the FMCA.
[29] A broad reading is supported by the distinction between “any other person”, who has standing to apply for a declaration of contravention of the FMCA under s 486, and the more limited class of person, being an “aggrieved person”, who can receive the benefit of a compensatory order under s 494 or a restitutionary order under s 498(a) and (b).
[30] Mr Lowery did not argue for the introduction of a qualification for standing requiring a plaintiff to have a legitimate interest in the relief sought beyond enforcement of the FMCA for the public interest. Mr Lowery argued that standing is qualified by a requirement that a person who makes an application must do so for a proper purpose, to be assessed by reference to the circumstances of the particular applicant. If an applicant has an improper purpose, then there is no standing.
[31] A qualification of this nature is not consistent with the principles discussed by the Privy Council in Deloitte & Touche Ag, because it focuses on the subjective motives and purposes of a particular applicant, rather than the legitimate interests of a
8 Direct Holdings Ltd v Feltex Furnishings of New Zealand Ltd (1986) 2 TCLR 61 (HC) at 67.
9 Financial Markets Conduct Act 2013, s 3(a).
class of applicant in the type of relief sought. The type of enquiry proposed by Mr Lowery would significantly overlap with the consideration of a plaintiff’s purpose, which is the domain of claims of abuse of process. The power of the courts to prevent an abuse of process is the appropriate check and balance on standing.
[32] I find that that CNP has standing to apply to the Court under ss 486 and 494 of the FMCA.
Abuse of process
Legal principles
[33] To establish an improper purpose the defendant must show that the plaintiff has an ulterior motive, seeking a collateral advantage beyond what the law offers;10 something not properly available to the plaintiff in the course of properly conducted proceedings.11
[34] In Crawford Adjusters (Cayman) Ltd v Sagicor General Insurance (Cayman) Ltd,12 the plaintiff intended the result of the action to be the economic downfall of the defendant. Lord Wilson, sitting on the Privy Council, said:13
If the claimant’s intention is that the result of victory in the action will be the defendant’s downfall, then his purpose is not improper: for it is nothing other than to achieve victory in the action, with all such consequences as may flow from it. If, on the other hand, his intention is to secure the defendant’s downfall—or some other disadvantage to the defendant or advantage himself—by use of the proceedings otherwise than for the purpose for which they are designed, then his purpose is improper.
[35] In other words, if a plaintiff commences a legitimate claim seeking relief that is appropriate and available in that claim, with a collateral intention that a successful claim might bring the defendant down, then that is not necessarily an abuse of process.
10 Goldsmith v Sperrings Ltd [1977] 1 WLR 478 (EWCA) at 498–499 per Scarman LJ.
11 Broxton v McClelland [1995] EMRL 485 (EWCA) at 498.
12 Crawford Adjusters (Cayman) Ltd v Sagicor General Insurance (Cayman) Ltd [2013] UKPC 17, [2014] AC 366.
13 At 393; see also Broxton v McClelland, above n 11, at 498.
[36] A plaintiff who has commenced a legitimate claim may negotiate with a defendant to achieve a result different from the result that could be achieved in the litigation. As Lord Scarman put it in Goldsmith v Sperrings Ltd:14
But, equally, a man, while pursuing the remedies offered by the law, may negotiate to secure, by arrangement with the parties sued, terms more favourable than, or different from, what he would get in the absence of agreement. Such a negotiation, undertaken by properly advised parties, each of whom may have a legitimate interest in avoiding litigation and may be prepared to concede more than the law requires of them to achieve that end, does not necessarily mean that the plaintiff by his litigation is reaching out to secure a collateral advantage.
[37] In Goldsmith, the example given of legitimate negotiation was a settlement that would see a more effective way of protecting Sir James Goldsmith’s reputation than litigation for defamation — that would have been acceptable as “that is the object of libel”.15 .
[38] In M v H,16the Court of Appeal recently reviewed the leading authorities17 and summarised the principles to apply in determining whether the court’s processes are being used for an improper and vitiating purpose:18
(a)the improper purpose alleged to be the motivation for the relevant proceedings need not be the sole purpose, as long as it is the predominant purpose;
(b)qualifying abuse will not be found, and a litigant will not be barred from pursuing a genuine cause of action, if the cause of action would be pursued despite the collateral purpose, notwithstanding that the collateral purpose is a consciously desired by-product of the claim;
(c)the onus on the party alleging abuse of process is a heavy one, and the power to grant a remedy (such as a stay) is to be exercised only in exceptional circumstances; and
(d)it is unnecessary to prove the commission of an improper act to justify a remedy but, other than in the clearest of cases, it will be necessary to point to some separate manifestation of intent, in the form of an overt act (such as a demand) which is indicative of the true (collateral) purpose.
14 Goldsmith v Sperrings Ltd, above n 10, at 499–500 per Lord Scarman.
15 At 500 per Lord Scarman.
16 M v H [2024] NZCA 243.
17 Including Re Majory [1955] Ch 600 (EWCA); Williams v Spautz (1992) 174 CLR 509; and
Goldsmith v Sperrings Ltd, above n 10.
18 M v H, above n 16, at [138].
[39] In Goldsmith, Lord Denning MR was in the minority in finding that there was an abuse of process. However, his statements of principle remain elucidating:19
In a civilised society, legal process is the machinery for keeping and doing justice. It can be used properly or it can be abused. It is used properly when it is invoked for the vindication of men’s rights or the enforcement of just claims. It is abused when it is diverted from its true course so as to serve extortion or oppression: or to exert pressure so as to achieve an improper end. When it is abused, it is a tort, a wrong known to the law. The judges can and will intervene to stop it. They will stay the legal process, if they can, before any harm is done. If they cannot stop it in time, and harm is done, they will give damages against the wrongdoer.
…
At other times the abuse can only be shown by extrinsic evidence that the legal process is being used for an improper purpose. On the face of it, in any particular case, the legal process may appear to be entirely proper and correct. What may make it wrongful is the purpose for which it is used. If it is done in order to exert pressure so as to achieve an end which is improper in itself, then it is a wrong known to the law.
[40] Ascertaining the true purpose of a plaintiff is a difficult task, particularly when undertaken on a pre-trial application without the benefit of cross-examination. The court is asked to rely on adverse inferences drawn from surrounding circumstances.20 That is why the burden on a defendant seeking strike-out is a high one.
[41] The plaintiff’s purpose must be assessed objectively, by reference to what a reasonable person placed in the plaintiff’s situation would have in mind when initiating the proceeding.21 The “but for” approach of the Court of Appeal in its principle (b) in M v H22 aids the analysis. Would the plaintiff have commenced the proceeding absent the collateral purpose?
[42] The Supreme Court of Queensland’s decision in QIW Retailers Ltd v Felview Pty Ltd23 is an example of a case where the defendant was able to establish that the plaintiff had filed a proceeding for a predominant improper purpose. The context was a dispute between shareholder interests in a company:
19 Goldsmith v Sperrings Ltd, above n 10, at 489 per Lord Denning MR dissenting.
20 At 498–499 per Scarman LJ.
21 At 498.
22 M v H, above n 16, at [138].
23 QIW Retailers Ltd v Felview Pty Ltd [1989] 2 Qd R 245 (QSC).
(a)Shortly before filing and service of a winding up proceeding, the plaintiff interests alleged that criminal offences had been committed under the relevant companies legislation, requesting a meeting of the parties for negotiation, failing which action would be taken.
(b)No meeting took place, and the plaintiff interests commenced the winding up proceeding.
[43] The winding up proceeding was struck out as an abuse of process on the grounds that there was no basis for deciding that the directors of the company had acted in their own interests, which was the pleaded basis for the winding up order, and the winding up proceeding was brought by the plaintiff for reasons unconnected with any wish to have the company wound up.24
[44] This was followed by a claim by the company against the plaintiff interests for the tort of abuse of process. The Supreme Court had the benefit of a full exposition of the evidence at the trial of the tort claim. The Court held that the real object of the plaintiff in commencing the winding up proceeding was not to obtain a winding up order, but to force the company to negotiate a share transaction, and therefore an abuse of process.25
[45] QIW Retailers is an example of a case where the Court could safely conclude that the plaintiff’s predominant purpose was seeking something beyond what the law offered. The plaintiff had no real interest in winding up the company, and absent the collateral purpose of compelling negotiation of a commercial transaction, the plaintiff would not have proceeded — the cause of action would not have been pursued without the collateral purpose.
The issues
[46]Applying the principles in this case raises the following issues:
24 At 253.
25 At 258–259.
(a)Have the defendants established that CNP filed this proceeding for a collateral purpose to obtain something not available to CNP in this proceeding?
(b)Would CNP have brought this proceeding without the collateral purpose, so that the collateral purpose is only a by-product of the legitimate relief sought in this proceeding, and not the predominant purpose?
The dealings between the parties
[47] On 9 June 2022, Mr Priscott emailed Mr Tuffin, Mr Hughson and Maat. In his email, Mr Priscott introduced himself and gave examples of his “investor activism”. The email alleged that Maat had materially overcharged other entities it was managing between 2014 and 2021 (the alleged overcharging), unrelated to the Nido development.
[48] Mr Priscott also outlined CNP’s “investigations” into Maat and the Nido entities, alleging breaches of the financial reporting requirements in the FMCA, including a failure to disclose the default notice in the PDS (the alleged non-disclosure).
[49] CNP asserted that Mr Tuffin, Mr Hughson, Ms Tuffin, Ms Lomas and Maat all faced liability under the FMCA. The email concluded:
If you do not provide a detailed written explanation that is satisfactory to CNP in all respects by 30 June 2022, then CNP will proceed with the next steps in the litigation process.
Alternatively, if, after taking legal advice, you wish to meet in person prior to this deadline to propose ways in which this matter might be resolved without litigation, then Russell McVeagh (who have been assisting CNP in this matter) are able to host a meeting in their central Auckland premises.
Whatever occurs over the next few months, whether CNP-led litigation or some alternative solution by Maat, CNP does not believe it is tenable or appropriate that Maat remains a property fund manager given the nature of the transgressions uncovered.
[50] The defendants did not initially agree to a meeting. On 29 June 2022, Mr Tuffin replied to Mr Priscott’s email advising that, as Maat was liaising with the Financial Markets Authority (FMA) in relation to the Nido development, he did not believe it necessary or appropriate to respond in detail to Mr Priscott’s email. Mr Tuffin denied the accusations and said the letter contained numerous factual and legal errors.
[51] On 30 June 2022, Mr Priscott replied to Mr Tuffin’s email saying that he envisaged that a meeting would include a discussion of potential alternatives to litigation, and if the defendants did not wish to engage then CNP would have no choice but to proceeded with its plans.
[52] On 9 August 2022, the solicitors acting for Maat, Meredith Connell, emailed a letter to the solicitors acting for CNP, Russell McVeagh. The letter referred to a without prejudice meeting that took place on 21 July 2022. There is no evidence of what occurred at that meeting. The letter did not comment on the allegations related to the Nido development due to the ongoing FMA investigation, it admitted that there was a $22,980.78 total overcharge in fees in respect of three of Maat’s syndicates, and it noted that changes relating to conflicts of interest were being implemented as part of a larger review in the wake of the Nido development.
[53] Meredith Connell’s email on 9 August 2022 and other correspondence from August 2022 confirms that the major issue under discussion at that time was the alleged overcharging.
[54] On 17 August 2022, Russell McVeagh emailed Meredith Connell advising that CNP had lost patience and that CNP had decided to make a formal complaint to the FMA. A draft of the complaint was attached, which related to the alleged overcharging along with alleged false and misleading financial statements and inaccurate statements in the offer documents of certain Maat syndicates. It did not raise any issues related to the alleged non-disclosure or the Nido development.
[55] On 26 August 2022, Russell McVeagh emailed Meredith Connell, confirming that CNP had lodged a complaint with the FMA.
[56] On 1 September 2022, Russell McVeagh emailed a letter to Meredith Connell, giving notice that CNP intended to commence a proceeding in relation to the Nido development relating to the fourth capital raise, including the alleged non-disclosure. The letter included an enclosed three-page document prepared by CNP which gave full particulars of the alleged breaches, and invited the defendants to respond if they considered that the matters raised were inaccurate. The letter noted CNP was open to a meeting before 13 September 2022 to discuss the issues raised.
[57] On 12 September 2022, the FMA sent an email to Mr Priscott advising that the FMA was not taking action in respect of CNP’s complaint about the alleged overcharging, for two reasons. The FMA considered that the issues were outside of the remit of the FMA, and there was not enough evidence.
[58] A without prejudice meeting took place on 13 September 2022 at the offices of Russell McVeagh. The attendees included Mr Hughson, Mr Tuffin, Mr Priscott and their legal advisors. The defendants submit that the position adopted by Mr Priscott during that meeting is pivotal evidence in establishing CNP’s purpose in bringing this proceeding.
[59] By the time of the meeting, Mr Priscott had received the email from the FMA on 12 September 2022 advising that the FMA was not taking any action regarding the alleged overcharging. However, there is no evidence that Mr Priscott had read that email before the meeting on 13 September 2023.
[60] In his affidavit evidence, Mr Hughson summarises Mr Priscott’s position at the meeting as follows:
The ultimatum presented to us at the 13 September 2022 meeting was that if we did a commercial deal with Mr Priscott, he would not commence litigation, and if we did not, he would.
[61]Mr Tuffin put it in similar terms:
The message I took from the 13 September meeting was that Mr Priscott would refrain from suing Maat only if we agreed to sell our business to him. I did not meet with Mr Priscott again because the September meeting confirmed to me that his approach was a shakedown.
[62] Mr Hughson made contemporaneous handwritten notes during the meeting, which he produced in evidence. Mr Hughson’s affidavit evidence regarding the meeting was consistent with his contemporaneous notes. His evidence was detailed and included evidence of the following statements attributed to Mr Priscott (or his solicitors):
(a)he felt there were massive breaches in the disclosures regarding the Nido development;
(b)conflicts of interest were the biggest issue;
(c)once the problems were out in public Maat’s management business would be finished, and if he filed his claim he would publicise it to investors and the press;
(d)it was for the FMA and auditors to sort out his allegation regarding overcharging and it was not economic for CNP to litigate that issue;
(e)his proposed solution was that Maat ceased managing the 12 investment companies and CNP or someone else take over, with a payout to Maat as it exited;
(f)either his litigation or the FMA would be the end of Maat;
(g)there would be a significant benefit to CNP if it won the case, because it would build CNP’s brand as an investor activist;
(h)Maat had two problems, the risk of further FMA scrutiny and the risk of litigation with CNP; and
(i)he could not resolve the FMA issue but CNP could be removed through a commercial deal that would involve Maat being paid exit fees and CNP being appointed as replacement property manager.
[63] The evidence that I have referred to was in the reply affidavits of Mr Hughson and Mr Tuffin, both dated 8 March 2024. However, Mr Priscott subsequently affirmed an affidavit on 2 August 2024, and elected to give no evidence regarding the meeting on 13 September 2024. The evidence of Mr Hughson and Mr Tuffin is uncontradicted.
[64] The meeting closed with agreement that Mr Priscott would not issue his proceeding for two weeks to enable him to present a takeover offer. Mr Priscott prepared a two-page document outlining his proposal, which was forwarded by Russell McVeagh to Meredith Connell on 16 September 2022. The document commenced with a statement of general principles:
1. Management of the 11 property syndicates will transfer from Maat to CNP (or nominee)
2. The parties will agree Maat’s messaging to investors – i.e sale of business/retirement, etc
3. Maat can wind up the 3 Nido entities as it sees fit
4. CPN will not proceed with litigation, and enter into appropriate confidentiality arrangements
5. Maat’s ~$1m fee/audit reimbursement liability to the 11 syndicates will need to be satisfactorily resolved by Maat, to allow CNP to withdraw its FMA complaint
[65] The “messaging to investors” principle makes no reference to the overcharging issue. The reference to CNP withdrawing its FMA complaint is puzzling if Mr Priscott had read the FMA’s advice to CNP on 12 September 2022 that the FMA was taking no action.
[66] Mr Priscott’s proposal outlined three options for a transfer of Maat’s management rights, including payment of exit fees to Maat in respect of each option. The proposal referred to the overcharging issue:
Needs to be resolved by Maat, and potentially voted on by investors. However cannot occur separately from package deal.
[67] Significantly, there is no reference in the proposal to issues with the Nido development, the alleged non-disclosure, or any compensation or benefits to the investors in the fourth equity raise.
[68] At some point between 16 September 2022 and 31 October 2022, the structure of the proposed arrangements changed, to include a reorganisation of the 11 syndicates into one fund to be held by one new company, which would be managed by CNP. That is evident because on 31 October 2022, Russell McVeagh sent an email to Meredith Connell attaching what was described as a “draft transaction outline and checklist” for the revised proposal.
[69] This document is seven pages long and contains significant detail of proposed key terms for the new arrangements, and how the transaction would be implemented. There is no mention in the document of the alleged overcharging or issues with the Nido development and the alleged non-disclosure. There is no mention of the interests of the investors in the fourth capital raise. The document is a proposed terms sheet for a complex commercial transaction by which CNP would manage the new fund.
[70] On 24 November 2022, Meredith Connell sent an email to Russell McVeagh commenting on the proposed terms. Russell McVeagh responded on 30 November 2022. Neither of those emails contain any comment on the overcharging issue or the Nido development. The emails contained further positioning regarding the exit fees that would be paid to Maat. This was plainly the sticking point in the negotiation.
[71] On 19 December 2022, Meredith Connell emailed Russell McVeagh attaching a “heads of terms” document. The document proposed exit fees to Maat of two per cent of any profit on the sale of the properties, together with a success fee payable by CNP of $2.5 million.
[72] On 23 December 2022, Russell McVeagh emailed Meredith Connell with comments on those fees. The email acknowledged that CNP or its nominee would theoretically create some value for itself over a number of years as the new manager of a combined fund. CNP’s counterproposal on fees was that the syndicates should meet Maat’s exit fees estimated to be $1 million together with compliance costs of
$165,000, with the new fund owner to pay a success fee to Maat of $350,000 and CNP to pay a success fee to Maat of $200,000. The total fees that Maat would receive would be approximately $1,715,000. Russell McVeagh’s email advanced arguments to support the allocation of the incidence of the fees to the syndicates and the new
company, rather than to CNP, asserting, “the greatest beneficiaries of this transaction are the investors”.
[73] On 8 February 2023, Meredith Connell emailed Russell McVeagh confirming that total fees of around $1,715,000 was too low, commenting that the gap was too large to bridge. Russell McVeagh responded by email on 14 February 2023, advising that in light of Maat’s position, Russell McVeagh was instructed to commence legal proceedings.
[74] The parties’ positions did not change in subsequent correspondence, which included an email from Russell McVeagh to Maat’s new solicitors, Lindsay & Francis, on 24 March 2023 which stated:
On the issue of the management business, CNP has already advised John Stephens of Meredith Connell that it does not wish to acquire the shares or existing management contracts of Maat Consulting Limited (Maat), despite your clients’ repeated invitations to do so. If Maat is able to sell its existing business to a third party (or Neil Tuffin/Mark Hughson can sell the Maat shares), then our client welcomes this. It would have the consequence that proceeds from the sale would then be available to investors to compensate them for their losses, and your clients will have exited the property management business (as is appropriate).
[75] Russell McVeagh’s statement that Maat had repeatedly invited CNP to acquire its shares or existing management contracts is not a fair characterisation of the negotiations initiated by CNP.
[76] After CNP commenced this proceeding in April 2023, CNP engaged with the FMA and attempted to persuade the FMA to take action in respect of the Nido development and the alleged non-disclosure. The FMA was made aware of the default notice and this proceeding.
[77] An internal memorandum from the FMA dated 14 September 2022, provided as a result of a request by CNP under the Official Information Act 1982, confirmed that the Authority had received complaints from investors in 2022 and that the FMA had decided not to investigate further.
[78] On 5 July 2023, Russell McVeagh emailed the FMA urging it to re-open the investigation. On 30 October 2023, after the alleged non-disclosure was drawn to the FMA’s attention, the FMA emailed Russell McVeagh confirming that the Authority was not taking any further action in respect of the Nido development.
CNP’s argument
[79] For CNP, Mr Ross KC submitted that it is not open to the Court to make a finding that CNP had a collateral purpose of acquiring Maat’s business interests, relying on:
(a)the email from Russell McVeagh to Lindsay & Francis on 24 March 2023, which stated that CNP did not wish to acquire the shares or existing management contracts of Maat;
(b)CNP’s notice of opposition to the defendants’ application to strike out this proceeding, which states as a ground of opposition that neither CNP, nor Mr Priscott, nor entities with which Mr Priscott is associated, wish to acquire the Maat interests; and
(c)Mr Priscott’s averment in his affidavit affirmed on 5 February 2024, consistent with the above ground stated in the notice of opposition.
[80] Mr Ross argued that the negotiations in respect of CNP’s acquisition of Maat’s business interests had ceased by 8 February 2023. When the proceeding was commenced on 6 April 2023, CNP was acting in the public interest with no potential for commercial gain, other than perhaps a costs award as a successful plaintiff. That position aligns with CNP’s view that the defendants are not fit and proper persons to be market participants, and the defendants should compensate investors in the fourth capital raise and exit the business.
Have the defendants established that CNP filed this proceeding for a collateral purpose to obtain something not available to CNP in this proceeding?
[81] The defendants sought to rely on extensive documentary evidence alleged to prove that Mr Priscott has a history of making allegations against companies and/or their directors as part of a strategy to acquire interests in those companies or their assets. The evidence related to several complex commercial transactions that are unrelated to Maat. Mr Lowery characterised this evidence as establishing “propensity”. Unsurprisingly, Mr Priscott responded with substantial evidence to explain his role in the impugned transactions, denying any impropriety.
[82] None of that evidence assists in determining the issues in this case. It is not possible to assess the type of evidence that was adduced without cross-examination and substantial further submissions. I have disregarded the evidence that relates to the unrelated transactions.
[83] Mr Priscott’s evidence is that his objectives in this litigation are to secure Maat’s exit as a property fund manager and to give the Nido development investors a chance of obtaining compensation. It is necessary to ascertain CNP’s intention, objectively, at the time that the proceeding was commenced. I remind myself that Mr Priscott has not been cross-examined regarding his purposes in directing CNP to commence this proceeding.
[84] Mr Priscott’s stated aim of forcing Maat out of business as a manager of property syndicates is not achievable, directly, by the relief sought in this proceeding under the FMCA. That relief is limited to declarations of contravention of civil liability provisions in the FMCA, combined with compensatory orders in favour of investors who have suffered loss. Therefore, Mr Priscott’s stated aim of forcing Maat out of business as a manager of property syndicates is a collateral purpose.
[85] The correspondence and documents exchanged by the parties from September 2022 to March 2023 demonstrates incontrovertibly that:
(a)the initiative for a transfer of Maat’s business interests to an entity controlled by Mr Priscott came from Mr Priscott;
(b)CNP used the threat of this proceeding to pressure the defendants to commence to negotiate a transfer of Maat’s business interests to an entity controlled by Mr Priscott;
(c)during the negotiations in the period from October to December 2022, neither party proposed any terms to deal with the alleged overcharging;
(d)at no time during the negotiations did either party propose any terms for the benefit of investors in the fourth capital raise for the Nido development;
(e)the interests of the Nido development investors were not considered at all; and
(f)Mr Priscott’s decision in February 2023 to instruct Russell McVeagh to commence this proceeding was a direct and immediate response to Maat’s refusal to agree to Mr Priscott’s proposal of exit fees for Maat in the vicinity of $1,715,000.
[86] I find that the correspondence and documents exchanged by the parties from September 2022 to March 2023 support an inference that CNP commenced this proceeding for the collateral purpose of furthering Mr Priscott’s goal of acquiring Maat’s business interests in managing the 11 property syndicates; either by pressuring Maat to resume negotiations for CNP’s acquisition of Maat’s business interests, or by forcing Maat out of business as the manager of the property syndicates to open the way for CNP to acquire those interests.
[87] Obviously, this purpose was not achievable by the relief sought in this proceeding under the FMCA. The negotiations between CNP and Maat had no connection to the interests of the Nido investors, and therefore, the legitimate relief sought in this proceeding.
Would CNP have brought this proceeding without the collateral purpose, so that the collateral purpose is only a by-product of the legitimate relief sought in this proceeding, and not the predominant purpose?
[88] Mr Priscott’s assertion that this proceeding was commenced in the public interest, for the benefit of the investors that lost money on the fourth capital raise for the Nido development, is inconsistent with:
(a)the complete absence of a reference to the interests of those investors in the extensive communications and negotiations from September to December 2022; and
(b)CNP’s reactionary decision to commence this proceeding less than a week after Maat advised that it did not accept the exit fees of approximately $1,715,000 proposed by CNP.
[89] Even so, for the purpose of this analysis, I accept that Mr Priscott’s stated public interest purpose is one of CNP’s purposes in bringing this proceeding. The other collateral purpose that I have found established is Mr Priscott’s goal of acquiring Maat’s business interests in managing the 11 property syndicates; either by pressuring Maat to resume negotiations for CNP’s acquisition of Maat’s business interests, or by forcing Maat out of business as the manager of the property syndicates to open the way for CNP to acquire those interests.
[90] This is one of those rare and exceptional cases where the extrinsic evidence is sufficient to make an objective determination that CNP would not have commenced this proceeding without CNP having the collateral purpose. The collateral purpose is the predominant purpose, it is improper and not a by-product of legitimate relief sought in this proceeding. This proceeding is an abuse of process and should be struck out.
Orders
[91]The proceeding is struck out.
[92]If the parties are unable to agree on costs, then:
(a)The defendants may file a memorandum on costs, of no more than 5 pages, by 20 September 2024;
(b)The plaintiff may file a memorandum on costs, of no more than 5 pages,
by 4 October 2024;
(c)I will then determine costs on the papers.
Associate Judge Brittain
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