In the Matter Of The liquidation of 165 Russell Road Limited Between Dheeraj Sareen Plaintiff And Jagpreet Singh Oberoi First Defendant 165 Russell Road Limited Second Defendant Jasraj Investments Limited Third Defendant

[2024] NZHC 1255

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-001248

[2024] NZHC 1255

UNDER

Companies Act 1993

IN THE MATTER OF

The liquidation of 165 RUSSELL ROAD LIMITED

BETWEEN

DHEERAJ SAREEN

Plaintiff

AND

JAGPREET SINGH OBEROI

First Defendant

165 RUSSELL ROAD LIMITED
Second Defendant

JASRAJ INVESTMENTS LIMITED

Third Defendant

Hearing:

13 May 2024

Appearances:

R Connell for Plaintiff

S C Raju for First and Third Defendant

Judgment:

20 May 2024

JUDGMENT OF ANDREW J

This judgment was delivered by Justice Andrew on 20 May 2024 at 2.45 pm

pursuant to r 11.5 of the High Court Rules 2016 Registrar / Deputy Registrar

Date …………………………..

SAREEN v OBEROI & ORS [2024] NZHC 1255 [20 May 2024]

Introduction

[1]                 This is a shareholder dispute arising out of a failed joint-venture, residential property development at 165 Russell Road, Manurewa (the property). Mr Dheeraj Sareen and Mr Jagpreet Singh Oberoi are the shareholders and directors of the joint venture company, 165 Russell Road Limited (RRL), the second defendant. There has been ongoing litigation since 2021 and despite a settlement agreement, the parties still cannot agree on the terms on which they should terminate the joint-venture.

[2]                 The registered proprietor of the property is Jasraj Investments Ltd (JIL), the third defendant. That company is owned by Mr Oberoi and his wife. Under the settlement agreement of 9 January 2023, JIL holds the property on trust for the benefit of RRL.

[3]                 In the substantive proceedings, Mr Sareen seeks an order for the liquidation of RRL. In the present interlocutory application, he seeks an interim injunction preventing Mr Oberoi and JIL from arranging for a sale of the property or selling/transferring Mr Oberoi’s shares in RRL.

[4]There are three issues for me to determine:

(a)Is there a serious issue to be tried?

(b)Where does the balance of convenience lie?

(c)What is the overall justice of the case?

[5]                 Mr Sareen contends that there is a serious issue to be tried in relation to GST and income tax. Mr Oberoi obtained a valuation of the property at $950,000 (inclusive of GST). Mr Sareen contends that the treatment of GST is incorrect and remains a live issue. He says his accountant needs full information about RRL’s GST and income tax position before she could recommend whether he should consider buying Mr Oberoi’s shares.

Factual background

[6]                 In May 2020, JIL acquired the property. The purchase price was $690,000 plus GST (if any). The supply under the relevant sale and purchase agreement was zero- rated under s 11(1)(mb) of the Goods and Services Tax Act 1985.

[7]                 JIL, Mr Oberoi and his wife have indebtedness of around $470,000 secured by a registered mortgage with Westpac Bank recorded on the title to the property.

[8]                 In September 2020, Mr Sareen and Mr Oberoi formed RRL. At about the same time, JIL (as vendor) and RRL (as purchaser) entered into a sale and purchase agreement for the property. The purchase price under this agreement was also

$690,000 plus GST (if any). The agreement was conditional on finance being obtained. Title to the property was not transferred to RRL.

[9]                 In October 2020, Mr Sareen lodged a caveat on the title to the property. It has remained there ever since.

[10]             Disputes then arose between the parties, which led to Mr Sareen commencing proceedings against JIL and Mr Oberoi (the 2021 proceedings).1

The Settlement Deed

[11]             The 2021 proceedings were settled and the details of that settlement were recorded in a Deed of Settlement dated 9 January 2023 (the Settlement Deed). The recital to the Settlement Deed records that in obtaining an order under s 165 of the Companies Act 1993 (derivative action), Mr Sareen was given authority to seek orders for specific performance requiring JIL to transfer to RRL the fee simple title of the property. It also records that substantive proceedings seeking the order for specific performance were subsequently filed in this Court.

[12]The Settlement Deed includes the following provisions:

1      See Sareen v Oberoi [2021] NZHC 2884, in which I granted leave to Mr Sareen to bring a derivative action under s 165 of the Companies Act 1993 in the name of RRL.

(a)Clause 9.1 – express trust; JIL shall hold its interest in the property on express trust for the benefit of RRL.

(b)Clause 9.1(a) – JIL shall hold its interest and all rights pertaining to the property, including all income and proceeds accrued or to accrue from the property on trust for the benefit of RRL.

(c)Clause 9.1(b) – indemnity; RRL shall indemnify JIL against all liabilities which JIL may incur by reason of the property being registered in its name.

(d)Clause 9.1(c) – resignation of trustee; JIL may resign as trustee by serving six weeks written notice any time after 31 March 2023, in which case the parties must take all steps to enable RRL to take clear title and ownership of the property no later than 20 working days after service of the notice of resignation.

(e)Clause 9.2(2) – sale of shares in RRL; any time after 31 March 2023, Mr Sareen and Mr Oberoi may give notice requiring the other to purchase their shares in RRL. If the parties cannot agree on a sale price, the clause provides a procedure to determine the same.

(f)If RRL fails to take title and discharge JIL’s interest in the property upon JIL resigning as trustee (pursuant to clause 9.1(c)) and/or either shareholder fails to acquire the other’s shares in RRL (pursuant to clause 9.2(2)) within the respective time frames under each clause, then clauses 9.2.1 and 9.2.2(c) apply, enabling JIL to sell the property in a prescribed manner.

[13]             Clauses 9.3 and 9.4 of the Settlement Deed record Mr Sareen’s capital contribution for his 50 per cent shareholding in RRL.

[14]             On 28 February 2023, Mr Oberoi paid Mr Sareen the sum of $5,500 as required by clause 9.3.5. There are no outstanding issues about capital contributions.

Resignation of trustee (JIL) and sale of Mr Oberoi’s shares in RRL

[15]             On 3 April 2023, JIL gave notice to resign as trustee under cl 9.1(c) of the Settlement Deed. That required RRL to take legal title to the property and discharge JIL’s interest in the same by 16 May 2023.

[16]             On 6 April 2023, Mr Sareen acknowledged, through his solicitor, JIL’s notice of resignation and outlined options for RRL to raise finance to settle on 16 May 2023. His solicitor added:

We raise one other possibility. Would Mr Oberoi be interested in simply selling his shares in 165 Russell Road Limited to Mr Sareen? Mr Sareen does not wish to sell his shares.

[17]             Mr Oberoi confirmed, through his solicitor by email the same day, that he was prepared to sell his shares in RRL to Mr Sareen and gave notice under cl 9.2.2 of the Settlement Deed.

[18]             Disagreements then unfolded with respect to how RRL would raise finance to take title from JIL, the purpose of a registered valuation for the property, and how to apportion incomings and outgoings under cl 9.1(a) and (b) of the Settlement Deed.

[19]             Mr Sareen says that on 12 May 2023, “to resolve the impasse” he paid into his solicitor’s trust account the sum of $490,000 (to repay RRL’s mortgage to Westpac). The money remained in the trust account until it was returned to Mr Sareen on 14 June 2023.

[20]             After correspondence between the parties on the issue of the sale price  for Mr Oberoi’s shares, on 19 May 2023, Mr Sareen’s solicitors advised:

Our client has instructed us to make it absolutely clear as follows:

1: Our client [Mr Sareen] is not interested in dealing with the issue of the shares or the valuation.

…

[21]             On 7 June 2023, Mr Oberoi obtained his own registered valuation of the property. He says he did so to determine the value of his shares in RRL, using the

formula at cl 9.2.2 of the Settlement Deed. The valuation report disclosed a current market value of $950,000 including GST (if any). Accordingly, and based on that valuation and formula, Mr Oberoi offered to sell his shares to Mr Sareen for $233,500.

[22]             Mr Oberoi then took the position (in reliance on clause 9.2.2 of the Settlement Deed), that unless Mr Sareen confirmed his willingness to buy the shares by 21 June 2023, then JIL could proceed to list the property for sale on the open market.

[23]             By letter dated 13 June 2023, solicitors for Mr Sareen advised that Mr Sareen was no longer willing to fund the repayment of the Westpac loan. Mr Sareen accordingly withdrew that offer. In that same letter, Mr Sareen’s solicitors sought confirmation that the property would be sold in accordance with the Settlement Deed and that unless confirmation of a sale occurred as contemplated by the Deed, then he would continue with the proceedings to wind up RRL on “the just and equitable basis”. The letter proposed that the property be put up for sale with a reserve price of $826,087 plus GST if any. It also noted that JIL would need to account for all income and proceeds accrued to or from the property (pursuant to clause 9.1(a) of the Settlement Deed) and provide all statements of income, expenses and other financial records for the purpose of a final set of accounts.

[24]             The solicitors for Mr Oberoi and JIL responded the next day stating that they had “no issue” with selling the property on the open market. They insisted that the provisions in clause 9.2.1 of the Settlement Deed must be followed. The letter also noted that JIL would need to obtain tax advice on any GST implications arising from the sale of the property and that it intended to confirm its position “shortly”.

[25]These proceedings were issued on 19 June 2023.

Procedural history

[26]             These proceedings came before Becroft J on 3 August 2023 for a directions conference. At the conference, his Honour explored with the parties a “way forward”,

i.e. settlement.

[27]Becroft J recorded as follows:2

[10] For instance, the issue as to the GST involved in any share transfer in 165 Russell Road from Mr Oberoi to Mr Sareen has now been agreed and resolved. That has been confirmed by the parties. That figure appears to be

$171,543.50.

[28]In terms of “the way ahead” Becroft J noted:

[14]      More fundamentally, however, Mr Sareen needs to decide once and for all, under the deed of settlement:

(a)Whether he wishes the 165 Russell Road property to be transferred to 165 Russell Road Limited;

(b)Secondly, whether he wishes to obtain all the shares in that company and effectively buy Mr Oberoi out and whether he wishes the property to be sold to a joint venture development or other development with which he is involved. He must do that, in my view, by the 2 October 2023 at the latest.

[15]If I can, frankly, and he is looking at me when I say this, there has been too much vagueness and uncertainty. The 2 October 2023 must be the day where, as I put it in very blunt non-legal terms, that Mr Sareen “puts up or shuts up”. At that stage, he needs to be very clear what he wants in respect of the 165 Russell Road property.

[16]If by that date it is clear that Mr Sareen does not wish in any way to be involved in acquiring any interest in that property, directly or indirectly, then as he rightly said, Mr Oberoi will have to, with Mr Sareen, but through their lawyers, decide how 165 Russell Road is to be sold on the open market.

Relevant legal principles

[29]             There is a general three-step approach that should be followed when considering applications for interim injunctions: 3

(a)Whether there is a serious question to be tried;

(b)The balance of convenience; and

(c)Where the overall justice lies.

2      Sareen v Oberoi HC Auckland CIV-2023-404-001248, 4 August 2023 (Minute of Becroft J).

3      Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142;

Intellihub v Genesis Energy Ltd [2020] NZCA 344 at [23].

Analysis and decision

Issue (a) – Serious issue to be tried

[30]Mr Sareen contends that there are three core disputes:

(a)the correct account under clause 9.1(a) of the Settlement Deed (JIL to account for all income and proceeds accrued from the property);

(b)whether Mr Oberoi’s share sale notice is valid and accurate as to the calculation of the price; and

(c)whether the share sale notice and transfer form were correct when they refer to “including GST (if any)”.

[31]             As Mr Raju, counsel for Mr Oberoi and JIL, submits, there is no dispute about the correct account under cl 9.1(a) and the issue of calculation of price and GST have been largely resolved. In any event, there is a sensible and practical way forward for resolution of those matters in accordance with the Settlement Deed.

[32]             Mr Raju acknowledges that Mr Oberoi accepts that under clause 9.1(a), JIL must account for all incomings and outgoings from the time the property was purchased in 2020. Mr Oberoi and JIL accept the view of Becroft J recorded at [11] of his minute of 4 August 2023 that the past “accrual” relates back to 28 May 2020 when JIL took title to the property.

[33]             There is no longer any issue as to the GST involved in any share transfer in RIL from Mr Oberoi to Mr Sareen. The parties accept and agree with the advice of Ms Murphy, the tax accountant instructed by Mr Sareen, that the transfer of the shares is not subject to GST because shares are an exempt supply for GST purposes.4

[34]             I accept that there is a live and unresolved dispute, or at least uncertainty about RRL’s current financial state and in particular its GST and income tax position and

4      Ms Murphy notes at [15] of her affidavit of 30 June 2023 that it is not common to refer to GST within a share transfer document.

records.    Essentially, Mr Sareen’s complaint is that he requires further financial information about RRL in order to obtain proper valuation advice from his accountant.

[35]             In my view, the extent to which there are differences between the parties on this outstanding issue has been overstated by Mr Sareen. There is of course no expert evidence contradicting that of Ms Murphy and I note that in Mr Raju’s email of 14 June 2023, JIL accepted the need to obtain tax advice on any GST implications arising from the sale.

[36]             During the hearing, I proposed to the parties that a way forward would be for the respective accountants to meet to try and resolve any outstanding GST, income tax and financial information concerns. I adjourned the proceedings briefly to enable counsel to  take instruction.  Mr Oberoi and JIL were agreeable to  that approach.  Mr Sareen rejected it. I address that matter further below.

[37]             The issue I need to address is whether this one remaining issue about GST, tax and financial information constitutes a serious question to be tried.

[38]             These are, of course, liquidation proceedings. The element of a serious question to be tried is ordinarily assessed by making some assessment of the merits of the causes of action. However, it is far from clear whether Mr Sareen genuinely seeks an order for liquidation. The real dispute now appears to be over the implementation of the Settlement Deed. On the available evidence it also seems that Mr Sareen is still somewhat equivocal about what he wants in respect of the property. Becroft J, in his minute of 4 August 2023, made it clear that Mr Sareen needed to make a decision by 2 October 2023. I accept that Mr Sareen seeks further information but, as noted, he has rejected what in my view is the sensible way forward, namely to have the accountants meet, exchange information and try and reach agreement on the small number of outstanding issues.

[39]             There are no causes of action presently before the Court which directly address any truly outstanding issue between the parties. As I have noted, the real complaint Mr Sareen appears to have is one of a lack of financial information. There is no pleading before the Court of a breach of the Settlement Deed. Having said that, I

accept that the extant substantive proceedings do include (as a second and third cause of action), claims based on ss 174 and 175 of the Companies Act.5 Under s 174, a court may make orders requiring the acquisition of shares.

[40]             For present purposes, I am prepared to accept that there is a serious issue to be tried. Having said that, the differences between the parties appear not to be significant and are readily capable of resolution.

Issue (b) – Balance of convenience

[41]             As Katz J held in Intellihub Ltd v Genesis Energy Ltd, the balance of convenience considerations refer to a range of factors that are ultimately directed to “which course will carry the least risk of doing a permanent injustice to either party”.6 These factors typically include the preservation of the status quo, whether damages will be an adequate remedy, the impact on third parties and the public interest.

[42]             Mr Sareen contends that damages would not be an adequate remedy because the property is one that presents for him a unique development opportunity. Mr Sareen was involved with the development on the neighbouring property at 167 Russell Road. He says he would enjoy huge cost savings if he could recycle those plans for the future development of 165 Russell Road. It appears that Mr Sareen also has concerns over current deterioration in market conditions.

[43]             I find that the balance of convenience considerations do not favour Mr Sareen. In substance, his interests are financial ones; damages would be an adequate remedy. He has agreed to a process for the sale of the property, as contemplated by the Settlement Deed. That presents him with the opportunity to purchase the property. It appears that he has no genuine interest in placing RRL into liquidation where the property would be under the control of a liquidator.

5 [24] and [25] of the statement of claim refer to s 175 of the Companies Act 1993. However, I assume that the orders sought are in fact made under s 174 (prejudice to shareholders) together with an assertion of deemed prejudicial conduct under s 175.

6      Intellihub Ltd v Genesis Energy Ltd [2020] NZHC 807 at [61] citing Auckland International Airport Ltd v Air New Zealand Ltd (2006) 3 NZCCLR 382 (2006), 9 NZCLC 264 ,179 (HC).

[44]             JIL and Mr Oberoi on the other hand have indebtedness of around $470,000 secured by Westpac’s mortgage over the property. Mr Sareen on the other hand has no indebtedness at all, at least as regards the property. I accept the evidence of the defendants that there is a clear need for resolution, and the parties having agreed to a sale of the property, that process should proceed unimpeded.

Issue (c) – Overall interests of justice

[45]             I find that it is very much in the overall interests of justice that the interim injunction should be refused. For no good reason, Mr Sareen has rejected the proposal, and an imminently sensible one, of the respective accountants getting together to resolve what appear to be now relatively insignificant issues. The parties have agreed to a sale of the property, as contemplated by the Settlement Deed and, as Mr Raju submits, the dates for RRL now taking title have passed. So too has the date for any sale of shares (see clause 9.2.2 of the Settlement Deed).

[46]             As noted above, Mr Sareen’s position on the future of the property remains equivocal. He has not “put up or shut up” as directed by Becroft J in his minute of 4 August 2023. He has withdrawn the funds from his solicitor’s trust account. I note also that he has a caveat over the title to the property. Mr Raju submits that the caveat is no longer based on a valid caveatable interest, but that is not a matter I can determine.

[47]             I accept that there is no evidence before the Court properly to reach any conclusion as to Mr Sareen’s financial capacity to purchase the property. However, he has not adequately explained why the funds were withdrawn from his solicitor’s trust account, and given his ongoing equivocal position, it is understandable why the defendants raise this as an issue.

[48]             It appears that the parties came very close to resolving all differences in June 2023. The Settlement Deed provides a clear way forward and the defendants have agreed to a proposal which would enable Mr Sareen to obtain the necessary financial information he seeks.

[49]             In all the circumstances, I conclude that the application for an interim injunction should be refused.

Result

[50]The application for interim injunction is dismissed.

[51]             I order that the plaintiff, Mr Sareen, is to pay costs to Mr Oberoi and JIL on a 2B basis plus disbursements.

Andrew J