Eight Mile Farms Limited v Bradley
[2021] NZHC 2047
•9 August 2021
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2020-419-000051
[2021] NZHC 2047
BETWEEN EIGHT MILE FARMS LIMITED
Plaintiff
AND
SHARON BRADLEY
First Respondent
MICHAEL ROSS ALLEMAN (DISCONTINUED)
Second RespondentJOHN MARK BRADLEY
Third Respondent
Hearing: On the papers Counsel:
M J Ferrier for Plaintiff
S Moore for First and Third Defendant
Judgment:
9 August 2021
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 9 August 2021 at 3.30 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date…………………………
EIGHT MILE FARMS LTD v BRADLEY & OR [2021] NZHC 2047 [9 August 2021]
Introduction
[1] From at least 2006 to 2018, the first defendant, Sharon Bradley, stole approximately $2.5m from Eight Mile Farms Ltd (EMF) under the guise of paying supplier invoices on EMF’s behalf.
[2] In a decision delivered on 16 July 2020, Smith AJ entered summary judgment against Sharon Bradley on three causes of action – for money had and received, deceit and breach of fiduciary duty – in the total sum of $2,002,332.51.1 Smith AJ reserved leave for EMF to apply by memorandum for orders for delivery up or transfer of specific assets, based on constructive trust principles, and following a Court-ordered inquiry under Part 16 of the High Court Rules 2016 into how and when Sharon Bradley applied the misappropriated money.2
[3] A report following the inquiry under Part 16 was filed in April 2021. EMF now applies by way of an amended summary judgment application to recover certain assets purchased by Sharon Bradley using the misappropriated money.3
[4] The third defendant, John Bradley, is Sharon Bradley’s husband. He was not originally a defendant. However, I joined him to the proceedings as the third defendant on 31 May 2021.4
[5] I also directed that any notice of opposition and affidavits in support were to be filed and served by 22 June 2021. Neither Sharon Bradley nor John Bradley have filed a notice of opposition or affidavit. On 23 July 2021, John Bradley filed a notice of appearance for ancillary purposes and reserving rights.
[6]This summary judgment proceeding therefore is unopposed.
The application
[7]EMF seeks summary judgment against Sharon and John Bradley for:
1 Eight Mile Farms Ltd v Bradley [2020] NZHC 1719.
2 Eight Mile Farms Ltd v Bradley, above n, a t [42].
3 Amended interlocutory application dated 10 June 2021.
4 Pursuant to r 4.56(1)(b)(ii) of the High Court Rules: Eight Mile Farms Ltd v Bradley HC Hamilton CIV-2020-419-51 (Minute of Andrew AJ, 1 June 2021) at [5].
(a)Declaration that they hold or held on constructive trust for EMF the following assets:5
(i)a 2013 Husqvarna lawnmower CTH2642TR;
(ii)a Walker MCGHS 19HP ride-on mower ROM;
(iii)three silver Devialet Phantom explosive speakers; and
(iv)item(s) purchased for $2,768.93 at Photo Warehouse;
(b)To the extent that those assets remain in the Bradleys’ possession, orders to deliver up to transfer the assets to EMF;
(c)Other relief as the Court considers appropriate (including at EMF’s option, a declaration that it is entitled to an equitable lien in the assets for the value of its contribution, and orders for the sale of the assets and payment of the sale proceeds to EMF); and
(d)Costs.
Factual background
[8] Associate Judge Smith sets out the background for the claim in his original summary judgment decision.6 Relevantly:
[8] Until fairly recently, [EMF] obtained professional accounting services from the second defendant, Mr Alleman. Mr Alleman operated on his own account until early 2012, and he then became a consultant at the firm Lionel Smith & Associates Limited (Lionel Smith).
[9] Ms Bradley is a former employee of Mr Alleman from the time when he was operating on his own account. She went with him to Lionel Smith, and she continued to work for him there as an employee of that firm.
[10] One of the services Mr Alleman provided to [EMF] was payment of invoices issued to [EMF] by third party suppliers. To perform that service, the plaintiff allowed Mr Alleman access mechanisms to the [EMF]’s internet banking account with Rabobank.
[11] From at least February 2007 until March 2018, Ms Bradley used these access mechanisms to steal from [EMF]. She did that by transferring funds
5 These were the assets identified in the report prepared for the purposes of Part 16 of the High Court Rules, by Dennis Parsons, dated 31 March 2021 (“the assets”).
6 Eight Mile Farms Ltd v Bradley, above n 1.
from [EMF]’s bank account to accounts that were in her name or for which she was a signatory, at Kiwibank and Westpac, under the guise of paying supplier invoices. She concealed the fraud by setting up fictitious payees, using genuine supplier details but her own bank accounts. That meant that the fraudulent payments appeared in [EMF]’s transaction records as if they were payments to suppliers.
[12] Ms Bradley resigned her employment from Lionel Smith in March 2018. The fraud was discovered in mid-2019, after payment of a genuine invoice was made by mistake to one of her bank accounts, and the supplier in question followed up about the payment.
[13] The total amount that Ms Bradley stole from [EMF] between February 2007 and March 2018 (as far as [EMF] has been able to ascertain) is the
$2,002,332.51 now claimed by [EMF].
[9] In the same decision, Smith AJ held that it is “likely that a constructive trust exists” in relation to assets purchased with misappropriated money, and that “Ms Bradley probably holds some assets on behalf of [EMF] under that trust.”7
[10] In his Part 16 inquiry report, Mr Parsons concluded that Ms Bradley had used the misappropriated funds to materially enhance all aspects of her family’s lifestyle between 2006 and 2018. In addition to the family’s living and lifestyle expenses, the funds were used to pay loan interest and related charges in respect of borrowing over properties owned by the family trust, and to repair, maintain and improve trust assets.
[11] The following diagram from Mr Parsons’s report illustrates the overall use of funds:
7 Eight Mile Farms Ltd v Bradley, above n 1, at [35] and [51].
[12] Mr Parsons’s evidence in relation to the assets, the subject of this summary judgment application, is in that section of the report which analyses receipts and payments to and from two Kiwibank bank accounts in Sharon Bradley’s name.
[13]In summary:
(a)Mr Parsons’s analysis of the receipts and payments from these two Kiwibank bank accounts shows that, in total, they received
$1,583,652.16 of the misappropriated money. This represents more than 91 per cent of the total receipts for the accounts over the 11-year period of the fraud;
(b)Mr Parsons has analysed the “private expenditure” from these accounts. His report explains that this expenditure includes the “Specific Asset items of 2013 Husqvarna Lawnmower ($6,500 appendix 13), Walker Ride-On mower ($20,000 appendix 14) and Audio Hi-Fi speakers ($7,500 appendix 15)”. It further explains items acquired at Photo Warehouse on 8 January 2016 are included in this expenditure under retail purchases; and
(c)the three assets referred to in (b) above are, as noted, the subject of this amended summary judgment application. Mr Parsons’ opinion is that “the misappropriated funds were directly used to purchase these assets.”
[14] In his affidavit filed in support of this amended summary judgment application, Mr Parsons reiterates his opinion that the misappropriated funds were directly used to purchase the assets.
Relevant law
Summary judgment principles
[15]Rule 12.2(1) of the High Court Rules 2016 provides:
The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[16] The principles applicable on a plaintiff’s summary judgment application were summarised by the Court of Appeal in Krukziener v Hanover Finance:8
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA) …
Constructive trust and tracing principles
[17] As described by the English Court of Appeal in Paragon Finance v DB Thakerar & Co, a constructive trust:9
… arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another.
[18] The practical aspect of the conceptual basis for constructive trusts was highlighted by Glazebrook J in Commonwealth Reserves 1 v Chodar:10
It is also important to realise that a constructive trust is a means to an end. While it bears the name “trust”, it is in some cases simply a mechanism to enforce personal accountability with proprietary consequences. The object of a constructive trust is generally not to create an ongoing trust relationship, but to force the disgorging of money or property by the constructive trustee. Viewing the constructive trust in this light highlights its remedial aspect.
[19] In Herbert Equities Ltd v Mamfredos, this Court made similar orders to those sought in this proceeding, declaring property to be held on constructive trust.11 In that case, Herbert Equities sought a money judgment and also claimed an interest in a property that had been acquired with its funds. Mr Mamfredos was engaged to act as a broker, arranging loans with overseas lenders, and he had received fees in connection
8 Krukziener v Hanover Finance [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].
9 Paragon Finance v DB Thakerar & Co [1999] 1 All ER 400 at 409.
10 Commonwealth Reserves 1 v Chodar [2001] 2 NZLR 374 (HC) at [37]. Glazebrook J’s analysis has been subsequently cited with approval in a number of High Court and Court of Appeal decisions, see for recent example Almond v Read [2019] NZCA 26, (2019) 5 NZTR 29-036 at [70].
11 Herbert Equities Ltd v Mamfredos HC Auckland CIV-2006-404-003697, 18 September 2009.
with the loan application. He and his wife then used the money for themselves, including to acquire a property.12 Courtney J held:13
… there can be no doubt on the evidence that the plaintiff’s money was used to … acquire the property. Nor can there be any doubt that the use of the plaintiff’s money for this purpose entitled HEL/Cathedral to assert an interest in the property …
[20] There is no allegation from the Bradleys that a mixed fund was used to purchase the assets in question (and, as above, money misappropriated from EMF made up over 91 per cent of the money received into the two Kiwibank accounts in any event). In equitable tracing the onus is on the defendant to distinguish between legitimate and trust funds:14
The guiding principle is that a trustee cannot assert a title of his own to trust property. If he destroys a trust fund by dissipating it altogether, there remains nothing to be the subject of a trust. But so long as the trust property can be traced and followed into other property into which it has been converted, that remains subject to the trust. A second principle is that, if a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own.
(emphasis added)
Analysis and decision
[21] Now that Mr Parsons’s Part 16 inquiry has been completed, there is clear evidence that Ms Bradley acquired the assets with misappropriated money. Neither Sharon Bradley nor John Bradley, or any other party, has asserted an interest in the assets and sought to deny EMF’s interests.15 There is likewise no evidence challenging Mr Parsons’s findings.
12 At [1] and [2].
13 At [32], citing the following passage from Lord Millett’s judgment in Foskett v McKeown [2001] 1 AC 102, [2000] 3 All ER 97 (HL) at 123–124:
Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money. It does not matter whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset.
14 Frith v Cartland (1865) 2 H&M 417 at 420, cited in Foskett v McKeown, above n 14, at 133 and in New Zealand in Enright v Newton [2020] NZCA 529.
15 In joining John Bradley to the proceedings as a third defendant in my minute of 1 June 2021, I held that he was joined to the proceedings on the basis that he claimed an interest in the assets (the subject of this application) and should be given the opportunity to be heard in opposition. He has not pursued the initial claim that he had an interest.
[22] EMF has clearly established that none of the defendants (nor anyone else) have any defence to its claims. There is no doubt that Sharon and John Bradley hold the assets on constructive trust for EMF and, to the extent that those assets remain in the defendants’ possession, a proper basis has been made out for orders for the delivery up or transfer of the assets to EMF.
[23] I note that in the absence of any competing interest in the assets, EMF acknowledges that there is no apparent advantage to it in seeking an equitable lien.
Result
[24] I grant the amended application for summary judgment and make the following declarations:
(a)The first and third defendants hold on constructive trust for the plaintiff the following assets identified in Mr Dennis Parsons’s report of 31 March 2021:
(i)a 2013 Husqvarna Lawnmower CTH2642TR;
(ii)a Walker MCGH/19HP Ride-On mower;
(iii)three Silver Devialet Phantom explosive speakers; and
(iv)item(s) purchased for $2,768.93 at Photo Warehouse.
(b)The extent that those assets remain in the first and/or third defendants’ possession (which does not apply to item (i) above), I make orders that Sharon and John Bradley deliver up or transfer those assets in (a) to EMF.
[25] EMF seeks costs on its amended application. For the reasons set out in EMF’s submissions of 27 July 2021, there appears to be good reason for ordering at least some costs to be paid by the first and third defendants.
[26]John Bradley seeks to be heard on costs.
[27] I direct that any party may file and serve submissions within 14 days. The Court will then determine the issue of costs on the papers.
[28]Finally, I note that there are currently freezing orders in place.
[29] I make the further direction that the file is to be placed before a Duty Judge to determine whether the orders I have made for the delivery up or transfer of assets will, in order to be given effect, give rise to the need to vary the freezing orders.
[30] On the evidence before me, it appears the freezing orders need to be varied to give effect to my orders for delivery up of the assets. This is not an issue I can determine, because I have no jurisdiction in relation to freezing orders.
[31] Given that none of the defendants have sought to be heard on this issue and have not opposed the order for delivery up, I see no need to seek their response.
[32] I direct that the plaintiff, EMF, is to file and serve a memorandum within seven days containing the terms of a draft order amending the current freezing orders to allow for my order of delivery up or transfer of assets to be given effect. That memorandum is then to be placed before the Duty Judge.
Associate Judge P J Andrew
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