Financial Markets Authority v Hotchin
[2013] NZHC 2082
•15 August 2013
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2011-404-001584 [2013] NZHC 2082
BETWEEN ANATOLY MOGILIN Plaintiff
MARFA (MASHA) MOGILIN Second Plaintiff
AND
NAM GUEN JO First Defendant
MARTINA JHO Second Defendant
Hearing: 12 August 2013 Appearances:
E Orlov for Plaintiffs
M J Wallace for DefendantsJudgment:
15 August 2013
JUDGMENT OF D GENDALL J
ANATOLY MOGILIN v NAM GUEN JO [2013] NZHC 2082 [15 August 2013]
Table of Contents
Para No
Introduction [1] Background facts [4] Evidence [11] Counsel’s argument and my decision [16] Pre-contractual misrepresentation, commercial deceit – or misrepresentation under Contractual Remedies Act 1979 [20] Lack of valid consideration and unconscionable bargain [25] Breach of fiduciary duties [36] Unconscionable bargain [40] Remedies under the Illegal Contracts Act 1970 [42] Breach of contract - repudiation [44] Where does all this leave the present situation? [72] Conclusion [78] Costs [80] Postscript [82]
Introduction
[1] The plaintiffs, Anatoly Mogilin (Mr Mogilin) and Marfa (Masha) Mogilin (Mrs Mogilin), (together called “the Mogilins”), bring claims in this proceeding against the defendants, Nam Guen Jo (Mr Jo) and Martina Jho (Mrs Jho), arising out of a series of agreements said to represent joint venture arrangements between the parties entered into in 2010.
[2] Amongst a number of remedies outlined in their statement of claim, the Mogilins seek declarations that the original joint venture agreement between the parties is void and illegal, restitutionary remedies for the return to them of all property wrongfully obtained by the defendants, and an account of profits and tracing.
[3] These proceedings are brought by Mr and Mrs Mogilin, based on pre- contractual misrepresentation, breach of contract, commercial deceit (or misrepresentation under the Contractual Remedies Act 1979), breach of fiduciary
duties, unconscionable bargain. In addition, remedies are sought under the Illegal Contracts Act 1970. Although these proceedings were commenced in 2011, an amended statement of claim dated 24 May 2013 was filed by the Mogilins. A statement of defence from the defendants disputing all claims made by the Mogilins was filed on 28 May 2013. Although this defence advanced by Mr Jo and Mrs Jho appeared to be, to some extent, supported by an affidavit dated 29 June 2011 Mr Jo had filed in this proceeding, at the hearing of this matter on 12 August 2013 no evidence was called on their behalf. In addition, their counsel, Mr Wallace, indicated that he was not in a position to advance any argument and that he had no instructions to cross-examine Mr or Mrs Mogilin, who were the witnesses as plaintiffs called to give evidence. Similarly, Mr Wallace told the Court that he had no instructions to advance any submissions in support of the defence by Mr Jo and Mrs Jho to this claim. The hearing before me proceeded on this basis.
Background facts
[4] From the material which is before the Court, there appear to be two different views from each side here about the general objectives of the joint venture transactions which the parties entered into. These matters were addressed in a judgment of Heath J in this proceeding, dated 26 August 2011. This involved an application at that time by Mr and Mrs Mogilin seeking a freezing order to prevent Mr Jo and Mrs Jho from disposing of certain property in which the Mogilins allege they had an interest. The general background to this whole matter is set out in Heath J’s judgment. It is useful here to repeat this:
[8] In order to explain the unusual circumstances in which the present application is made, it is necessary to sketch the general background and to outline the competing positions taken by Mr and Mrs Mogilin (on the one hand) and Mr Jo and Mrs Jho (on the other). That approach enables analysis of the competing submissions more readily than might otherwise be possible.
[9] There is an unfortunate lack of clarity in the affidavits of both Mr Mogilin and Mr Jo about the sequence of events. The summaries that follow are based on my reconstruction of events, by reference to the terms of each of those affidavits and the documentary exhibits produced.
(b) Mr and Mrs Mogilin's position
[10] Around June 2007, the Commissioner of Inland Revenue issued a notice of proposed adjustment, in relation to taxation said to be payable by Mr and Mrs Mogilin as a result of sale of a property at Glovers Road, near
Christchurch. No steps were taken by Mr and Mrs Mogilin. On 7 December
2007, judgment was entered against them for $455,203.89 in the District
Court at Christchurch.
[11] After judgment had been entered, Mr and Mrs Mogilin instructed Mr Tee, a solicitor from Christchurch, to act on their behalf in disputing the taxation levied. One of the exhibits is a letter from Mr Tee to the Commissioner, dated 5 December 2008, in which an attempt was made to stave off imminent bankruptcy proceedings, based on the default judgment obtained.
[12] At the time Mr Tee was instructed, neither Mr nor Mrs Mogilin was in a position to pay his legal fees. While they had no real disposable income, they had assets, in the form of the Lincoln property and shares in Eurostile. The Lincoln property consists of 53 acres and was, at the time they instructed Mr Tee, subdivisible. Mr Mogilin deposes that it was worth “around a million dollars” at that time but says that he and his wife now “believe the land is … substantially higher in value because we believe that the land will be rezoned in the future”. That is a realistic possibility, given the events in Christchurch in February 2011.
[13] Eurostile owned six houses in the Christchurch area. Those houses had been built by Mr Chernishoff. Mr Mogilin estimates that the net value of those properties was around $800,000.
[14] Despite the value ascribed to those assets, Mr Mogilin says that his attempts to raise money to pay legal costs were thwarted as, due to public knowledge of the Commissioner's judgment against him and his wife, they were not regarded as good credit risks. It was necessary for some other method to be found to enable funds to fight the Commissioner's claim.
[15] By this time, proceedings were on foot against Mr Chernishoff and his company, Mt Lyford Products Ltd, in relation to alleged deficiencies in the building of the houses. The evidence suggests those proceedings were issued in the High Court at Christchurch, sometime in 2006. The amount claimed was approximately $2.5 million. Funding for those proceedings was also needed.
[16] Mr Tee introduced Mr and Mrs Mogilin to a close friend, Mr Jo, who was held out as having experience in taxation and litigation. Mr Tee informed Mr Mogilin that he and Mr Jo were involved “in various large projects together including claims against the Bank of New Zealand and the City Council of Christchurch”. Mr Tee's office was in the same building as that occupied by Mr Jo.
[17] Mr and Mrs Mogilin allege that Mr Jo promised them that he would be able to finance their claims against the Commissioner if they were to transfer to him legal title to the Lincoln property. They say that Mr Jo intended to use his own name to obtain credit and to provide the proceeds to Mr and Mrs Mogilin. Mr Jo allegedly assured them that both he and Mr Tee would work to resolve outstanding issues with the Commissioner.
[18] On Mr Mogilin's evidence, he and his wife were visited regularly by Mr Tee and Mr Jo, in the period leading up to the signing of an agreement for sale and purchase of the Lincoln property. Mr Mogilin gives evidence of
the “extreme stress and medical health problems” from which he was suffering at that time, and continues to suffer. One example is a “severe case of diabetes” which, according to Mr Mogilin, brings about “a clouded judgment, sometimes hazy thought patterns and huge fluctuations of sugar levels which make me extremely tired and irritable and unable to assess information properly”. A number of documents executed at or after this time are alleged to have been signed under the illegitimate influence of Mr Tee and/or Mr Jo.
[19] In or about early February 2010, Mr Tee prepared an agreement for sale and purchase to evidence Mrs Jho's purchase of the Lincoln property for
$850,000. This was signed by Mr and Mrs Mogilin. I infer that a share transfer form was also signed (around this time) to pass title to their shares in
Eurostile.
[20] Mr and Mrs Mogilin now seek damages (or other relief) against Mr Jo and Mrs Jho for unlawfully taking the benefit of the transferred assets, being the Lincoln property and the shares in Eurostile. The claims are based on pre-contractual misrepresentation, breach of contract, “commercial deceit”, breach of fiduciary duties and breach of trust, whether resulting, constructive or actual.
(c) Mr Jo and Mrs Jho's position
[21] Mr Jo contends that the transactions in which the Mogilins, his wife and himself were involved arose in very different circumstances. In his own words:
… I understood it was [Mr and Mrs Mogilin's] desire to no longer have any New Zealand assets, but instead to have off-shore assets that might be beyond the reach of the Commissioner.
[22] Mr Jo's position is that he and his wife entered into transactions with Mr and Mrs Mogilin that were commercial in nature and involved the passing of valuable consideration each way. Expressly, Mr Jo questions suggestions made by Mr Mogilin that he was “naive and simple in terms of business dealings”. He says that his “desire was to assist [Mr and Mrs Mogilin] out of a very real problem that they faced”. Notwithstanding transfer of the shares in Eurostile to himself and his wife, Mr Jo points to a number of payments made to Mr and Mrs Mogilin out of company funds, to assist them in the period after the agreement for sale and purchase was signed.
(d) The documentation
[23] On 1 April 2007, (sic) a Joint Venture Agreement was entered into between Mr Jo and Mrs Jho (as trustees of the SY Trust) and Mr and Mrs Mogilin. This date precedes the date on which the adjusted tax assessment was made against Mr and Mrs Mogilin, in respect of the Glovers Road property. The recitals to the joint venture agreement record that Mr and Mrs Mogilin wished “to invest in … patents held by SY Enterprises Ltd” and that both parties “would like to commercialise the use of the patents and invest in more patents developed in Russia, South Korea and other countries if possible”.
[24] The patents were said to relate to food bacteria detection and deer velvet. A recital states that the patents were agreed to have a market value of
$5,600,000. The agreement records an intention for 30% of the shares held by Mr Jo and Mrs Jho, in SY Enterprise Ltd, to be transferred to Mr and Mrs
Mogilin. In consideration for that, Mr and Mrs Mogilin's interests in the Lincoln property and all of the shares in Eurostile were to be passed to Mr Jo and his wife.
[25] Based on what is recorded in the joint venture agreement, it is possible to discern an equality of value passing each way. The agreement records the total value of SY Enterprises Ltd as $5,600,000, 30% of which equates to $1,680,000. A value of $850,000 is ascribed to each of the Lincoln property and the shares in Eurostile, a total of $1,700,000.
[26] Subsequently, the joint venture agreement was amended. The document purporting to do that is undated and shows only Mr and Mrs Mogilin and Mrs Jho as parties. It recorded:
Anatoly Mogilin, Marsha Mogilin agreed to transfer 1543 Springs Road, Lincoln certificate of title CB366/101 to Martina Jho of SY Trust in 2007 in exchange for the shares in S.Y. Enterprise Limited.
Now Anatoly Mogilin, Marsha Mogilin and Martina Jho agree to change the joint venture agreement. Anatoly and Marsha Mogilin will transfer 1543 Springs Road, Lincoln on these conditions.
1. Martina Jho refinances the properties owned by Eurostile Limited together with 1543 Springs Road. If Martina Jho cannot refinance, the property at 1543 Springs Road will not be transferred to Martina Jho.
2. If Martina Jho can refinance the properties owned by Eurostile Limited together with 1543 Springs Road, Martina Jho consent to Anatoly Mogilin and Marsha Mogilin putting a caveat on 1543 Springs Road. This is because Martina Jho, Anatoly Mogilin and Marsha Mogilin have agreed to have
1543 Springs Road returned to Anatoly Mogilin and Marsha Mogilin if their agreed joint venture in Russia cannot go ahead or if Anatoly Mogilin and Marsha Mogilin decide to
terminate that joint venture. If this is the case, then Marsha Mogilin must transfer the 30% shares in S.Y. Enterprise Limited to Martina Jho and Martina Jho transfer 1543
Springs Road to Anatoly Mogilin and Marsha Mogilin.
3. All these must go through the proper legal process.
[27] The amendment to the joint venture agreement is likely to have been signed before the agreement for sale and purchase of the Lincoln property was prepared. It states that Mr and Mrs Mogilin “will transfer” the Lincoln property on certain conditions. Clause 2 of the variation refers (in vague terms) to the parties' “agreed joint venture in Russia” and the obligation for Mrs Jho to transfer back to Mr and Mrs Mogilin the Lincoln property, in exchange for the shares in SY Enterprise Ltd, if the Mogilins decided to terminate the joint venture.
[28] An agreement for sale and purchase of the Lincoln property dated 16
February 2010 was signed by Mr and Mrs Mogilin (as vendors) and Mr Jho
and Mrs Jo (as purchasers), the latter in their capacity as trustees of the SY Trust. The purchase price was stated as $850,000 (inclusive of GST), a sum consistent with the amount shown in the schedule to the joint venture agreement.
[29] One further document (the Deed of Assignment) was prepared, though the copy produced by Mr Mogilin is both unsigned and undated. It purports to assign rights to the proceeding against Mr Chernishoff for the benefit of Eurostile, with Mr Jo being given the right to negotiate a settlement but requiring consent of the Mogilins before it was binding. The Deed of Assignment provided:
BETWEEN ANATOLY MOGILIN and MASHA MARFA MOGILIN both of Christchurch, Property owners (hereinafter called ‘the first party’)
AND NAM GEUN JO of Christchurch, Company Director
(hereinafter called ‘the second party’)
AND EUROSTILE LIMITED a duly incorporated company having its registered office at Christchurch (hereinafter called ‘the third party’)
WHEREAS:
A. [The Mogilins] purchased residential properties at Reserve Close, Christchurch, such properties being registered in the name of [Eurostile].
B. The [Mogilins] has initiated proceedings in the High Court at Christchurch under number CIV 2006-409-1384 against IVAN CHERNISHOFF, MT LYFORD PRODUCTS LIMITED AND/OR OTHERS.
C. the benefits of the proceedings referred to in recital B hereof are to be assigned to [Eurostile].
NOW THIS DEED witnesseth as follows:-
1.ALL benefits and proceeds of any judgment in respect of the High Court proceedings hereinbefore referred to are assigned to [Eurostile].
2. THE proceeds from the High Court proceedings hereinbefore referred to shall be directed to be paid into the High Court and paid as directed by [the Mogilins].
3. A sum of money amounting to approximately FOUR HUNDRED AND NINETY THOUSAND DOLLARS ($490,000.00) is owing by [Eurostile] to [the Mogilins] and suitable security shall be taken if required.
4. [The Mogilins and Eurostile] authorise [Mr Jo] to negotiate any settlement offered in respect of the High Court proceedings hereinbefore referred to but the final decision as to any settlement is to be made by [the Mogilins].
5. WHEN directed [Mr Jo] will transfer all shares in [Eurostile]
to [the Mogilins] or as [the Mogilins] may direct and [Mr Jo] will
ensure that all other shareholders if any will similarly transfer their shares.
6. WHEN directed [Mr Jo] will resign as a director of [Eurostile] so that [the Mogilins], or as [the Mogilins] directs, can become directors of [Eurostile].
7. ALL parties acknowledge that the [the Mogilins] and [Mr Jo] were introduced by one TIM BAN CHOON TEE of Christchurch, Barrister and Solicitor and that [the Mogilins] took no separate legal advice prior to resigning as directors and transferring shares in [Eurostile].
8. IF the High Court proceedings hereafter referred to are unable to be settled, [Mr Jo and Eurostile] are authorised to have the matter heard in the High Court.
…
[30] Mr Tee has left New Zealand, as a result of bankruptcy proceedings issued against him.
[5] It is common ground that the Mogilins and Mr Jo and Mrs Jho executed the joint venture agreement on or about 1 April 2010, and that the Mogilins and Mrs Jho executed the subsequent (undated) agreement referred to at [26] of the Heath J judgment (the addendum agreement) amending the joint venture agreement. In addition, the Mogilins confirm that the Deed of Assignment, although undated, was signed around April 2010 by them, Mr Jo personally, and Mr Jo on behalf of Eurostile Limited.
[6] It is also common ground that Mr and Mrs Mogilin were being pursued by the Commissioner of Inland Revenue for outstanding taxation debts, for which the Commissioner had judgment against them, and they were at risk of enforcement action which might attach to their various investments in New Zealand. They took advice at the time or later from a Christchurch solicitor, Murray Withers (Mr Withers) and also from Tim Ban Choon Tee (Mr Tee), a solicitor who introduced them to Mr Jo and Mrs Jho, whereupon they entered into the joint venture agreement and other arrangements as part of a plan, it is said, to remove their New Zealand assets offshore.
[7] The Mogilins’ theory of the case seems to be that the documents that they executed were only part of this general plan of moving their assets offshore. They say that Mr Jo and Mrs Jho had assumed other obligations not recorded in the
contracts, in particular to borrow (a sum said to be about $500,000) against the 53 acre Springs Road, Lincoln property (the Lincoln property), and then to lend this back to the Mogilins to meet outstanding legal and other costs, and to enable them to maintain their lifestyle.
[8] Although it is somewhat difficult to discern from the defendants’ pleaded statement of defence, the theory of the case advanced by Mr Jo and Mrs Jho is that the plaintiffs had deliberately entered into the joint venture agreement and agreements for sale and purchase to sell to the defendants their real estate assets in New Zealand, taking in return a share of the patents owned by the defendants which were intended to be commercialised in Russia, South Korea and elsewhere. In short, it is said the Mogilins exchanged real estate in New Zealand for intellectual property and potential business interests offshore. On the defendants’ theory of this case, they say accordingly they have always been able to deal with the assets they acquired from the Mogilins, without any continuing obligation back to the Mogilins in respect of the proceeds of those assets.
[9] Several matters are clear now. The first is that a short time ago Mr Jo was deported from New Zealand, and it appears he is in South Korea. Although it is suggested that Mrs Jho remains in New Zealand, her whereabouts are unknown. Neither Mrs Jho nor Mr Jo attended the hearing of this proceeding before me. Nor, according to Mr Wallace, have they provided him with any recent instructions in this matter. Despite this, before me Mr Wallace did confirm that through recent communications he has had with Mr Jo and Mrs Jho’s son, who is a solicitor here in Christchurch, and earlier communications he had both with Mr Jo and with Mrs Jho, he is quite satisfied that Mr Jo and Mrs Jho have been aware for some time that the hearing of this proceeding was scheduled to take place on 12 August 2013, but they have chosen to take no part.
[10] The second is that, in terms of r 9.55(2) of the High Court Rules, the Court may:
direct that evidence of any disputed fact or issue be given in accordance with rule 9.51
And, r 9.51 provides:
...disputed questions of fact arising at the trial of any proceeding must be determined on oral evidence... (Emphasis added).
(On this, see also r 9.56(2) of the High Court Rules).
In his interim judgment in this proceeding on further discovery dated 25 July 2013
Panckhurst J directed at [5]:
...For the avoidance of doubt I confirm that this is a proceeding where r 9.51 applies, that is it involves disputed questions of fact so that Mr Jo will need to be examined orally should he elect to give evidence.
Thus, given that no oral evidence was given by Mr Jo or Mrs Jho here, matters proceeded on the basis that the evidence before the Court was that of Mr Mogilin and Mrs Mogilin and this was effectively uncontested.
Evidence
[11] I now turn to consider that evidence which was provided at the hearing.
[12] The first witness called for the plaintiffs was Mr Mogilin who, in his statement which was taken as read in light of his failing health, deposed:
29. The (joint venture) agreement is a sham in that it was signed on the advice of Mr Tee and Mr Jo, saying that they just needed a document to be signed in order to have the properties transferred to them. There was most certainly no intention by me to transfer shares for these properties. The shares in the SY Trust refer to intellectual property worth $5,600,000. I do not remember any discussion around that, except that there was a representation made at the time that the SY Trust had significant assets worth that amount, hence why transferring the property would be safe for me. I did not check the value of the patents, but believed that the SY Trust did have significant assets. I also believed that the people I was dealing with, ie the Defendants, had significant assets so I did not think that there would be any problem in temporarily transferring my assets to them and I believed that the SY Trust held significant assets which would have secured my position if there ever was to be a problem. All of this is in spite of the fact that I could not and did not understand what it was I was actually signing. In essence, I signed because I felt these people were honest and they assured me that my assets would be secure.
[13] Earlier in his evidence, Mr Mogilin had stated:
25. Mr Withers, from memory, got us to sign the joint venture agreement although his signature does not appear to be on it and nor does the signature of any of the lawyers. To my understanding, Mr Withers had been paid by Mr Tee and Mr Jo and was acting under their instructions. We gave no direct instructions to Mr Withers. We only notified Mr Withers that we were attending on Mr Tee’s instructions. I am not sure what instructions Mr Withers received from Mr Tee but that can probably be located in the file of Mr Withers and emails that he received. Finally, the documents were ready for us to sign. We took no part in either the negotiation or drafting so the joint venture agreement was totally prepared for us.
[14] As to the addendum agreement, Mr Mogilin deposed in evidence:
31. This agreement came about because my wife was continuously concerned that our agreement was not reflected in writing. Therefore, in one of our discussions, I asked Mr Tee to put in writing the fact that our property would be returned to us if we did not obtain finance. The agreement was prepared, I think, by Mr Tee. I am unsure as to where we signed it, but I am quite sure that it was in Mr Wither’s office. It quite unequivocally states that the property at Lincoln would be transferred back to us if the joint venture did not go ahead.
[15] The only other oral evidence provided at the hearing before me was that of Mrs Mogilin. In this she confirmed the events, discussions and other factual information provided by Mr Mogilin in his evidence. She confirmed also that Mr Mogilin was ill with diabetes and depression at the time these agreements were entered into, and his health condition has since worsened. She confirmed at paragraphs 5, 7 and 8 of her statement, which provided part of her evidence before the Court:
5. I confirm that the transactions, in our minds, were solely for the purpose of the Defendants raising finance over the land and giving the money to us to be used for our business affairs. We believed at the time that they were doing this to help us. It was always our understanding that after the litigation with Chernishoff and the IRD was over, our property would be returned to us.
...
7. I refer to the joint venture agreement dated 1 April 2009 and its undated addendum both of which contain our signatures. Although I signed these documents, I was never told what I [sic] meant, nor was there ever an intention to be involved in a joint venture. The agreements were put in front of my husband and I with the promise that the first defendant would obtain finance and assist us in our situation. I confirm that there were numerous discussions as to this, as set out in my husband’s statement, and that I was present during those discussions. I also confirm that on each occasion the discussions were focussed around raising finance over our assets so that we could gain funds for our legal troubles.
8. I was extremely opposed to transferring our land and company to the defendants but I stood by my husband’s decision. The fact that we were in such a desperate state at the time combined with Mr Tee’s threats that we would go bankrupt unless we paid him meant that my concerns almost had to be put to one side.
Counsel’s arguments and my decision
[16] I turn now to consider the plaintiffs’ arguments in support of their pleaded causes of action here. Their final statement of claim is a second amended statement dated 24 May 2013. It follows an original statement of claim filed over two years ago on 21 March 2011, and a first amended statement of claim filed on 6 December
2012.
[17] As to the original 21 March 2011 statement of claim, Doogue AJ in a judgment given in this proceeding on 13 August 2012 on discovery, security for costs, change of venue and contempt allegation issues, expressed concerns at [54] when he said:
[54] Not only is the plaintiffs’ case convoluted at a factual level but it exhibits signs of over-elaboration consistent with taking a strained approach to finding a wide variety of causes of action. Instead of the plaintiffs’ statement of claim containing a concise, clear set of pleadings that focuses on one or two principle causes of action, they have adopted a “shotgun” approach. This is not an encouraging augury for success on their part.
[18] In my view, the plaintiffs’ latest 24 May 2013 statement of claim, which stretches to 58 numbered paragraphs and many other paragraphs seeking relief (as opposed to their original 21 March 2011 statement of claim which Doogue AJ criticises above and which even then ran to only 40 paragraphs) is no better. The “shotgun” approach continues.
[19] Nevertheless, I will turn now to consider the arguments advanced by the plaintiffs in support of their causes of action pleaded in this current statement of claim. In doing so, however, I need to say at the outset that, in my view, a number of these grounds are quickly disposed of.
Pre-contractual misrepresentation, commercial deceit – or misrepresentation under
Contractual Remedies Act 1979
[20] Essentially this ground claims that the defendants promised they would assist the plaintiffs by borrowing money over the Lincoln property and the various properties owned by Eurostile, and providing these funds to the plaintiffs, which essentially did not occur. In the meantime, it is claimed they would hold these properties on behalf of and for the benefit of the plaintiffs. In addition, the Mogilins contend the defendants misrepresented that the assets belonging to SY Enterprises had a market value of $5.6 million, when it is said the defendants knew these assets had no commercial value at all. Finally, the claim from the Mogilins is that the defendants promised they would assist them in their claim against Chernishoff, which did not occur. It is said these representations and promises were made with the sole or predominant purpose of inducing the plaintiff to transfer their assets to the defendants, effectively without consideration.
[21] On the issue of commercial deceit, Mr Orlov for the plaintiffs referred the Court to Bradford Third Equitable Benefit Society v Borders,1 where the elements of the cause of action in deceit were summarised as follows:
(a) The defendant must make a representation of fact.
(b)
(c)
The representation must be made in the knowledge that it is false.
The representation must be made with the intention that it be relied
upon by the plaintiff. (d)
The plaintiff must in fact rely upon the representation.
(e)
The plaintiff must suffer damage as a result of relying upon the representation.
[22]
In th
e present case, there is little by way of substantiated evidence to confirm
that the alleged representations (some of which actually run counter to specific provisions in the written contracts) were in fact made. And, even if the
representations alleged were made and acted upon (and there also seems to be
1 Bradford Third Equitable Benefit Society v Borders (1941) 2 All ER 205.
considerable confusion surrounding this, relating at least in part to the involvement of several lawyers, including Mr Tee, Mr Withers and a Mr Robertson, who may have provided advice at the time to the Mogilins), the terms of the later addendum agreement entered into to vary the joint venture agreement and the April 2010 Deed of Assignment would seem to me to suggest that, in any event, at that point the Mogilins were comfortable with arrangements that had been reached. Significantly too, those later contracts did provide for the re-transfer of assets to the Mogilins under certain circumstances.
[23] Certainly, in terms of legal advice as well, it is clear that Mr Withers and his firm formally accepted instructions to act for the Mogilins on “restructuring of their financial affairs” from 19 January 2009, over 14 months before the joint venture agreement was signed. Sometime later, it seems on 17 February 2010, Mr Withers provided the Mogilins detailed advice by letter on asset planning matters (in which he mentioned suggestions that had been made to the Mogilins to “shift the value of all [your] assets offshore.” Then, in March 2010, he conducted extensive negotiations with their bank mortgagee in an (unsuccessful) attempt to raise a further loan to meet legal costs.
[24] For these reasons, I am satisfied that the plaintiffs have been unable to satisfy the Court on the balance of probabilities that some actionable deceit or misrepresentation, not cured by the later decision to enter into the addendum agreement and the Deed of Assignment, occurred here.
Lack of valid consideration and unconscionable bargain
[25] Under these grounds, the plaintiffs claim there has been a total lack of consideration, and indeed a failure to provide any consideration for the assets which have been transferred by them to Mr Jo and Mrs Jho, and hence the contracts must be set aside as unconscionable.
[26] Here, as I have noted above, the Mogilins received by way of transfer shares in a company called SY Enterprise Limited, pursuant to the 1 April 2010 joint venture agreement. The defendants, it is alleged, represented that this company, which was said to hold valuable patents, was worth $5.6 million dollars.
Significantly, the joint venture agreement signed by all parties itself acknowledged in the recitals at [1] that “The parties are agreed that the patents have a total market value of NZ$5,600,000.” Notwithstanding this, the Mogilins contend now that no discovery of any type verifying the truth of the defendants’ allegation as to this value has been provided, and the Mogilins are left with no other position but to conclude that the patents may be worthless with no commercial value. Further, it is contended the defendants were at all times aware of this, and induced the plaintiffs to transfer their real estate assets and the value-less shares in Eurostile, using the shares in SY Enterprise Limited as “consideration”.
[27] On these consideration issues, there is really nothing definitive before the
Court that might assist here. Addressing those particular aspects, Heath J in his 26
August 2011 judgment, noted at [4] above, commented at [41], [42] and [43]:
[41] The background to the transactions is murky. The documents produced tend to be at odds with the chronology to be inferred from Mr Mogilin’s affidavit. But, equally, the benefits said to flow to Mr and Mrs Mogilin are not well explained. There is a disconnect between the benefits to be gained from use of patents and other evidence dealing with a Russian fishing venture. While Mr Mogilin makes a guarded reference to the “fishing” venture, I am unable to identify either its nature or scope.
[42] In addition, Mr Jo (whom one would expect to have the information) has not produced any evidence of the financial position of SY Enterprise Ltd to demonstrate that the value to Mr and Mrs Mogilin of 30% of the shares in that company was truly equivalent to the combined value of the Lincoln property and the shares in Eurostile.
[43] While it is possible to draw an inference against Mr Jo and Mrs Jho of engaging in conduct that resulted in an unconscionable bargain, I am not prepared to go much further than that.
[28] Turning now to the authorities it is clear that consideration need not be adequate or fair but must be sufficient. It is well settled that the Courts will not enquire into the “adequacy of consideration”. The parties are presumed to be capable of appreciating their own interests and of reaching their own bargain. That is not to say however that adequacy of consideration is always irrelevant. As
Burrows, Finn and Todd in Law of Contract in New Zealand, 4th edition, at
paragraph 4.51 notes:
If it can be shown that a person has improperly taken advantage of special weakness in another (for example, senility) and thus has obtained a bargain
which is grossly unfair to the weaker party, the contract may be set aside as being unconscionable. Inadequacy of the consideration supplied to the weaker party is one thing that may be taken into account in deciding whether the transaction is unconscionable.
[29] In the present case, it is said that Mr Mogilin in particular was unwell when the initial joint venture agreement and arrangements were entered into. Thus, it is suggested he was taken advantage of. Further, it is noted that in any event the defendants here, despite many attempts by the Mogilins to elucidate this material, have put nothing before the Court to indicate the value of SY Enterprise Limited and the patents in question.
[30] That being so, Mr Orlov contends that insufficient or no consideration has been provided on the part of Mr Jo and Mrs Jho here for the transfer to them of the Mogilins’ properties, and the contracts must therefore be set aside as unconscionable.
[31] As I note above, however, a complicating factor in this is what is said to be the general objectives of the arrangements which the Mogilins endeavoured to achieve, to remove their New Zealand assets offshore in an endeavour to protect them from attack by the Commissioner of Inland Revenue.
[32] In addition, there is also the complication which arises when, subsequent to entering into the joint venture agreement which it seems may have followed the transfer of the Mogilins’ assets, and presumably with knowledge of difficulties which were arising, the Mogilins chose to enter into the addendum agreement, and the Deed of Assignment. And as I have specifically noted already, significantly those contracts did provide for a re-transfer of assets under certain circumstances.
[33] It might be thought that had some concern arisen regarding the value of the consideration passing from Mr Jo and Mrs Jho under the joint venture arrangements and in particular relating to the value of the SY Enterprise Limited shares and the patents, then this would have been raised too at that time. This did not occur.
[34] Notwithstanding that Mr Jo and Mrs Jho have effectively refused to provide any evidence to verify the value of SY Enterprises Limited at the operative time, in my view, under all the circumstances here and on the basis of the reasonably
incomplete evidence placed before the Court by the Mogilins, I have difficulty in concluding that the consideration for the bargain struck between the parties here must be seen as entirely insufficient, such that the parties’ agreement should be set aside. There can be no doubt, in my view, that the parties in this case, who were legally advised at the time, intended to create legal relations with their agreements and revisited aspects when the addendum agreement and Deed of Assignment were entered into. Any submission that there was either a complete absence of, or insufficient, consideration here cannot succeed, in my view, in the face of the repeated promise by the defendants to re-transfer shares and the Lincoln property in the subsequent contractual documentation the parties entered into. That said, and for all the reasons outlined above, I find here that the parties were happy with the degree of consideration which was passing, they saw it as sufficient, and in reality that was the case. The parties reached their own bargain and it is not the Court’s function in this case to denounce it merely because it might seem to be unbalanced or unfair –
Midland Bank v Green.2
[35] I dismiss the plaintiffs’ argument that there was a lack of valid consideration
here and the bargains reached were unconscionable.
Breach of fiduciary duties
[36] It is clear in the past that parties to a joint venture agreement have been held to be in a fiduciary relationship – Chirnside v Fay.3 But, here, as will become apparent later in this judgment, there have been breaches on the part of the defendants in their duties under the various contractual arrangements between the parties, remedies will lie, and thus it is not necessary to embark on a detailed analysis of whether a fiduciary relationship may have existed between these parties. And, although this ground was advanced at paragraph 43 and following of the plaintiffs’ amended statement of claim, before me Mr Orlov presented little by way
of persuasive argument in support.
[37] On these aspects, however, it is noted that the plaintiffs’ amended statement
of claim does appear also to bring a complaint against Mr Tee, who was described as
2 Midland Bank v Green [1981] AC 513.
3 Chirnside v Fay [2006] NZSC 68.
“a lawyer whom the plaintiffs’ trusted”. There is a suggestion too that the lawyer who advised the Mogilins, Mr Withers, “who the defendants knew was also the plaintiffs’ lawyer” was acting under a conflict of interest, in that it is said he was looking after the defendants’ interests and not those of the plaintiffs.
[38] Neither Mr Tee nor Mr Withers are parties to this proceeding, however. Any possible actions which might lie against them are entirely separate matters. They are issues which are not before me here.
[39] Given those aspects, the conclusions I reach later in this judgment and the fact also that little by way of directed submission was addressed to me on this pleaded ground, I find it unnecessary to definitively determine this ground of claim expressed in the plaintiffs’ amended statement of claim.
Unconscionable bargain
[40] Again before me, other than as I have outlined at [25] to [35] above, Mr Orlov did not address any specific additional submissions to this fifth ground of the plaintiffs’ claim.
[41] As I have said, the Mogilins have been unable to establish in the evidence before the Court that this is a clear case of unfair or unconscionable bargain. There is no evidence here of major disability or significant disadvantage on the part of the Mogilins here in terms of the principles in Gustav Co Limited v Macfield Limited.4
This ground must also be dismissed. It could not be said that the Mogilins, who were involved at the time in significant property and subdivision matters, were poor and ignorant in a commercial sense, or for some other reason required special protection. Although Mr Mogilin’s health condition was not favourable, Mrs Mogilin has shown herself to be astute and insightful and, again, the later decision to enter into the ancillary agreement to rectify concerns which Mrs Mogilin had raised at the time, would seem to suggest that this was not a case where unfair
advantage had been taken by Mr Jo and Mrs Jho.
4 Gustav Co Limited v Macfield Limited [2007] NZCA 205.
Remedies under the Illegal Contracts Act 1970
[42] Again before me, Mr Orlov did not direct any specific submissions to the wide list of remedies sought here, nor did he press the point in a major way that the joint venture was “a sham”, as pleaded in the amended statement of claim. Indeed, entry by the parties into the Deed of Assignment document and the addendum agreement, (which itself acknowledged and was subsequent to the joint venture agreement itself), and occurred well after the transfer of the Mogilins’ assets to Mr Jo and Mrs Jho, would seem to negate any suggestion that the joint venture was a sham.
[43] In my view, the Illegal Contracts Act 1970 pleading is of little help here and does not add to the plaintiffs’ claim. Again, I dismiss this aspect of the plaintiff’s argument.
Breach of contract – repudiation
[44] This brings me to the last and, as I see it, most substantial claim by the
Mogilins here.
[45] On this aspect, Mr Orlov suggested in submissions that, following the first meeting between the parties, they entered into an oral agreement:
(a) That Mr Jo would lend the plaintiffs the sum of $500,000, using the
Lincoln property as security.
(b) Mr Jo would continue the claim by Eurostile, by funding Mr Tee’s
fees and acting generally in the interests of the plaintiffs.
(c) In the event that Mr Jo and Mrs Jho could not raise finance as promised and upon the plaintiffs’ request, they would transfer back the properties and assets they had acquired.
[46] Mr Orlov before me acknowledged that following the transfer of various assets from the Mogilins, the joint venture agreement signed on about 1 April 2010 set out this arrangement, although it omitted certain aspects.
[47] The addendum agreement was then entered into between the parties, which referred directly to and altered the terms of the joint venture agreement, as I have outlined at [4][26] above.
[48] Although neither the joint venture agreement, the addendum agreement nor the Deed of Assignment specifies this, Mr Orlov endeavoured to argue that the Mogilins entered into these agreements on the basis that their assets were to be held in trust by the defendants, and that if the desired finance was not raised they would be transferred back to them. This has not occurred. The Lincoln property is still owned by Mrs Jho, the shares in Eurostile Limited remain in the ownership of the Jo family interests, but it seems all properties owned by Eurostile Limited have now been sold. There is a suggestion, however, that the purchaser of two of the Eurostile Limited properties, Friday Properties Limited, may be in some way connected with Mr Jo or Mrs Jho.
[49] Section 7(2) and (3) Contractual Remedies Act 1979 state:
7 Cancellation of contract
...
(2) Subject to this Act, a party to a contract may cancel it if, by words or conduct, another party repudiates the contract by making it clear that he does not intend to perform his obligations under it or, as the case may be, to complete such performance.
(3) Subject to this Act, but without prejudice to subsection (2), a party to a contract may cancel it if—
(a) he has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or on behalf of another party to that contract; or
(b) a term in the contract is broken by another party to that contract; or
(c) it is clear that a term in the contract will be broken by another party to that contract.
[50] Here, the first enquiry must be what are the terms of the contract between the parties? On this, I am satisfied that all the Mogilins have been able to establish in this case to the necessary civil standard is that the written and signed joint venture agreement, together with the written and signed addendum to that agreement and the Deed of Assignment provide the terms of the contractual arrangements between the parties. It might be that an additional term, whereby Mr Jo and Mrs Jho were to use their best endeavours to obtain a mortgage advance of up to $500,000 on the security of these properties, and to make this available by way of loan to the Mogilins, does form part of the contractual arrangements. Certainly, the terms of the addendum agreement would seem to support this.
[51] That being the case, the next question is whether or not Mr Jo and Mrs Jho are in breach of their obligations under the contracts.
[52] On that aspect, as I see the position, it is important to note part of the provision in paragraph 2 of the addendum agreement between the parties which states:
If Martina Jho can refinance the properties owned by Eurostile Limited together with 1543 Springs Road, Martina Jho consent to Anatoly Mogilin and Masha Mogilin putting a caveat on 1543 Springs Road. This is because Martina Jho, Anatoly Mogilin and Masha Mogilin have agreed to have 1543
Springs Road returned to Anatoly Mogilin and Masha Mogilin if their agreed joint venture in Russia cannot go ahead or if Anatoly Mogilin and Masha Mogilin decide to terminate that joint venture. If this is the case then Masha Mogilin must transfer the 30 per cent shares in SY Enterprise Limited to Martina Jho and Martina Jho transfer 1543 Springs Road to Anatoly Mogilin and Masha Mogilin.
[53] As I have noted above, this addendum agreement, it seems, clearly sprung out of concerns expressed by the Mogilins, and in particular Mrs Mogilin, that they were divesting themselves of their properties in situations where the proposed refinancing might not occur, and the proposed joint business venture in Russia might not go ahead. And indeed, the Mogilins have caveated the Lincoln property as the addendum agreement signalled they could do.
Russia” is not to go ahead, particularly given the fact that the parties have fallen out in a major way. There is no evidence to the contrary advanced by the defendants. In any event, the provision does provide for the re-transfer to the Mogilins of the Lincoln property alternatively “if the Mogilins decide to terminate that joint venture”. That is clearly what has occurred here.
[55] Given these conclusions, then the contractual arrangement between the parties clearly required the Lincoln property to be re-transferred to the Mogilins, and for them in turn to re-transfer their 30 percent shareholding in SY Enterprise Limited to Mr Jo and Mrs Jho. That is what the contract contemplated and what should have occurred. This is irrespective of whether there may be any breach on the part of either party to those contractual arrangements.
[56] On the question of breach, there are allegations and counter-allegations before the Court on both sides.
[57] Section 7(3) Contractual Remedies Act 1979 provides that a party to a contract may cancel it if:
(c) it is clear that a term in the contract will be broken by another party to that contract.
[58] It seems unquestionable that if a party repudiates a part of a contract, it will be possible to say that “it is clear that a term will be broken”, and as long as the threatened breach is serious enough to satisfy s 7(4) Contractual Remedies Act 1979, cancellation of the contract will lie in the hands of the innocent party.
[59] In this case, the evidence establishes that on a number of occasions the Mogilins requested the re-transfer to them of the Lincoln property in return for the transfer of the 30 percent shareholding in SY Enterprise Limited held by their daughter, Natalie, (she confirming that she was perfectly happy to re-transfer the shares). This request has been met with either a denial or, in many cases, it has simply been ignored on the part of Mr Jo and Mrs Jho.
require re-transfer to them of the Lincoln property should they wish this to occur. They have done this and given notice requiring a re-transfer of the Lincoln property. Mr Jo and Mrs Jho, in my view, are in clear breach of their obligation under this contract, to re-transfer the Lincoln property, particularly given here that there seems no possibility whatsoever that the “agreed joint venture in Russia” might go ahead.
[61] It follows therefore that Mr Jo and Mrs Jho are in breach of this term in the contract for the re-transfer of the Lincoln property. This enables the Mogilins to cancel the contract in terms of s 7(3) of the Contractual Remedies Act 1979. This might also be seen to be the case, given that no refinancing of the Eurostile Limited properties, nor indeed the Lincoln property, such that the suggested loan of up to
$500,000 could be made to the Mogilins, has occurred. What does seem clear from the evidence before the Court is that Mr Jo and Mrs Jho have made available some amounts totalling $65,000 to the Mogilins from July to August 2010 by way of various loans. These are recorded in a number of signed acknowledgments of debt. Although there is little evidence before me regarding this aspect, it would appear these loans are still outstanding.
[62] One further matter which may provide some degree of complication concerns what are essentially unanswered allegations in an affidavit of Mr Jo dated 29 June
2011, which claim that substantial GST, taxation and other debts were owed by the company Eurostile Limited when the shares were taken over from the Mogilins, and these amounts have been required to be met by Mr Jo and Mrs Jho.
[63] One last matter needs to be addressed here. This relates to the Deed of Assignment outlined at paragraph [4][29] above. The essence of this document provided for an assignment to Eurostile Limited of the Mogilins’ interest in the High Court proceedings they had brought against Mr Chernishoff. Interestingly, the Deed acknowledged that the company, Eurostile Limited, owed the sum of $490,000 as a debt to the Mogilins “and suitable security shall be taken if required.”
Court proceeding subject to any final settlement decision being made by the
Mogilins.
[65] Significantly, as I see it, the Deed provided specifically in paragraphs [5] and
[6]:
[5] When directed [Mr Jo] will transfer all shares in [Eurostile] to [the Mogilins] or as [the Mogilins] may direct and [Mr Jo] will ensure that all other shareholders if any will similarly transfer their shares.
[6] When directed [Mr Jo] will resign as a director of [Eurostile] so that [the Mogilins] or as [the Mogilins] directs, can become directors of [Eurostile].
[66] These provisions were also included in light of a requirement at paragraph [2] of the Deed of Assignment that the proceeds from the High Court proceeding were to be “paid as directed by the Mogilins” even though the benefits and proceeds of any judgment which might have arisen were assigned to Eurostile Limited.
[67] What does all this mean? As I see the position, although under the joint venture arrangement the Mogilins had transferred their share ownership in Eurostile Limited to Mr Jo and Mrs Jho, ultimately as the Deed of Assignment specified, the Mogilins could require and direct that the shares in Eurostile Limited be re- transferred to them in which event Mr Jo would also resign as a director of the company.
[68] There is material before the Court in all the detailed correspondence and communications between the parties and their advisers to suggest that this request and direction under the Deed of Assignment was made by the Mogilins. It is presumed also that this is precisely what they would have wished to happen here. Under all these circumstances, I am prepared to proceed on the basis that the Mogilins have directed that the shares in Eurostile Limited be transferred to them and Mr Jo be required to resign as a director of that company but this has not happened. This is all pursuant to the agreed terms of the Deed of Assignment, given also that there is no possibility, looking ahead, that the Mogilins’ High Court
proceeding against Mr Chernishoff would be pursued further by the Jo interests. And there is essentially no defence or opposition from the defendants to any of this.
[69] Orders by way of specific performance of that part of the Deed of Assignment to effect the share transfer back to the Mogilins and for the resignation of Mr Jo as a director of the company are to follow.
[70] Once that has occurred, then the Mogilins will again be in control of Eurostile Limited and will be in a position to conduct such investigations as they may wish concerning the affairs and operation of the company over the last three years.
[71] I say that in light of the fact that the evidence before the Court would seem also to indicate also that:
(a) At some point Eurostile Limited owed $490,000 to the Mogilins.
(b) The Mogilins have, in recent years, received advances of at least
$65,000 from Mr Jo and Mrs Jho as recorded by signed deeds of acknowledgement of debt.
(c) Sales of properties owned by Eurostile Limited have occurred in the recent past and some of the proceeds from these sales have, no doubt, been used to repay mortgages, sale and other costs properly incurred by Eurostile Limited. Any net surplus following these sales will belong to the company and needs to be properly accounted for.
(d)Once the shares in Eurostile Limited are vested again in the Mogilins, as part of their control of the company, they will be able, if they so wish, to appoint an independent liquidator with power under the Companies Act 1993 to investigate company dealings and transactions in particular in the recent past.
Where does all this leave the present situation?
[72] Given that I have concluded that there have been clear breaches on the part of Mr Jo and Mrs Jho under the existing joint venture and addendum contracts, and those breaches are substantial as defined in s 7(4) of the Act Contractual Remedies Act 1979, I am satisfied in terms of s 7(3) of the Act that the Mogilins were entitled to cancel those contracts.
[73] Section 8(1) and (2) Contractual Remedies Act 1979 provide that if an innocent party elects to cancel a contract because of breach, it is vital that they notify the guilty party of this. The general rule is that a cancellation is not effective as a cancellation until the other party knows of it – Chatfield v Jones.5
[74] In this case, I find that a notice of cancellation has been given to Mr Jo and Mrs Jho either personally or through their legal representatives. It is clear that recent difficulties have arisen in the plaintiffs being able to make contact with, or even to locate, Mr Jo or Mrs Jho. Notwithstanding this, from all the circumstances prevailing in this case, in my judgment the Mogilins have shown in terms of s 8(2) of the Act that, through their conduct and the many communications provided to the defendants’ representatives, proper notice cancelling the joint venture and addendum contracts has been given, and the defendants would have been aware of this.
[75] This cancellation, however, does not avoid the contracts between the parties as though they had never existed but, rather, is a cancellation for the future only. This is provided for, and the effect of cancellation is noted, in s 8(3) and (4) Contractual Remedies Act 1979.
[76] Having concluded that the Mogilins have properly cancelled the joint venture agreement and the addendum agreement, s 8(3)(b) Contractual Remedies Act 1979 provides that, insofar as those contracts have been performed at the time of the cancellation, no party shall, by reason only of the cancellation, be divested of any property transferred or money paid pursuant to the contracts. Damages for breach are recoverable, however, pursuant to s 8(4) of the Contractual Remedies Act 1979.
[77] Turning now to the Deed of Assignment contract, as I have noted above, it is appropriate here for an order to be made by way of specific performance requiring the parties to comply with their respective share re-transfer obligations under this deed. The Mogilins have made an election for this to occur and it is appropriate, therefore, first, for Mr Jo and Mrs Jho to re-transfer the Lincoln property to the Mogilins and, secondly, for the Mogilin family interests to re-transfer their
20 percent shareholding in SY Enterprise Limited to Mr Jo and Mrs Jho.
Conclusion
[78] For all the reasons outlined above, the Mogilins must succeed here as to liability but only insofar as their breach of contract cause of action is concerned. In their statement of claim the Mogilans seek a wide variety of relief and a large number of remedies, many of which, in my view, are conflicting or inappropriate here. The orthodox remedies for a breach of contract are specific performance and damages. An enquiry into damages is sought here by the plaintiffs. An order regarding this will follow. An account of profits and tracing orders are also sought in the statement of claim. Whilst the usual monetary remedy for a contract breach is
damages, in Attorney-General v Blake6 the House of Lords accepted that in
exceptional cases an account of profits can be awarded to strip a defendant of gains resulting from a breach of contract. An order reserving leave to the plaintiffs to seek an account of profits and tracing orders is to follow. Certain specific performance orders (to effect re-transfer of shares and property) and costs orders are also to follow, but no other relief is appropriate here.
[79] The following orders are now made:
(a) An order is made by way of specific performance under the joint venture agreement and addendum agreement requiring Mr Jo and Mrs Jho to immediately procure the re-transfer to the Mogilins of the Lincoln property.
(b)An order is made by way of specific performance under the Deed of Assignment requiring Mr Jo and Mrs Jho immediately to procure and arrange, first, for a complete transfer of the existing shareholding in Eurostile Limited to Mr Mogilin and Mrs Mogilin to be provided, secondly, for proper resignations of all existing directors of the company to be provided and, thirdly, for the prompt provision to Mr and Mrs Mogilin (without exception) of all books and information, bank accounts, other assets, financial statements and all other documentation held or under their control or direction for Eurostile Limited.
(c) A further order is made by way of specific performance under the Deed of Assignment, first, requiring the Mogilins to ensure and procure that the 30 percent shareholding held by their daughter, Natalie Mogilin, in SY Enterprise Limited is re-transferred immediately to Mr Jo and Mrs Jho, and, secondly, requiring the Mogilins or either of them who may be directors of that company to promptly resign.
(d)Given that Mr Jo and Mrs Jho are in breach of their obligations under the cancelled joint venture agreement and addendum agreement contracts between the parties, and under the Deed of Assignment, I order that the enquiry into damages requested by the Mogilins is now to be undertaken.
(e) Leave is reserved for the Mogilins to bring any further applications they may wish here, first, to seek order tracing monies from the sale of any assets by Eurostile Limited, Mr Jo, Mrs Jho, and related entities, and/or, secondly, although this is generally an exceptional remedy to compensate for breaches of contract, an application in the nature of an action for account of profits.
Costs
[80] As to costs, the Mogilins have been successful in this action. In my view, under all the circumstances here, they are entitled to an award of indemnity costs on a solicitor and client basis against the defendants. The defendants, as I see it, have behaved badly, or at least very unreasonably, in prolonging this case and maintaining a constant defence and opposition to every claim advanced by the plaintiffs here, only to effectively abandon this at the final hour when this matter was due for hearing. Rule 146(4)(a) and (b) clearly apply here.
[81] An order is now made that the defendants are to pay to the plaintiffs costs on an indemnity solicitor and client basis of and incidental to this proceeding, together with any disbursements as fixed by the Registrar.
Postscript
[82] At the conclusion of the hearing of this matter before me on 12 August 2013 I issued a minute and made certain interim orders. These related to concerns which were expressed by the plaintiffs that certain assets in contention here may be in some risk of dissipation or improper dealing on the part of the defendants whilst my substantive decision in this proceeding was awaited.
[83] The following orders were made, therefore, but only on an interim basis:
(a) An order was made that the plaintiffs were to have a caveatable interest over two properties previously owned by Eurostile Limited and subsequently transferred to Friday Investments Limited, being Lot
2 Deposited Plan 341054 and Lot 9 Deposited Plan 341054, with this caveatable interest effectively being a claim by the plaintiffs as beneficiaries under a constructive trust of the properties under which the current registered proprietor, Friday Investments Limited, was the trustee. This was to enable the plaintiffs to register caveats over those properties to protect the position in the interim.
(b)Secondly, a freezing order was made with respect to the yacht, “Volante”, which restrained the defendants from taking any steps or being in any way a party to the removal of the yacht located in or outside New Zealand or from disposing of, dealing with or diminishing the value of that yacht.
[84] Those interim orders were made until such time as my substantive decision in this proceeding was given.
[85] This judgment gives that substantive decision. I now address the interim orders.
[86] The interim order directing that the plaintiffs were to have a caveatable interest in the Friday Investments Limited properties being Lot 2 and Lot 9
Deposited Plan 341054 is to continue in the meantime (pending a full consideration of all matters affecting Eurostile Limited) until further order of this Court is made.
[87] The freezing order pursuant to r 32.2 of the High Court Rules in respect of the yacht “Volante” is to continue until such time as a further order of this Court is made. Again that is simply to preserve the present position.
...................................................
D Gendall J
Solicitors:
E Orlov, Auckland
M J Wallace, Christchurch
3