Coumat Ltd v Whitford Properties Ltd - [2018] NZCA 15

IN THE COURT OF APPEAL OF NEW ZEALAND

CA228/2017
[2018] NZCA 15

BETWEEN

COUMAT LIMITED
First Appellant

GREGORY BRUCE HAYHOW
Second Appellant

AND

WHITFORD PROPERTIES LIMITED
Respondent

Hearing:	14 November 2017
Court:	Asher, Lang and Ellis JJ
Counsel:	P F Dalkie and R Rao for Appellants M C Black for Respondent
Judgment:	16 February 2018 at 10 am

JUDGMENT OF THE COURT

A The application for leave to adduce further evidence is declined.
BThe appeal is dismissed.
CThe appellants must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Asher J)

Table of Contents

Para No

Introduction
Facts
The High Court judgment and the issues arising
Mr Bruce’s duties in relation to the mortgage
Was there a breach of trust?

The Initial Tender deposit
Steps taken by Mr Hayhow
The $1,310,054
Unjust enrichment
Conclusion on Mr Bruce’s duties

Liability of Mr Hayhow and Coumat for knowing receipt or dishonest assistance
Conclusion
Result

[1]
[2]
[18]
[25]
[36]
[37]
[46]
[53]
[54]
[57]

[59]
[65]
[67]

Introduction

This appeal concerns a vendor mortgagee’s equitable and statutory duties on a mortgagee sale. In particular, it concerns the duty of a mortgagee to account for a forfeit deposit to the mortgagor, and to account to the mortgagor for any surplus remaining after the amount owing under the mortgage has been repaid.

Facts

The relevant history of the sale begins with the incorporation of the respondent, Whitford Properties Ltd (in liq) (Whitford) on 26 March 2002. Whitford was incorporated by Robert Bruce and Wayne Allen. They were shareholders together with Mr Allen’s wife. Shortly afterwards, Whitford acquired a block of land in South Auckland in two titles totalling approximately eight and a half hectares (the Whitford Land). It was then zoned rural but if certain consents could be obtained it could be subdivided for residential purposes. Being close to Auckland it had considerable potential value. The history of the steps taken to get the subdivision underway is complex and does not need to be recited. Of relevance is that on 6 July 2005 a mortgage was registered over the Whitford Land to secure borrowings

by Whitford from ANZ Bank New Zealand Ltd (ANZ).[1] The mortgage was guaranteed by Mr Bruce and Mr Allen.

[1]Ultimately Whitford’s borrowing from ANZ was secured by two mortgages (6485175.2 and 6485203.2).

By April 2014 Whitford was in default on the ANZ mortgage. At that time it owed approximately $8.5 million. Discussions between ANZ and Whitford broke down, and ANZ proceeded to sell the Whitford Land as mortgagee. It adopted a tender process for the sale, and on 16 April 2014 ANZ issued an invitation to tender. The terms of the invitation to tender required the successful tenderer to pay a deposit of 10 per cent of the tendered sum.
By this time the second appellant, Gregory Hayhow, had become involved with Messrs Bruce and Allen. On or about 16 October 2013 he had lent…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2018] NZCA 15
Decision Date: 16 February 2018 at 10 am

CaseChat Overview and Summary

The case of Coumat Ltd v Whitford Properties Ltd involved an appeal against the High Court's decision that Mr Bruce, as guarantor, breached his duty to account for the proceeds of a mortgagee sale, and that Mr Hayhow and Coumat were liable for knowing receipt and dishonest assistance. The Court of Appeal considered whether there was a breach of trust by Mr Bruce and liability for knowing receipt and dishonest assistance by Mr Hayhow and Coumat. The appeal was dismissed, and the Court of Appeal held that Mr Bruce breached his duty to account for the surplus proceeds from the mortgagee sale, and that Mr Hayhow was liable for dishonest assistance.

The Court of Appeal agreed with the High Court's decision that Mr Bruce breached his duty to account for the surplus proceeds from the mortgagee sale. Mr Bruce had accepted a credit of a total of $2,560,054 as the deposit under the Substitute Private Treaty Agreement, which he did not make available to Whitford. The Court of Appeal held that, in respect of the $1.25 million, Coumat got a $1.25 million credit it had not earned or paid for. The deposit paid by Mr Allen under the Initial Tender Agreement was contractually forfeit, and it could not be appropriated by Mr Bruce and Coumat in a later sale. In respect of the $1,310,054, Mr Bruce and Mr Hayhow received the benefit of the money: Mr Bruce's personal debt was forgiven and Mr Hayhow (through Coumat) obtained repayment of the unsecured and doubtful debt owed by Mr Bruce. Together, the credit for these amounts reduced the price that should have been paid for the Whitford Land. Mr Bruce breached his s 185 and equitable duties in treating the $2,560,054 as already paid (and therefore a credit available to Coumat), rather than requiring payment of the full sale price.

The Court of Appeal also held that Mr Hayhow was liable for dishonest assistance. All three elements for a claim of knowing receipt and accessory liability exist in relation to Coumat. First, Mr Bruce agreed to a payment structure for the Whitford Land whereby the $2,560,054 deposit was not paid and not available to Whitford, in breach of trust. Second, Coumat received the benefit of that breach of trust in the form of a reduced purchase price for the Whitford Land. Third, Coumat, through its director Mr Hayhow, knew that the credit involved appropriating the deposit for itself, and it was for monies that would otherwise go to paying off the mortgage, with the surplus going to Whitford. The Court of Appeal held that Mr Hayhow knew of the facts constituting the breach of fiduciary duty and that he was objectively assessed, dishonest.

The Court of Appeal declined the application to adduce further evidence, dismissed the appeal, and ordered the appellants to pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

Orders