Conning v Martoni Limited HC Auckland CIV-2010-404-5351
[2011] NZHC 342
•9 May 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-5351
BETWEEN GRAEME EDWARD CONNING AND OTHERS
Plaintiffs
ANDMARTONI LIMITED First Defendant
ANDTONCI EDI MARINOVIC Second Defendant
ANDROY LESLIE ANDREW Third Defendant
ANDGORDON ALLEN MARTENSEN Fourth Defendant
ANDMSC CONSULTING GROUP LIMITED Fifth Defendant
ANDNORTH SHOER CITY COUNCIL Sixth Defendant
ANDMAURICE HERBERT HINTON AND ALEX JAMES WHORWOOD
Seventh Defendants
ANDHER MAJESTY'S ATTORNE-GENERAL FOR NEW ZEALAND
Eighth Defendant
ANDBRENT SALTER AND PAUL SALTER Ninth Defendants
ANDJOHN BISSETT LIMITED Tenth Defendants
AND BODY CORPORATE NO 204090
Eleventh Defendant
ANDANTHONY JOHN STEPHEN LESTER & ORS
Twelfth Defendants
CONNING AND OTHERS V MARTONI LIMITED HC AK CIV-2010-404-5351 9 May 2011
Hearing: 20 April 2011
Judgment: 9 May 2011 at 3:00 PM Reasons: 4 May 2011
REASONS FOR JUDGMENT OF TOOGOOD J
This judgment was delivered by me on 9 May 2011 at 3:00 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
ANDMAURICE HERBERT HINTON AND ALEX JAMES WHORWOOD
Seventh Defendants
ANDHER MAJESTY'S ATTORNE-GENERAL FOR NEW ZEALAND
Eighth Defendant
ANDBRENT SALTER AND PAUL SALTER Ninth Defendants
ANDJOHN BISSETT LIMITED Tenth Defendants
AND BODY CORPORATE NO 204090
Eleventh Defendant
ANDANTHONY JOHN STEPHEN LESTER & ORS
Twelfth Defendants
[1] On 20 April 2011, I heard argument from counsel for the plaintiffs, the first and second defendants, and Jeanette Frances Marinovic, an affected party, in respect of an application by the plaintiffs to amend and extend interim orders made without notice by Heath J on 15 April 2011. The plaintiffs also sought on notice ancillary orders, pending a full hearing of the plaintiffs’ interlocutory application for freezing orders and ancillary orders. The applications were opposed.
[2] Because of severe time constraints due in part to the impending Easter vacation, I made oral orders which were then recorded in a written Minute which was emailed to counsel, and indicated to the parties that I would give my reasons in writing in due course.
[3] The orders made on 20 April 2011 directed that the interim orders made by
Heath J on 15 April 2011 would continue in force, subject to amendments which:
(a) extended the scope of the orders made in respect of the orders in relation to the bank accounts of the first and second defendants with named banking institutions to include “any other bank or financial institution in New Zealand”;
(b)permitted the sale of a property in respect of which an interim freezing order had been made subject to preservation of the second defendant’s half share of the net proceeds;
(c) permitted Mrs Marinovic, the wife of the second defendant, to withdraw certain funds from any joint bank account held with her husband; and
(d)directed that the interim orders which were made on 20 April 2011 should remain in force until the further order of the Court.
[4] The following are my reasons for making these orders.
[5] The substantive proceedings may be briefly described. The plaintiffs have brought proceedings against a number of defendants seeking damages in respect of an alleged leaky home. The first and second defendants, Martoni Limited and its principal, Mr Marinovic, are alleged to be the developers of the unit development at Rugby Road, Birkenhead. It is alleged that the first and second defendants owed a duty to the plaintiffs to exercise due skill and care in undertaking the construction development and building works on the property, and it is said that these duties were breached in a number of particularised respects.
[6] The first and second defendants deny liability on the grounds, among other things, that the first defendant was not a contractor and did not construct any part of the subject property; that other companies were engaged to construct the building and to co-ordinate and supervise all on-site activity as project manager; and that the second defendant (who is sued in a personal capacity) did not personally undertake the functions of the first defendant and the construction of the building.
[7] The plaintiffs issued their proceedings on 13 August 2010. In an amended telephone conference Minute dated 3 November 2010, Christiansen AJ noted that the plaintiffs and some of the parties to the proceeding were subject to a Weathertight Homes Tribunal claim in which the Tribunal had already commissioned an investigation and forensic report. For that reason, the plaintiffs wished to delay active management of the Court’s file until the Tribunal’s process had been completed but the plaintiffs wanted, nevertheless, discovery and inspection obligations to be completed in the meantime. Certain of the defendants other than the first and second defendants, indicated an intention to apply to strike out the proceeding and timetable orders were made at a judicial conference in December 2010.
[8] On 29 March 2011, Doogue AJ made a timetable order which provided for discovery by the plaintiffs, the inspection of documents, and the filing of an amended statement of claim, and which set a deadline for applications to strike out or for summary judgment. The Judge directed that a conference would be held on
31 August 2011.
[9] Before issuing the proceedings in this Court and before the Weathertight Homes Tribunal, the plaintiffs made an assessment of the net worth of the first and second defendants. They estimated the total equity of the second defendant’s interests in a number of properties, including the family home at 7 Papahia Street, Parnell; a commercial property at 94-98 Hinemoa Street, Birkenhead; and a residential property at 13 Papahia Street, Parnell, at approximately $3.6M.
[10] The plaintiffs say, however, that in late 2010 they began to notice that Mr Marinovic was taking steps to dispose of, or otherwise deal with, assets which had been long held, and that the proposed or actual dealings appeared to dissipate the value of the known assets of the first and second defendants.
[11] Mr McBride for the plaintiff set out in his memorandum of 13 April 2011 a combination of circumstances which he said entitled the plaintiffs to be alarmed by these developments. They include:
(a) At 3:45 pm on Friday, 23 December 2010, just before the LINZ Office closed for Christmas, the Hinemoa Street property, previously held in Mr Marinovic’s sole personal name, had been transferred to Mr Marinovic and his wife jointly, and re-mortgaged to the bank with a declared mortgage limit/priority amount being increased from
$0.3M to $1.5M (plus interest and charges).
(b)The Hinemoa Street property had been placed on the market on a “word of mouth only” basis, with no public advertising and no communication with the tenants, and with any offers being conveyed confidentially.
(c) The family home at 7 Papahia Street was for sale on the Trademe website with signage on the front fence.
[12] Then, in February-March 2011, there were further developments which concerned the plaintiffs; namely:
(a) Real estate agents were promoted to sell the family home and it went to auction on 16 March 2011 with a reserve of $1.35M, as against a government valuation of $1.55M. The agent was reported as saying the vendors were flexible concerning settlement period, and a shorter settlement time could result in a lower price being acceptable.
(b) The plaintiffs learned that the family home then sold for $1.3M
unconditionally with settlement sometime in late April 2011.
(c) The plaintiffs learned that a commercial investment property at
23A Beachhaven Road in the name of Mr and Mrs Marinovic and a solicitor, Mr Lyon, had sold unconditionally.
[13] Mr McBride submitted that while it was possible that Mr Marinovic was realising assets in order to be in a position to make a settlement offer to the plaintiffs, the plaintiffs considered there was a “grave risk” that he was in fact dissipating the value of his real estate assets in a way which would adversely affect the possibility of the plaintiffs executing any judgment in their favour against him. In summary,
Mr McBride pointed to:
The second defendant putting the Hinemoa Street property, previously
in his sole personal name, into the joint names of his wife and himself.
Initial confidentiality concerning the marketing of the Hinemoa Street
property.
Raising the mortgage level limit on that property.
Selling the family home at 7 Papahia Street, which had been owned for 42 years, apparently at under-value.
The report of a shorter settlement period for the sale of the family home.
These changes coming soon after the proceedings in this Court were filed on 28 August 2010, and conversations Mr Marinovic had had with an architect retained by the plaintiffs about Mr Marinovic not
wanting to be the “last man standing” in the proceedings.
[14] Mr McBride also pointed to evidence of threats being made to the plaintiffs by Mr Marinovic that if they took Court action they would get nothing; Mr Marinovic’s connections with Croatia, including owning a substantial house there, his son playing professional football in Europe, and the possibility that Mr Marinovic had a Croatian passport; the possibility that Mr and Mrs Marinovic would move their family home into the residential property at 13 Papahia Street which is owned by a trust.
[15] On the basis of the information and submissions contained in the without notice application and supporting affidavits and memorandum, on 15 April Heath J made freezing orders in respect of the assets of the first defendant comprising the two commercial units at 8 Rugby Road, Birkenhead, and the accounts, facilities and credit of the first defendant with the ANZ National Bank Limited. The Judge also made freezing orders in respect of assets of Mr Marinovic held either in tenancies in equal shares or in joint tenancies with Mrs Marinovic or with her and Mr Lyon; the defendants’ shares and interests in the Hinemoa Street property; the two Papahia Street properties and the property at Beachhaven Road; and the accounts, facilities and credit of Mr Marinovic whether alone or with his wife and/or Mr Lyon with ANZ National Bank Limited and/or ASB Bank Limited.
[16] Because those orders were made without notice, Heath J directed that the proceedings should be listed at 10:00 am on Wednesday, 20 April 2011, and said that the freezing order would have no effect after midday that date unless it was then continued or renewed.
[17] When this matter was heard on 20 April 2011, Mr McBride submitted that the plaintiffs’ position was not that they wished to impede the proper dealing by the first and second defendants in their assets. He argued, however, that they were concerned about dissipation and the possibility that the result would be a reduction in the
available net worth of the first and second defendants below the potential level of damages which might be awarded to the plaintiffs if successful in their claim.
[18] Mr McBride said that the plaintiffs had sought information and assurances from the first and second defendants, looking for limited disclosure as to the equity position in the Hinemoa Street property, the family home at 7 Papahia Street, Parnell, and the property at 8 Rugby Road which is the subject of the proceedings. Such information had not been provided, despite the plaintiffs’ request, and this served to increase the plaintiffs’ suspicions. Mr McBride submitted that in essence, what the plaintiffs wanted was knowledge that there was around $2M in equity frozen in order to cover the possible liability of the first and second defendants. He sought orders requiring disclosure of that information and interim charging orders to prevent any further dealings until the position was clarified.
[19] For the first and second defendants, Mr Rice argued simply that the plaintiffs were not entitled, at this stage, to the disclosure sought and that no interim disclosure order could be made unless there was a good arguable case against the defendants. He said that the claim against Mr Marinovic personally was a dubious basis for the making of any such orders.
[20] A particular concern was expressed about the property at 7 Papahia Street which was due to settle in the week after Easter. Mr Rice proposed that the net proceeds of the sale of that property, less Mrs Marinovic’s share, could be paid into and held in the trust account of Mr Marinovic’s solicitors, Haigh Lyon & Co. He indicated that the Hinemoa Street property was relied upon as a source of income for Mr and Mrs Marinovic and that they ought to be entitled to continue to deal with that property. He also complained that the freezing of the bank accounts, although subject to certain allowances as to withdrawals for living and other expenses, was effectively a total freeze on accounts because the banks refused to monitor withdrawals. He argued that the plaintiffs had all the protection they needed at the moment in that the net assets are what they are, whether or not the plaintiffs know what the value is.
[21] Mr Rice submitted that the freezing orders on the bank accounts should be set aside or, as an alternative, any trustees’ accounts and personal accounts involving Mrs Marinovic should be exempted. As a fallback position, he suggested that Mr Marinovic’s accounts could remain subject to the freezing orders, on an interim basis, with leave to the parties to apply if any difficulties arose.
[22] Mr Rice helpfully proposed a timetable for the filing of notices of opposition and affidavits by the first and second defendants, with the plaintiffs having a right to file affidavits in reply, and the matter then being set down for a one-day hearing after
25 May 2011 so that the Court can fully consider whether the freezing orders should be continued and any disclosure and charging orders made.
[23] For Mrs Marinovic, who is not a defendant in the proceedings, Mr Bos submitted that his client wanted the completion of the sale of 7 Papahia Street, and Mrs Marinovic’s share of the proceeds released to her. He said that there was no basis to include Mrs Marinovic in the freezing orders related to bank accounts and that she was in fact worse off than Mr Marinovic because there were no exemptions as to withdrawals for personal expenditure by her.
[24] After hearing argument, I made the orders which are recorded at [8] of my Minute of 20 April 2011. I concluded that the Court was not much better informed than it had been at the time Heath J made the interim orders without notice on
15 April 2011, except to the extent that there appeared to be agreement between the parties that Mrs Marinovic’s share of the proceeds of sale of the family home should be made available to her without restriction.
[25] I considered that, while Mr Marinovic may have taken a correct view in law that he was not under any obligation at that time to make any disclosure of the net value of the assets available to him or the first defendant, his refusal to give such information in the light of what the plaintiffs regarded as “alarming” recent developments in his property dealings provided some basis for the plaintiffs’ concerns. I considered the plaintiffs’ fears of a dissipation of assets to be not entirely fanciful. I concluded that, not only was I not prepared to remove the freezing orders on the bank accounts and properties, except as far as Mrs Marinovic was concerned,
the freezing orders should be extended to any other bank accounts not known to the plaintiffs which may be in the names of Mr Marinovic and/or the first defendants.
[26] Given the agreed timetable for bringing the interlocutory applications before the Court for a fully argued hearing, I considered that the orders to be made should be such as would balance the interests of the plaintiffs and the defendants. As requested, I granted leave to the parties and Mrs Marinovic to apply to the Court for any orders, including any discharge or variation of the orders made on 20 April 2011.
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Toogood J
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