Hortus Limited v Ashlesha Holdings Limited

[2023] NZHC 2851

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE

CIV-2023-406-009

[2023] NZHC 2851

UNDER

Part 32 High Court Rules 2016

IN THE MATTER OF

An application for a freezing order

BETWEEN

HORTUS LIMITED

Applicant

AND

ASHLESHA HOLDINGS LIMITED

First Respondent

AND

ASHISH AND NISHA SAWANT

Second Respondents

Hearing:	On the papers
Counsel:	H Q Fletcher, S E Wroe and T J M Ashley for Applicant B M Nathan and S Galbreath for Respondents
Judgment:	11 October 2023

JUDGMENT OF GRICE J

(Freezing Order)

Background

[1]    The applicant, Hortus Ltd (Hortus), applies without notice for freezing and ancillary orders under pt 32 of the High Court Rules 2016 (the Rules) against the first respondent, Ashlesha Holdings Ltd (AHL),  and the second respondents, Mr and  Mrs Sawant. Mr and Mrs Sawant were the directors and sole shareholders of AHL.

[2]    The applicant is also the plaintiff in an action against the respondents relating to the sale of a property in Blenheim. The transaction involved Hortus purchasing property from AHL and two collateral contracts involving Mr and Mrs Sawant and the

HORTUS LIMITED v ASHLESHA HOLDINGS LIMITED & ANOR [2023] NZHC 2851 [11 October 2023]

sale of shares by Mr and Mrs Sawant. The property purchase and the share transaction involved a total of $5.25 million paid to the first and second respondents’ interests.

[3]The purchase was negotiated as a single transaction and settled in May 2021.

[4]    The dispute arises out of an alleged misrepresentation by the respondents in relation to the domestic effluent and wastewater treatment arrangements on the property. Following the purchase, the applicant says it received a “letter of direction” from the Environmental Protection Officer of the Marlborough District Council dated 21 September 2021 setting out breaches of the discharge resource consent.

[5]    The applicant says further investigation established that the wastewater system did not operate at the capacity which was represented by the respondents. The discharge consent was only sufficient for 40 employees living on the property, rather than 88 employees as contemplated under the various agreements for the sale of the property and the business.

[6]    As a result of this inadequate wastewater system the applicant says it had to remediate and upgrade the wastewater system as well as remove contamination which the inadequate system caused. The applicant claims costs of remediation as well as loss of profits.

[7]    Mr Aaron Jay is the sole director  and managing  director of the applicant.  Mr Jay submits the costs of remediation are in the vicinity of conservatively $700,000. Therefore, the applicant seeks the freezing order to extend to $900,000, based on its conservative estimates of remediation costs.

[8]    Mr Jay is concerned that Mr and Mrs Sawant may be planning to move the money from the sale of the property and the business from the applicant offshore to India, based on the following:

(a)Mr Sawant indicated that he wished to change his lifestyle, slow down and planned to spend more time in and make investments in India. However, Mr Sawant said that they would also plan to spend some time

in New Zealand as the Sawants’ daughter is a professional and works in New Zealand.

(b)Mr and Mrs Sawant had put their house in Riverlands on the market in 2023 but later took it off the market and transferred it into their daughter’s name in August 2023. The house had a CV of $1.74 million with no mortgage, and is now in their daughter’s name.

(d)      Mr and Mrs Sawant sold their Range Rover vehicle on 29 June 2023.

[9]    Mr Jay has been unable to ascertain whether Mr and Mrs Sawant have sold their Lamborghini or Bentley motor vehicles.   In addition, Mr Jay is aware that     Mr Sawant had a gun collection and he does not know whether Mr Sawant has surrendered his gun licence or disposed of his guns.

[10]   The applicant’s solicitors wrote to the respondents’ solicitors indicating that unless before 3 pm on 9 October 2023 they agreed to put $900,000 into their trust account or give an undertaking that their clients would do so within 14 days, they would apply for this freezing order. The applicant’s solicitors received no response.

[11]   The applicant’s solicitors indicated that the respondents were cooperative in progressing the proceedings to date.

Analysis

[12]A freezing order may be made pre-judgment if:

(a)an applicant has a good arguable case, meaning the pleadings and affidavit provided in support of the application must advance sufficient prima facie evidence to support the claim, although not necessarily sufficient to entitle the claimant to summary judgment or for a Judge to consider the claim has more than a 50 per cent chance of success;1

1      Bank of New Zealand v Hawkins (1989) 1 PRNZ 451 (HC); and Wilsons (NZ) Portland Cement Ltd v Gatx-Fuller Australasia Pty Ltd [1985] 2 NZLR 11 (HC) at 21–22.

(b)the respondents are in possession or control of assets to which orders may apply; and

(c)there is a danger of dissipation or disposal of the assets or their removal from New Zealand.

[13]   Ancillary orders can be made under r 32.3 of the Rules if the Court considers it just. Such orders can be made for the purpose of “eliciting information relating to assets relevant to the … prospective freezing order”. Ancillary orders are designed to ensure the freezing order can be policed and is effective by requiring respondents to depose identifiable assets under oath, reducing the risk of their dissipation.2

[14]   The applicant submits it has a good arguable case. The applicant says the terms of the contracts and the terms of the discharge permit are admitted. On that basis, knowledge of the basis upon which the permit/consent was granted (that is, capacity) appears to be admitted.

[15]   Mr Jay deposes the system was not functioning and did not have capacity for 88 people. The system had a maximum consented discharge of 6,000 litres per day and was designed for 40 people. The respondents told Mr Jay that during the time the interests owned the property the daily discharge averaged 900–1,000 litres per day and never exceeded 2,000 litres per day. However, firstly Mr Jays says no documentation has been disclosed to confirm this assertion. Secondly, there is no record of any daily discharge figures in the documents provided at settlement and Mr Jay is not aware of any means of measuring daily discharge installed at the property.

[16]   Therefore, the question of whether the wastewater system was adequate for 88 people and was in “reasonable working order” at the time of settlement will be a matter of evidence. Mr Jay says this may include expert evidence.

[17]I am satisfied that there is a good arguable case in the circumstances.

2      Monasterio v Bujak HC Ōtautahi | Christchurch CIV-2008-409-1901, 21 Ākuhata | August 2009 at [26].

[18]   In relation to the danger of dissipation of assets, a “danger” is interpreted consistently with the traditional “real risk” test — the applicant must provide evidence from which the Court can infer a risk, but the evidence need not amount to a certainty nor ground an inference nefarious intent.3

[19]   In relation to the respondents being in possession of or control of assets to which orders may apply, I am satisfied that given the purchase price of the property and business in the transfer of the ownership of the house, the Sawants are likely to have assets to which the orders may apply.

[20]   The extent to which Hortus’ payment may have gone to satisfy debt is unknown, although the record of title  for  the  property  transferred  by  Mr  and  Mrs Sawant to their daughter shows that  a mortgage to ASB  was  discharged  on  18 May 2021, the day on which the sale of the business property settled. In addition, the house and a car have apparently been disposed of. Mr and Mrs Sawant applied to remove the first respondent from the Companies Register. Mr Jay says that searches reveal no more real or personal property registered to Mr and Mrs Sawant.

[21]   In view of the transfer of the house to their daughter and Mr Sawant’s express desire to invest in India (and spend more time there), together with the other factors listed in [8] and [9] above, I am satisfied there are sufficient grounds to establish for the purposes of the without notice application a danger of dissipation or disposal of the assets or removal from New Zealand. I particularly note that the Sawants’ daughter is employed as a professional in New Zealand, and according to Mr Jay the Sawants intend to spend some time here. However, that is a different issue to whether or not they intend to remove the assets offshore leaving the applicant, following a successful trial, being unable to enforce the judgment.

[22]   I am also satisfied that given the apparent disposal of assets and the lack of information about Mr and Mrs Sawant’s bank accounts and financial position, the ancillary orders are necessary to ensure the freezing order is effective and properly policed.

3      Mogilin v Jo HC Tāmaki Makaurau | Auckland CIV-2011-404-1584, 26 Ākuhata | August 2011 at [34]; and Oaks Hotels & Resorts NZ Ltd v Body Corporate 358851 [2013] NZHC 2695 at [17].

[23]   In the circumstances the application has been made without notice on the grounds that:

(a)requiring the applicant to proceed on notice would cause undue delay or prejudice; and

(b)the interests of justice require the application to be determined without serving notice of the application.

[24]   The reason for proceeding without notice and the risk of dissipation discussed above are two sides of a coin. If there is a risk of dissipation or removal of assets from the jurisdiction, the risk would be increased by notice or delay. This would cause prejudice to the applicant and be contrary to the interests of justice.

[25]   In view of the circumstances, I grant the application for a freezing order in the terms sought. The order will expire in 14 days or by earlier Court order. The application, supporting documents and freezing order are to immediately be served on the respondents. Leave is reserved to the respondents to apply to the Court.

[26]   The matter is to be placed in the list for call on the next available date, to be advised by the Registrar, and the matter is to be timetabled for a hearing of the freezing order application.

Grice J

Solicitors:

Hamish Fletcher Lawyers, Nelson Duncan Cotterill, Nelson