Matvin Group Limited v Crown Finance Limited
[2022] NZHC 2239
•2 September 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2019-404-000402
[2022] NZHC 2239
BETWEEN MATVIN GROUP LIMITED
Plaintiff
AND
CROWN FINANCE LIMITED
First Defendant
CROWN ASIA PACIFIC GROUP LIMITED
Second Defendant
VISCOUNT INVESTMENT CORPORATION LIMITED
Third Defendant
Hearing: 24 May 2021 – 4 June 2021, 9 & 11 June 2021 Appearances:
P Dale QC and L Meys for Plaintiff
G Kohler QC and P Friendlander for First and Second Defendants D Chisholm QC for Third Defendant
Judgment:
2 September 2022
JUDGMENT OF DUFFY J
This judgment was delivered by me on 2 September 2022 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors/Counsel:
Neilsons Lawyers Ltd, Auckland P J Dale QC, Barrister, Auckland Friedlander & Co Ltd, Auckland
G J Kohler QC, Barrister, Auckland
MATVIN GROUP LIMITED v CROWN FINANCE LIMITED [2022] NZHC 2239 [2 September 2022]
[1] On 29 July 2013 the first plaintiff, Matvin Group Ltd (Matvin) entered into a sale and purchase agreement which provided for Matvin or its nominee to purchase
4.5 hectares of land at 122 Hobsonville Road, Hobsonville for $14.5 million. The second plaintiff, Hobsonville Development Ltd (HDL), was the nominee in this agreement.
[2] Matvin is a property developer; it uses finance from other sources to acquire its land purchases. The agreement to purchase 122 Hobsonville Road was conditional on Matvin completing due diligence, which included obtaining finance for the deposit of $1.45 million by 9 September 2013. Matvin managed to pay the deposit but only after negotiating an extension of the due diligence date. However, it was unable to settle the purchase on time due to lack of funds, and the vendor cancelled the agreement.
[3] The first defendant, Crown Finance Ltd (Crown) is what is known in the property development business as a mezzanine financier. The second defendant, Crown Asia Pacific Group Ltd (CAPGL) is an investor. The third defendant, Viscount Investment Corporation Ltd (Viscount) is the party that purchased 122 Hobsonville Road from the vendor following cancellation of the agreement with Matvin. The first to third defendants have a common director, Christopher Arbuckle, and a common shareholder, HWI Nominees Limited. Together the defendants comprise what is known as the Crown Asia Pacific Group (CAPG).
[4] Key issues in this proceeding are: (a) how to characterise the legal relationship between Matvin and HDL with Crown and CAPGL; (b) how Matvin’s purchase of 122 Hobsonville Road came to be cancelled by the vendor; and (c) the aftermath, including how Viscount came to purchase this land and the role Crown and CAPGL played in that event.
[5] Put shortly, Matvin and HDL contend that their purchase of 122 Hobsonville Road was part of a joint venture project with Crown and CAPGL to develop this land. The project never eventuated because of wrongful and legally actionable conduct on the part of Crown and CAPGL. This conduct led Viscount to purchase the land in
circumstances which also left Viscount legally liable to Matvin and HDL. On the other hand, the defendants contend that Crown did no more than offer finance to Matvin, which it ultimately chose to reject. Without finance neither Matvin nor HDL could complete purchase of 122 Hobsonville Road, so the vendor cancelled the agreement. This left Viscount free to purchase the property, which it did successfully.
[6] Matvin and HDL bring the following claims: (a) as against Crown and CAPGL, claims alleging breach of joint venture obligations and breach of fiduciary obligations as lender; (b) as against all defendants, claims alleging misuse of confidential information that Crown had received from Matvin and estoppel; and (c) as against Viscount, a claim in dishonest assistance.1 A claim for breach of obligations owed under a Pallant v Morgan equity was abandoned at the hearing.
[7] Each defendant denies the claims made against it. Each pleads defences of lack of clean hands, acquiescence and delay. Crown and CAPGL also brought a counterclaim against Matvin, but this was abandoned at the hearing.
Persons actively involved in issues in dispute
[8] Matvin is a private limited liability company. Fifty percent of its shareholding is held by Kevin James Clark and the other fifty percent is held by Matthew Stephen Ellingham. They both are directors of Matvin.
[9] Mr Clark has tertiary qualifications in valuation and property management. He is an associate member of the Real Estate Institute of New Zealand. He has been active in property development and investment since 1998. Mr Ellingham is a qualified carpenter with experience in the building and property development industry. Mr Clark and Mr Ellingham have worked together in property development/investment, and through Matvin, since early 2000.
1 The third amended statement of claim refers to the sixth cause of action as “knowing assistance”. The two forms of accessory liability in equity are knowing receipt and dishonest assistance. In Scott v ANZ Bank New Zealand [2020] NZHC 906 Mallon J referred to dishonest assistance also being known as knowing assistance.
[10] Christopher John Arbuckle is the sole director and chief executive officer of Crown. He is also one of Crown’s two-person Credit Committee. He is also a director of CAPGL and Viscount. He holds no shares in any of the companies in the CAPG.
Mr Arbuckle has worked in property finance and investment for 40 years.2
[11] John Copson’s work history is in banking and finance.3 Since 2004 his interests have been concentrated on long-term commercial property investments, which include the defendants in this proceeding. Shares in the defendants are wholly owned by HWI Nominees Ltd in trust for the Copson Family Trust. Mr Copson is the other member of Crown’s Credit Committee. His involvement with Crown is in that capacity. In his evidence he described the Credit Committee as responsible for reviewing all applications for finance over $1 million. He stated that it was through his oversight on the Credit Committee that he made the final decisions on Crown’s “more significant transactions”. Mr Copson’s exact connection with the Copson Family Trust was not stated in evidence.
[12] Around 2005 when Pierce Corbett first became known to Mr Clark and Mr Ellingham, he was a commercial real estate broker employed by Colliers North Shore. Between 2008 and 2010 he was out of New Zealand and in early 2011 when he returned, he worked with CB Richard Ellis. In 2012 Mr Corbett entered into a contract for services with Crown Mutual Ltd, one of the companies in the CAPG.
[13] By the end of the hearing it was common ground that Mr Corbett was engaged by Crown Mutual Ltd as an independent contractor. His role was to provide a range of services which included identifying and gathering information on opportunities offered by real estate assets that met the portfolio desired characteristics of CAPG. He worked on commission. He reported to Mr Arbuckle, regularly sending status reports on his activities. Whether Mr Corbett acted as Crown’s agent in the discussions he
2 Before Mr Arbuckle became involved with the CAPG he was a commercial finance executive at UDC Finance between 1979 and 1983, the commercial finance manager at Hercules Finance/IFC Securities between 1983 and 1987, investment manager at the Māori Development Corporation between 1988 and 1996, investment manager at Protec Investments between 1996 and 1999, investment manager at Elders Finance/Hanover Finance in 2000, and investment manager at Romulus Finance/First Eastern Finance between 2001 and 2004.
3 Mr Copson was an employee at the Reserve Bank of New Zealand between 1977 and 1984. He then joined Dealer Systems Ltd, a business development, managing finance and insurance. In 1986 he founded Autosave New Zealand which he sold to Vero Insurance in 2004.
had with Matvin and the scope of any authority he may have had in this context are disputed.
Mr Corbett’s evidence
[14] Mr Clark and Mr Ellingham gave evidence for Matvin. Mr Arbuckle and Mr Copson gave evidence for Crown. Mr Corbett did not give evidence. In opening Mr Kohler QC, counsel for Crown and CAPGL said that those defendants had served a brief of evidence for Mr Corbett, but whether any persons whose briefs had been served would be called depended on how the trial proceeded.
[15] When Mr Kohler later indicated that Mr Corbett would not be called no-one at the hearing addressed how the decision not to call him affected the admission of evidence in the trial. Written documents prepared by Mr Corbett are in the bundle of documents. Witnesses for both Matvin and Crown and CAPGL gave evidence in chief and under cross-examination that recounted what Mr Corbett had said and done. Such evidence would not be hearsay if Mr Corbett had been called to give evidence.4 However because he ultimately was not called to give evidence much, if not all, of what other witnesses have said about him in their evidence, and the documents he prepared, are now hearsay. Since no-one at trial raised any objection to the affected evidence based on this change of status, I am proceeding on the basis the evidence remains admissible. However, the fact I have not heard explanations Mr Corbett could offer for his conduct necessarily affects the weight I can place on what other witnesses have said about him or what the parties might have me understand from the documents he has prepared.
[16] There is a further and separate issue regarding the inferences I may draw from the decision not to call Mr Corbett’s evidence.5 I shall address this topic later.
4 Evidence Act 2006, s 4 (definition of hearsay).
5 This evidence principle is discussed in Ithaca (Custodians) Ltd v Perry Corporation [2001] 1 NZLR 586 (CA) at [153]–[154].
Mr Corbett’s engagement with Crown/CAPG
[17] In 2013 Mr Corbett entered into a contract with Crown Mutual Ltd, a company within CAPG, to provide services. The contract commenced on 2 April 2013. Mr Corbett was to report to Mr Arbuckle who was described in the contract as the general manager at CPAG. Mr Corbett’s role was to undertake redevelopment schemes for specific areas, namely Albany, South Auckland and Hamilton, perform feasibility analysis to assess financial viability of schemes, promote and market the scheme to generate interest and “de-risk” potential development, undertake resource and building consent applications, project manage consultants within defined budgets, and negotiate and secure tenancy arrangements for the new development. He was to organise construction tenders and project manage the construction phase of a development or source an appropriate development partner. He was also to identify and gather information on select real estate assets that met portfolio desired characteristics, to undertake cash flow analysis to determine the attractiveness of the investment opportunity and to evaluate the potential investment for trade. This work entailed contacting and meeting with respective owners and proposing terms on which a purchase could occur. He was to negotiate the most advantageous acquisition price and settlement terms and to source and negotiate future occupancy arrangements.
[18] The contract specifically provides for Mr Corbett’s status which was that of an independent contractor and not an employee. Clause 14.2 of the contract provided that Mr Corbett was not entitled to bind Crown Mutual Ltd in any way whatsoever, and he was not entitled to enter into any agreement with or without obligation to the company or to act in any manner other than as an independent contractor. He was not to hold himself out to be an agent, employee or manager of the company.
[19] Once employed Mr Corbett commenced work and provided status reports to Mr Arbuckle and Mr Copson regarding development and acquisition of commercial real estate investments. Copies of status reports he prepared in April and May 2013 show him engaging with various persons engaged in commercial property development including Matvin. A report prepared on 26 April 2013 refers to a project Matvin was engaged in at a location at Library Lane, Albany. Mr Corbett’s status report shows there was some discussion regarding providing a financing proposal with
the total cost of a project for Library Lane estimated at $20 million. A further development and acquisition report dated 3 May 2013 includes reference to Matvin and a property at 91 Edmonton Road, Henderson. The report records Mr Corbett meeting with Matvin, and that company’s interest in financing the project through Crown. Similar reference is made to a project Matvin was investigating in Taradale Street, Napier. On 14 May 2013 Mr Clark referred a potential development offer to Mr Corbett. On 21 May 2013 Mr Corbett provided a weekly report to Crown which included a section on relevant new opportunity updates including Matvin’s proposals for Edmonton Road, Henderson; Library Lane, Albany and Taradale Road, Napier.
Engagement between Matvin and Crown/CAPG
[20] At a meeting on 10 May 2013 Mr Corbett introduced Matvin’s directors, Mr Clark and Mr Ellingham, to Mr Arbuckle. At the time these persons discussed a potential development at 91 Edmonton Road, Henderson. Nothing came of the discussions regarding this property. However, this potential project had introduced Matvin’s directors to Mr Arbuckle. Subsequently, in July 2013 these persons’ focus moved to the property at 122 Hobsonville Road.
122 Hobsonville Road
[21] Mr Ellingham identified 122 Hobsonville Road as a potential development opportunity in early July. By 16 July 2013 there must have been some discussion between Matvin and Mr Corbett about 122 Hobsonville Road, because on that date Mr Corbett emailed Mr Arbuckle to arrange him meeting with Matvin. The email referred to a number of pending projects, one of which was 122 Hobsonville Road. The email described Matvin as the entity that Mr Corbett had been attempting to structure a “financing/JV partnership” with on another development at Library Lane, Albany before Matvin had on-sold that property. Mr Corbett also advised Mr Arbuckle that the projections he identified were worthy of Crown involvement, with profitability and clear exit strategy. Mr Corbett also stated that he thought that “we are at a point where we need to have a joint understanding if our future deals should be structured for both parties from the outset”.
[22] From Matvin’s perspective, it needed the assistance of a financial partner to pursue the opportunity 122 Hobsonville Road presented. If Crown had not been interested in joining with Matvin, Mr Clark’s evidence was that it was unlikely Matvin would have pursued the opportunity 122 Hobsonville Road presented. The game plan from Mr Clark’s perspective was to secure a hold over 122 Hobsonville Road with sufficient time to explore and expand upon the development potential of the property. Matvin was looking to see if the property offered an opportunity to create a margin for value by demonstrating the property’s development prospects or by an on-sale of the development as a whole. As Mr Clark saw it the key to the strategy was to secure a conditional agreement for sale and purchase with conditions structured so that Matvin had sufficient time before the unconditional date to engage competent experts with particular expertise in zoning, resource management and development issues as well as addressing the usual risks associated with substantial property development. The purpose was to gain enough information about the property before the unconditional date to satisfy any on-purchaser or Crown that there could be a significant uplift in the value of the land so that they would provide the necessary equity buffer. It was not necessary for Matvin to actually undertake the development of the land, but that would be an option downstream if agreed on. Matvin considered it could add value to the land by creating a feasible scheme for development and obtaining resource consents.6 Once that was done it was then a matter either of on-selling the land to another developer/investor or undertaking the development in a joint venture with Crown.
[23] In pursuit of this strategy, on 29 July 2013 Mr Ellingham, Mr Clark and Mr Corbett met with Mr Buljan, the vendor of 122 Hobsonville Road. That same day Mr Corbett emailed Mr Arbuckle and Mr Copson updating them on this property. The email referred to the meeting with Mr Buljan and reported that Mr Corbett was looking at a funding arrangement structure provided Matvin could get the site under contract. He described 122 Hobsonville Road as a “prime piece of real estate that has been occupied by Buljan Winery/Vineyard since the 1960s”. At the time there were three offers from different parties, and it was Mr Corbett’s belief that Mr Buljan would make a decision on which offer to choose that day. This proved correct, and Matvin was the successful purchaser.
6 It did this successfully with a property at Library Lane, Albany.
[24] On 29 July 2013 Matvin entered into an agreement for sale and purchase of 122 Hobsonville Road. The purchase price was $14.5 million with a deposit of $1.45 million payable two months after the unconditional date. The agreement was conditional upon Matvin undertaking due diligence and confirming the agreement by
4.00 pm 30 working days after the date of the agreement. On 30 July 2013 Mr Corbett emailed Mr Clark of Matvin acknowledging the good news regarding the property acquisition and stating “after getting a few schemes and numbers together I will set up a meeting with John [Copson]/Chris [Arbuckle] ideally next week.” The same day Mr Clark responded “we will work with you very closely on this project and I suggest we establish our project control group early on. 30 working days will vanish very quickly so we have a fair amount of work to get through”. From then on until September/October 2013, Matvin worked closely with Mr Corbett in particular and also with Mr Arbuckle. At all times these persons spoke with each other and conducted themselves in their relations with each other on a basis consistent with them entering into some form of joint venture arrangement for the acquisition and development of 122 Hobsonville Road.
Conduct consistent with entry into joint venture arrangement
[25] On 30 July Matvin engaged two architectural firms to prepare preliminary concept designs for the site. The same day Mr Corbett updated Crown in his regular report which included him stating:
Met with owner of 122 Hobsonville Road yesterday morning in conjunction with proposed development partner Matvin. Outcome. Vendor’s solicitor rang me that afternoon to say the owner was going to run with our proposal. The contract is with Matvin as purchaser. This is one of only two sites that have the mixed use town centre zoning allowing for residential and commercial; this is a far superior opportunity to that of Edmonton Road. Matvin are putting together a master plan and undertaking feasibilities which it will present to us. It has a good understanding of our deal structure and intentions after meeting with Chris [Arbuckle] on a few occasions and understands that we could look to retain the retail development end product.
(emphasis added)
[26] On 31 July 2013 there was a meeting between Mr Corbett and Mr Clark of Matvin regarding due diligence and a joint venture. On 7 August 2013 Mr Clark forwarded Mr Corbett a site plan which he had received from an architect engaged by
Matvin. On 12 August 2013 Mr Corbett emailed an agent at Jones Lang Lasalle advising that “we are looking at a decent sized project at West Auckland with Matvin at present”. On 14 August 2013 Mr Corbett emailed Mr Clark saying that he would be putting together a report for CAPG decisionmakers regarding the “Hobsonville JV”. He asked whether Mr Clark would have a basic plan for the retail and residential by then and could Mr Clark email him draft feasibilities on each by Saturday. The email noted that 9 September 2013 was the unconditional date and that Mr Arbuckle would be away in Europe all of September, therefore, “we need to have the structure bedded down before then”.
[27] In mid-August there was a site inspection of 122 Hobsonville Road. Those present were Mr Arbuckle, Mr Corbett, Mr Ellingham and Mr Clark. On 16 August 2013 there was a meeting between Mr Clark and Mr Arbuckle.
[28] On 19 August 2013 Mr Corbett emailed Mr Clark a copy of an arrangement Crown had prepared with another entity (Tony Gapes of Redwood Group, “Gapes”). This arrangement provided for a joint venture partner to put up the capital required by the prime bank and in return for this the purchaser, Gapes, agreed to a 50/50 split of the profit for the development after all funding and management costs. On the same day Mr Clark emailed Mr Corbett Matvin’s 122 Hobsonville Road feasibility report for residential and commercial development.
[29] On 20 August 2013 Mr Corbett provided Mr Copson with a report on various potential developments that were being looked at. The report mentioned 122 Hobsonville Road, stating that there would be a separate report to follow. This was in the form of a report dated 19 August 2013 to Mr Copson headed “Matvin 122 Hobsonville Road project”. This report outlined how Matvin wished to reach an agreement with Crown via a joint venture structure that was reliant on a funding package to enable Matvin to progress with the unconditional purchase of 122 Hobsonville Road and subsequent stage one development to then follow. The report set out the various documents that Mr Corbett had reviewed, which included the sale and purchase agreement, a planning report, an economic assessment report detailing an economic model forecasting the viability of the proposed market (supply, demand and price) for development, and initial reports completed by Matvin consultants
engaged for the project. These initial reports included bulk and location plans, traffic and environmental reports; further detailed work was to be provided for the resource consent application. The report stated that there had been a multitude of meetings and discussions held with Matvin, which was extremely well informed of both the commercial and residential Auckland property market and had completed various development projects in each market segment. A feasibility analysis conducted by Matvin for stage one and stage two of the proposed development was also included. Mr Corbett copied this communication to Matvin. Thus Matvin was aware from this report of how the proposed development project was being viewed within Crown.
[30] On 21 August 2013 Matvin engaged architects for the 122 Hobsonville Road development. On 22 August 2013 it instructed Envivo Ltd, a planning, surveying and engineering entity, to prepare a feasibility report. On 22 August 2013 Mr Clark and Mr Ellingham met with Mr Corbett and Mr Arbuckle at CAPG’s offices. The same day Mr Clark and Mr Corbett met with representatives of Progressive Enterprises, which planned to develop a supermarket on the neighbouring property at 124 Hobsonville Rd, and Mr Clark met with Envivo Ltd to confirm the instructions to proceed with the feasibility report. The next day, 23 August 2013, Mr Clark approached Tonkin + Taylor seeking information from them on an adjacent property at 124 Hobsonville Road. On 26 August 2013 Mr Corbett sent Mr Clark an attachment document that set out how Crown had mitigated its risk in its dealing with another developer, including provision for CAPG to assume ownership/control of the property in the event of the developer encountering problems.
[31] On 26 August 2013 Matvin obtained the planning report from Envivo. The report was 11 pages. It contains an analysis of 122 Hobsonville Road, its existing services, likely new services needed, the zoning of the property, the activity and development controls on the property, regional consent requirements, development contributions, and how the property might be affected by the draft unitary plan. There was a review of concept plans, the retail and commercial concept and the residential/commercial concept. The report set out the requirements for obtaining consent for the development. The architectural concepts that Matvin had already proposed were described as having considerable merit and illustrated the development
potential of the site. Regarding outstanding planning appeals, the report writer thought it most unlikely the proposal would be affected by the resolution of those appeals.
[32] The writer of the Enviro report also considered that pending public notification of the Auckland Unitary Plan, that Plan was likely to largely adopt the outcome of Plan Change 14 (PC14) which should mean no further re-litigation of the PC14 outcome by interested persons. The report suggested, however, that the owner of 122 Hobsonville Road should make submissions on the Unitary Plan during the notification period to secure the best outcome for the land. The writer concluded:
Overall provided you are able to allow sufficient time for on-going pre- application engagement with Council officers, Auckland Transport, Watercare Services and Progressive Enterprises and can resolve to your satisfaction the timing of infrastructure extensions and upgrade works, we consider that the site represents a rare opportunity to acquire and development land at the core of a new town centre. In particular the village centre retail zone provides for a wide range of activities (including residential) and the mixed use zone provides for medium to high density residential development that would be complimentary to the retail zone.
[33] On 28 August 2013 Mr Clark provided Mr Corbett with the feasibility analyses of the Hobsonville residential and the Hobsonville commercial proposed projects. These documents included a proposed funding structure, which recorded that Matvin was proposing a joint venture development with Crown. Matvin outlined the proposed joint venture structure. This included a funding arrangement with Crown. A development company was to be established for the sole purpose of acquiring and developing 122 Hobsonville Road. The directors and beneficial shareholders were to be the Matvin principals, Mr Ellingham and Mr Clark. The development company was to declare the sale and purchase agreement for the site unconditional. Crown was to advance to the development company the deposit payable of $1.45 million. A budget was to be agreed by the parties for design works or costs associated with obtaining necessary resource consents for the development as well as pre-construction marketing costs. The estimate for this phase was $550,000.
[34] Prior to settlement, Matvin was to carry out all works necessary to obtain resource consent for stage one of the village town centre development. Matvin was to secure pre-lease and commitments, building consents were to be sought and project costs to be quantified, and bank funding arrangements were to be secured. It was
envisaged that on settlement a first ranking mortgage with a major trading bank would be drawn down and the balance of equity required would be introduced by way of a further loan advance from Crown to the development company. The Crown loan was to be secured by a registered second ranking mortgage over 122 Hobsonville Road.
[35] Matvin anticipated a first mortgage from a prime lender trading bank being available to a maximum of 65 per cent of the cost of the land or $9.425 million. That would leave a further advance requirement from Crown of $3.625 million. to complete the settlement. The advance required from Crown could vary depending on the comfort levels of the first tier lender.
[36] The property was to be settled with all consents, pre-leasing commitment and funding arrangements in place to allow for the commencement of the development of the village town centre immediately following settlement. Matvin anticipated that all further development and construction costs for the town centre would be drawn down from the trading bank facility loan.
[37] On completion of the village town centre, which was forecasted to be 12 months from settlement date, Matvin proposed the sale of the property with the proceeds to be applied first to clear the first mortgage facility, and secondly towards the Crown facility. Matvin anticipated that on completion of the village town centre the remaining land (stage two apartment development land) would have no residual debt and the development company should also have some cash on hand to commence development of stage two.
[38] Stage two was a proposed apartment development that was to be completed in stages. No new loan advances from Crown were envisaged for this stage. Following completion of the apartment development Matvin proposed that 50 per cent of the resulting profit from the entire development would be distributed to Crown by way of an exit fee to the Crown loan facility. The indicative feasibility studies estimated the total profitability of the project as outlined to be approximately $39.7 million, so an exit fee of approximately $19.85 million was anticipated.
[39] On 27 August 2013 Matvin received an engineering report regarding the proposed development and its serviceability with regard to stormwater, wastewater and water supply. There were no issues. The report’s summary conclusion was that the site could be adequately serviced by existing and proposed public storm water, wastewater and water supply services on or adjacent to the site.
[40] On 28 August 2013 Matvin obtained possession of the Tonkin + Taylor reports prepared for Progressive Enterprises. On 28 August 2013 Matvin forwarded Mr Corbett a copy of the sale and purchase agreement confirming it had sold its Library Lane development for $12.35 million. This should have gone to show that Matvin was a credible and successful developer.
[41] On 30 August 2013 Mr Corbett prepared a report on a joint venture proposal for a village shopping centre and apartment development at 122 Hobsonville Road. The report was sent to Mr Copson and copied to Mr Arbuckle. The report recorded that Matvin wished to reach an agreement with Crown via a “joint venture structure”. It also recorded that Matvin was reliant on a funding package to enable it to progress with the unconditional purchase of 122 Hobsonville Road and subsequent stage one development then to follow. Crown would be the finance partner and Matvin the working partner. The report set out the documentation Mr Corbett relied on, all of which had come from Matvin. This included sale and purchase documentation in respect of the purchase of the property including the signed sale and purchase agreement dated 29 July 2013, a planning report prepared by Envivo summarising the applicable planning controls under the Auckland District Plan, economic assessment reports from Urbacon detailing an economic model forecasting the viability of the proposed market supply, demand and price for development, initial reports completed by the consultants to the project including bulk and location plans and environmental reports.
[42] Mr Corbett reported that further detailed work would be required for the resource consent application. He also noted there had been a “multitude of meetings and discussions held with Matvin who are extremely well informed of both the commercial and residential Auckland property market and have completed various development projects in each market segment”. The report also noted that Matvin
had conducted a feasibility study for stage one and two of the proposed development. The report set out the key elements of the sale and purchase agreement. This made it clear the unconditional date for the sale and purchase agreement was Monday 9 September 2013 and the deposit, which was then payable, to be paid was 10 per cent of the purchase price. The agreed settlement date was also identified. The report also noted that Matvin intended to begin negotiations to revise the terms and conditions of the existing sale and purchase agreement. In particular Matvin wanted new terms that could achieve an extended settlement of 12 months following the agreement being declared unconditional. The ratings value for the land as at 1 July 2011 was identified as $11.405 million. The purchase price was recorded as $14.5 million plus GST, if any. The report noted that:
To form its own opinions independently Crown met with Stuart Boxer planner with Auckland Council on Friday 30 August 2013. Stuart was supportive of the proposed developments, suggested planning outcomings are moving in the right direction in accordance with PC14 and the industrial strip at the rear and side of the subject property would almost certainly be abolished in favour of a residential zoning.
[43] There was an industrial strip zoned on 122 Hobsonville Road and it appears to have been common ground that zoning removal of this strip would enhance the value of the property. The report alleviated much of the issues from a Crown perspective in terms of planning risk. The report referred to Auckland Transport’s plans to undertake a multi-million upgrade of the Hobsonville Road corridor to support new developments. It referred to architects being engaged. The report opined:
What is interesting to note is the extensive catchment the proposed development will draw upon. The neighbourhood shopping centre/town village will attract residents from none other than six suburbs which include: Whenuapai, Greenhithe, Herald Island, West Harbour, Hobsonville and Hobsonville Point.
[44] Mr Corbett calculated an existing catchment of around 16,000 persons. In his view there was also a strong argument to suggest the development in conjunction with the Countdown Supermarket, and an earmarked Foodstuffs Supermarket development would be more conveniently located for residents of Schnapper Rock Road and some periphery old Albany Highway residents. He referred to information that “large tracks of ‘special housing area land’ set for urbanisation were to be released around Hobsonville and West Harbour in the forthcoming years for residential development”.
Mr Corbett’s view was that this would only enhance the area’s catchment base. The financial feasibility forecasts based on Matvin’s figure indicated a net profit for the village town centre of $8,985,792 being 34 per cent profit. The apartment development feasibility indicated a net profit of $30,721,622 being a profit of 26.9 per cent. The report noted that Matvin was proposing a joint venture development with Crown, with Matvin being agreeable to a “JV structure” by way of a funding arrangement. The report set out details of what had been included in Mr Clark’s report to Mr Corbett.
[45] Mr Corbett concluded his report with a favourable and enthusiastic recommendation to proceed. Based on his research and findings, Matvin’s proposal was said to be a very rare and profitable development opportunity. It offered the chance to be a part of a development of a town centre in a new growth location with clear demographic attributes and was exceedingly unique. Mr Corbett recommended that Crown proceed with putting together a “JV partnership” with Matvin.
[46] However, Mr Corbett’s report also identified a number of issues to be resolved prior to entering into a “JV arrangement”. First, Matvin and Mr Corbett were to meet with Mr Buljan on 30 August 2013 to discuss the progress of the due diligence programme and to request an extension of approximately 20 working days’ or until 10 October 2013. Mr Corbett said this had met with resistance to begin with, but he was left with the impression Mr Buljan would accept the time option provided a non- refundable deposit of $40,000 to $50,000 was paid. It was suggested that “we would come back to him early next week with a definitive proposal on the extension request”. They had also discussed at length the need for a deferred settlement. This was to be discussed during the second week of October 2013 with Mr Buljan and his solicitor. Mr Corbett opined that Matvin would have significant leverage once the sale and purchase agreement was unconditional to request revised contract conditions regarding settlement. Mr Corbett recommended that Crown begin agreeing on a funding structure together with the existing documentation within the next fortnight.
[47] Mr Corbett’s report outlined background details on Mr Clark and Mr Ellingham, including a portfolio of work they had completed. It also attached as appendices copies of the sale and purchase agreement, feasibility analysis,
retail/commercial/apartments and Envivo planning report, an engineering report, an Urbacon economic assessment, bulk and location architectural schemes, Progressive Enterprises sale evidence, design images and Botany Junction photos, further information and a Matvin property group brochure.
[48] On 2 September 2013 Mr Corbett emailed Mr Clark requesting all architectural plans, including the two site plans for the Progressive Enterprises supermarket proposed for the neighbouring 124 Hobsonville Rd. These were provided.
[49] On 2 September 2013 Matvin’s directors met with Mr Buljan. The outcome was successful, there was an agreed variation of the sale and purchase agreement. The due diligence condition was extended for one month to 9 October 2013. The deposit clause was varied to record the deposit of $1.45 million payable upon the contract being rendered unconditional in all respects. The settlement date was extended as being six months after the unconditional date. In consideration of those variations Matvin made an immediate payment of $40,000 to Mr Buljan. That sum was to be treated as part payment of the deposit in the event the agreement proceeded, but in the event Matvin was unable to satisfy the due diligence condition it forfeited the $40,000. The new settlement date was 9 April 2014. The terms of the variation were set out in the letter from Matvin’s solicitor to Mr Buljan’s solicitor.
[50] Also on 3 September 2013 Mr Clark emailed Mr Corbett attaching a pre- settlement budget and target time path for 122 Hobsonville as requested by Mr Corbett. The time path assumed instructions to commence the project by 10 September 2013 and settlement by 9 April 2014. The site masterplan was to commence on 10 September 2013 and to be completed on 1 October 2013. Resource consent for the village town centre was to be prepared and lodged by 10 December 2013, allowing time for Council processing to 1 April 2014. Building consent for the village town centre was to be prepared and lodged by 15 April 2014, allowing eight weeks for Council processing by 10 June 2014. Five weeks were allowed for arranging trading bank funding, which was anticipated to be completed by 10 March 2014. Pre-leasing was to be done by November 2014 and full construction was to commence by 10 July 2014 with a completion date of 10 July 2015. Mr Clark sent Mr Corbett the pre-settlement budget which set out the costs to date for the site master
plan including architect, town planners, urban designers, surveyors, resource consent, building consent, funding arrangements, marketing management. The total cost pre- settlement would be $1.645 million.
[51] Mr Buljan formally accepted the variation to the sale and purchase agreement on 4 September 2013 and the agreed extra $40,000 was paid to his solicitors on 5 September 2013. Mr Corbett was informed of the variation to the terms of the sale and purchase agreement on 4 September 2013.
[52] By September 2013, Mr Arbuckle was on holiday in Europe. He remained there throughout September 2013. Mr Corbett kept him up to date by email. On 7 September 2013 Mr Arbuckle emailed Mr Corbett setting out his comments on Mr Corbett’s report on the Matvin development proposal. These were as follows. Mr Arbuckle recognised that Matvin needed to get an extension of the agreement and if they did so a fee was required. They were to be told that was at their risk not Crown’s. Also, it was to be made clear to Matvin that Crown was yet to approve any “JV/funding facility”. Mr Arbuckle stated that Crown needed to see the valuation report, the contamination and geotechnical reports and final infrastructure reports. He expressed concerns as to whether existing wastewater would be able to be used and also the possible timing of an upgrade and how that might affect development timing. He expressed concern about planning issues, particularly regarding PC14 of the Auckland Unitary Plan and the timing of when that was enacted. He referred to the fact some of the 122 Hobsonville Road land was zoned light industrial, and whilst the Council supported abolishing that zoning, that was yet to happen. How this might affect value was of concern to Mr Arbuckle. Mr Arbuckle also wanted to know what Progressive Enterprises’ position was with their development plans and what the outcome of Mr Corbett’s meeting with their representatives was. He was concerned that delay of Progressive Enterprises’ development could affect the timing of the project Matvin was proposing.
[53] Mr Arbuckle said that he needed to see a final version of the Urbacon report and feasibility study and he had some issues to think about. He wanted to know what the strategy was for commercial leasing and the sort of tenants Mr Corbett thought could be attracted. Mr Arbuckle also wanted to know what “cap rates” had been
applied to the term and the end value of the proposed apartments. He expressed concerns about Matvin’s proposal to build apartments on the residential land based on his experience from another project (the Gapes project) where demand for them was shown to be very poor. Mr Arbuckle wanted an assessment of building houses/terraced houses so that he could get an indication of profitability under that option. As to funding the deal he noted that Crown was being asked to fund $1.5 million plus costs to get “consent and marketing”. Mr Arbuckle said he would like to see a more comprehensive budget for this, what he had seen seemed too low, based on the Gapes project, where there had been a budget blow-out. He advised that Matvin also needed to provide Crown with a CV/background on themselves and their projects and some financial background as well. Mr Arbuckle wanted to know whether Matvin were putting any funds into the deal.
[54] On 7 September 2013 Mr Corbett forwarded Mr Arbuckle’s email to Mr Clark stating that the two of them should get together on Monday or Tuesday to go over the list. Mr Corbett expressed the opinion that “most of it looks okay in my opinion”.
[55] On 8 September 2013 Mr Corbett emailed Mr Arbuckle confirming that the extension for the due diligence period of one month was obtained as was a deferred settlement of six months, which could potentially be bumped out further at the unconditional date.
[56] On 9 September 2013 Mr Corbett reported to Mr Copson on the various opportunities including the project at 122 Hobsonville Road which was described in Mr Corbett’s report as a “neighbourhood shopping centre JV project”. Mr Corbett referred to a full project report being provided the previous week. He stated he would action Mr Arbuckle’s comments as set out in his weekend email. Those were bullet pointed in the report. He also referred to 124 Hobsonville Road, and that it was a proposed site for a Countdown supermarket. He and Mr Arbuckle had met with the Progressive Enterprises’ head of property, Adrian Walker, on 22 August 2013. There was further discussion about the development of 124 Hobsonville Road via a Countdown supermarket. Mr Corbett expressed the view that he saw this as complimentary to the funding project at 122 Hobsonville Road which “given the perceived sale value/low cap rates may not merit a Crown real estate retention plan”.
There was said to be obvious advantages in controlling both sites from the retail and residential protection standpoint. The report continued to look at other development opportunities.
[57] Mr Clark gave evidence that around this time Mr Corbett “urged” Matvin to “treat exclusively” with Crown. Mr Clark said he gave this assurance but qualified it by stressing that if necessary Matvin would require sufficient time to explore alternative arrangements. Mr Clark said he made this qualification because in his email of 7 September 2013 Mr Arbuckle had indicated that Crown was yet to approve any joint venture with Matvin.
[58] On 11 September 2013 Mr Corbett requested feasibility information from Mr Clark and financial background checks for Matvin and its directors. On 11 September 2013 Mr Corbett also sent a memo to Mr Arbuckle copied to Mr Copson which referred to the due diligence extension. The memo stated that Matvin would proceed with the development if Crown was not satisfied with the project partnership during the next few weeks. The memo also stated that Matvin would treat exclusively with Crown to finalise a JV agreement, but would require sufficient time to source a funding partner should CAPG not be satisfied with the project. Key passages of the report are as follows:
Matvin have been made aware that Crown APG has yet to approve any JV/Funding facility. It understands that Crown APG must completely satisfied in the project’s viability before entering in to a joint venture funding arrangement with the developer.
…
It has stated that it will still be proceeding with the development if Crown APG is not satisfied with the project partnership during the next few weeks. Matvin will treat exclusively with Crown APG to finalise a JV agreement but will require sufficient time to source a funding partner should Crown APG not be satisfied with the project during the course of the due diligence period. Matvin has satisfied itself over the course of the past six weeks that this project has clear economic merit and will be highly profitable.
[59] On 13 September 2013 Matvin received a valuation from Jones Lang Lasalle which gave an indicative value of the land as $12.5 million–$13.6 million plus GST. The valuer went on to say that he had adopted a conservative approach as there were few transactions in which he could draw comparisons. He opined that at $317 per
square metre it looked to be a very favourable land acquisition value. Albany City was over $600 per square metre, Albany Village had a recorded sale at $1,000 per square metre, McDonalds had a site along from the subject at $500 per square metre under contract, and Pak ‘n Save recently paid $750 per square metre for a site close to Westgate. The valuer stated that Bayley’s had been consulted and had suggested that if the property were on the market as at 13 September 2013 it could fetch up to $500 per square metre as is.
[60] On 13 September 2013 Matvin received confirmation that Watercare Services’ planning engineers were satisfied there was adequate capacity in the public wastewater system to control the flows from the developed site. This met one of the concerns Mr Arbuckle had stated regarding wastewater capacity.
[61] On 13 September 2013 Mr Clark emailed Mr Corbett the final feasibility analysis, the Jones Lang Lasalle valuation and follow-up consulting engineering report regarding wastewater adequacy.
[62] On 13 September 2013 Mr Corbett sent Mr Clark’s memo to Mr Arbuckle, with a copy to Mr Copson. In the week beginning 30 September 2013 Mr Arbuckle returned to New Zealand.
Developments in early October 2013
[63] On 1 October 2013 Mr Clark received a call from Mr Corbett to arrange a meeting at CAPG offices on 2 October 2013. Following that meeting Mr Arbuckle sent an internal memo to Mr Copson under the heading “Joint Venture Structure”. The report stated as follows:
Pierce Corbett has been involved in negotiations to enter into a joint venture with Matvin Group (Matvin) to acquire and develop a parcel of land in Hobsonville.
The report then set out key elements to the development, identified the land, described how the developments would essentially split the site into two areas with the front end on Hobsonville Road being developed into a commercial retail hub (1.703 hectares) and the back end being developed into a residential area (2.05 hectares). The balance
of 800 square metres was for roading. The report referred to the fact the property next door (124 Hobsonville Road) was being developed by Progressive Enterprises who intended to construct a supermarket on the property.
[64] This report informed Mr Copson that 122 Hobsonville Road had been secured under a conditional sale agreement for $14.5 million plus GST ($317 per square metre), the contract was subject to due diligence which had originally expired on 9 September 2013 but had been extended to 9 October 2013. If the agreement was declared unconditional then a 10 percent deposit was required with settlement in six months’ time. The current valuation of the land was $11.405 million, including minor improvements of $55,000. Mr Arbuckle referred to the Jones Lang Lasalle valuation which gave an indicative value range of between $12.5 million and $13.6 million plus GST, thus reflecting a range per square metre of $280 and $305. The valuation had adopted a hypothetical subdivision approach based on subdivision of the block only, with no development and market value methodology. Mr Arbuckle also noted that Bayleys had advised the land could sell as high as $500 per square metre given recent sales of land in the area. He referred to an indicative feasibility of the project completed by Matvin and summarised its contents. The proposal suggested developing retail/commercial at the front of the property followed by a terraced housing development comprising 150 terraced houses. The proposed commercial development comprised approximately 7,546 square metres of retail commercial space, with development cost said to be approximately $26.5 per square metre. The development profit was assessed at $8.9 per square metre or 34 per cent on cost. The key variable adopted under the scenario was based on a cap rate of 6.75 per cent, which Mr Arbuckle said was supported by market evidence for a development of this nature.
[65] The second stage was potentially for terraced housing and the numbers showed 150 units could be developed. The development cost was assessed at $44.4 million with development assessed at $10.7 million per square metre or 24 per cent on cost. The average sale price adopted for a unit was estimated to be $437,000 which Mr Arbuckle thought conservative. With terraced housing development the net profit pre-tax was estimated to be $10,706,348. Mr Arbuckle’s report recorded that as an alternative to terraced housing it was suggested apartments could be built. Matvin believed 400 apartments of an average area of 70 square metres was feasible. This
had a development cost of $114 per square metre whilst the development profit would be $20.7 per square metre or 18 percent on cost. Mr Arbuckle described the average sale price of $402,000, which was anticipated to be reasonable.
[66] Mr Arbuckle’s report set out the various due diligence steps that had been completed on the property by Matvin. These were: a planning review which indicated that the intended plans for the land could be undertaken; and an economic assessment, which supported the view the area would develop relatively quickly given the demand for residential commercial space. The level of population at the time was 13,000, which would support the commercial aspects of the development, and the population was forecast to increase to 21,000 by 2023. Geotech reports had also been obtained. Here there was reliance on the preliminary assessment undertaken in September 2005 by Tonkin + Taylor on behalf of Foodstuffs who were then trying to secure the property. The report had been released to Matvin with Foodstuffs’ approval and it showed there were no major Geotech issues. There were no signs of contamination. As to site services, engineering had completed a preliminary desktop review of the services to the site and indicated that water, stormwater and wastewater were available in close proximity to the property, and appeared to have the capacity to service the intended development.
[67] In the report Mr Arbuckle then referred to Matvin’s directors, how they had been working together since 1999, and had undertaken a number of projects since 1999 including industrial/residential/retail projects. Mr Arbuckle described Matvin and its directors as appearing to have a reasonable understanding and experience in property development, although he noted that credit reports should be undertaken if Crown proceeded with Matvin.
[68] As to the development proposal Mr Arbuckle noted in his report that Matvin was keen to involve Crown in the development proposal, utilising the funding template that had been adopted with the Gapes project. That would require Crown to fund the initial deposit and ongoing costs associated to obtain resource consent, lodge for building consent and achieve a level of pre-sales and/or pre-release commitments to enable the project to secure an acceptable level of prime trading bank funding for development costs. The strategy which was being contemplated was to undertake a
stage one review and then make a decision on stage two depending on economics and the market at the time.
[69] The report identified a staged funding scenario. Stage one included two phases. Phase one was funding the deposit for the land of $1.45 million with various costs, which came to a sub-total of $3.315 million. Phase two included funds for settlement of the land ($13.05 million) and other development costs ($18,175.190). The total cost of stage one (phase one and phase two) was $34,450.190.
[70] Phase one required a commitment from Crown of $3.315 million. Funds would include interest and fees, and would be drawn down progressively over the next six to seven months. Assuming the resource consent and marketing pre-sales/pre-release and milestones were met the project would move to phase two, where funding of $34.5 million in total was required. This was also potentially to be funded via a combination of funding from Crown and trading bank funding. It was expected that at the end of stage one the project would show a cash surplus of approximately $1.9 million. All debt including funding from Crown would be repaid, leaving unencumbered residual land for future or immediate development. As to the residential block of land the future strategy could include selling it as is, seeking resource consent for a residential sub-division and then either on-selling it or moving forward with the development.
[71] Mr Arbuckle’s report specifically referred to a joint venture structure. It stated as follows:
Joint Venture Structure: It is proposed to structure this as a loan to the developer company. Phase one funding of $3.315 m would be provided to the developer company and security for this will be a registered first GSA over the borrowing entity supported by the guarantees of the principals Kevin Clark and Matthew Ellingham. Interest would be charged to the loan at 10 percent per annum and a fee of 2 percent would also apply. The agreement would identify the key milestones which were required to be satisfied as a pre- condition to providing funding for stage two. Those milestones would include the requirement to acquire resource consent pre sales of commercial units and/or pre-letting of the commercial units to a level sufficient enough to secure appropriate level of bank funding to allow the stage one development to proceed. Interest of 10 percent would also apply for any funds advanced in phase two (approximately $7.0 m). In addition there was to be an addition and exit fee would be charged at 50 percent of any development profit achieved from the developer’s sale of the property if this decision was made. This was after all funding costs including Crown Finance. If the key
milestones were not achieved then the borrowing entity would allow an option for a Crown group entity to take over the project.
[72] Mr Arbuckle described the project as a reasonable project with a very good return to Crown. His view was that if the project milestones were not met the project could end up becoming a land banking transaction. He considered that Crown would not lose its investment in the project. He identified as an important issue to consider the level of other funding Crown was committed to provide, which he described as significant, and said a commitment for funds on the 122 Hobsonville Road project would come at a time when Crown was required to fund other projects. He then identified those various projects. He noted that each project was dependent on the ability to secure pre-sales and/or leasing commitments to service debt. He noted his concern was that if Crown did not achieve the required commitments then it could potentially stretch itself, if for any reason it was required to inject further Crown funds into any of the projects he had mentioned. He noted that whilst 122 Hobsonville Road was a good project, there could be problems if identified key milestones were not met and Crown elected to take over the project in six months’ time. This led Mr Arbuckle to conclude there was an element of risk for Crown and it needed to be comfortable about accepting this before it committed. He stated that a discussion on this was warranted before a decision was made.
[73] On 3 October 2013 Mr Corbett emailed Matvin’s directors advising they could expect a call from Mr Arbuckle that morning.
[74] On 7 October 2013 Mr Corbett advised Mr Arbuckle that the portion of 122 Hobsonville Road that had been zoned industrial (which had earlier been of concern to Mr Arbuckle) had disappeared and this made way for a mixed use zone where dwellings were encouraged. Mr Corbett stated his belief that the residential portion of the Hobsonville site had quite possibly doubled in value since July. The square metre rate for the town centre zoned land if put on the market as at October 2013, would be at $600 per square metre. Mr Corbett noted there would be a significant margin to collect by on-selling the site given the zoning and contract price at settlement alone. He informed Mr Arbuckle that Matvin had met with Pharmacy Brands on the previous Thursday which had confirmed interest in a medical centre for the development in conjunction with a retail chemist outlet. Mr Corbett’s view was there
was no planning risk now associated with the development opportunity. This email was also forwarded to Mr Clark.
Analysis of events up to 9 October 2013
[75] The above events and the contemporaneous documents in which many of them are recorded suggest that over time the prospects for the proposed joint venture project appeared ever rosier. All reports about the development project for 122 Hobsonville Road were positive. There were no setbacks. Issues of concern appeared to have been addressed and resolved satisfactorily. Up to 9 October 2013, all indications were that the proposed development appeared to be highly profitable with earlier perceived concerns falling away.
[76] The evidence of Matvin’s directors, Mr Clark and Mr Ellingham, is also consistent with this view of events. The essence of their evidence is that they believed the 122 Hobsonville Road project was a viable, sound and profitable venture that would generate the returns envisaged in the feasibility studies and other consultant reports they had obtained. They could see no reason why the project could not succeed.
[77] My understanding of Matvin’s evidence is that up until October 2013 Mr Clark and Mr Ellingham believed Crown was a willing participant with Matvin in a broadly understood joint venture arrangement where each side had their respective roles in relation to the acquisition and development of 122 Hobsonville Road. Matvin as developer found the property and carried out the necessary due diligence to see if its acquisition and development was worthwhile. Crown would provide the necessary funding and help Matvin acquire primary bank funding if required. There is nothing in the contemporaneous documents or anything that was said in Matvin’s evidence that could suggest Matvin had any idea, at the relevant times, that despite all the tidings being good Crown would walk away from a joint venture with Matvin, let alone that an entity associated with the CAPG might acquire the property.
[78] The first qualification appears in Mr Clark’s evidence regarding the assurance he gave in mid-September 2013 that Matvin would deal exclusively with Crown but would want sufficient notice to enable Matvin to look elsewhere for funding if the
project with Crown did not progress. I accept Mr Clark’s evidence on this matter. First, I see no reason not to believe him. That such an assurance was sought and given seems plausible to me. Second, the assurance and qualification are documented by Mr Corbett in his report of 11 September 2013 to Mr Arbuckle. Mr Corbett is hardly likely to have inserted this statement in his report were it not correct. Whilst the report does not record that Crown had sought this assurance I have no reason to disbelieve Mr Clark on that matter. It seems plausible to me that Crown would have made that request.
[79] In general throughout August and September 2013 the evidence shows an ever confident Matvin that had no reason to believe Crown would not want to join with it in a joint venture to develop 122 Hobsonville Road. This may explain why Matvin never took explicit steps with Crown to protect the commercially confidential information Matvin obtained and paid for, and which it shared promptly and willingly with Crown. The various exchanges between Matvin’s directors and Mr Corbett or Mr Arbuckle regularly show Marvin sharing such information with Crown, practically as soon as Matvin obtained it.
[80] I found both Mr Clark and Mr Ellingham to be reliable and credible witnesses. The evidence they gave was consistent with the contemporary documents. I think they both gave plausible accounts of the events from May 2013 to 9 October 2013. I consider their evidence stood up to cross-examination. Also, I consider their evidence was consistent with the logical inferences that any reasonable person would draw from the events described herein. Accordingly, I accept their evidence.
[81] Moreover, I consider Matvin’s conduct during this period is more consistent with it having a genuine belief the acquisition and development of 122 Hobsonville Road would proceed as a joint venture with Crown rather than Matvin and Crown simply being in a lender/borrower relationship. It is difficult to see why Matvin would have had the interactions it had with Crown had Matvin considered the relationship would be structured as that of mezzanine finance lender and borrower.
[82] I have already referred to how, at what I consider to be a late stage in the trial, the first and second defendants decided not to call Mr Corbett to give evidence. As
can be seen from the events described herein Mr Corbett was the person associated with Crown who was most involved in the many discussions and exchanges between Crown and Matvin. He was in my view the person acting on behalf of Crown who was best able to give an account of the character of the interactions between Matvin and Crown, and in particular whether they were treating each other as prospective parties to a joint venture arrangement for the development of 122 Hobsonville Road.
[83] Before the trial, the first and second defendants had identified Mr Corbett as one of their witnesses. They had prepared and served a brief of his evidence. In opening their case, they identified him as one of their witnesses. The first and second defendant’s proposed order of witnesses as stated in their opening showed Mr Corbett being called after Mr Arbuckle and Mr Copson. I was not informed of the exact time when a decision not to call Mr Corbett was made. But it must have been some time after the first and second defendants had opened their case. This is because after the opening, Mr Arbuckle and Mr Copson gave evidence, consistent with the proposed order of witnesses, then the next witness was Craig Alexander, who was next in line in the proposed order after Mr Corbett. All the other proposed witnesses were then called. Mr Corbett was the only proposed witness whose evidence was not called.
[84] The serving of briefs of evidence does not necessarily mean a witness will be called to give evidence. A party is always free to decide not to call evidence it has earlier indicated will be called. However, here the late decision not to call Mr Corbett would have deprived Matvin of the opportunity of calling him as its witness. By the time Matvin knew the second defendants would not be calling Mr Corbett, Matvin had closed its case. This made it almost impossible for Matvin to call Mr Corbett as its witness.
[85] For Matvin to call Mr Corbett it needed leave to reopen its case. It may also have needed leave for Mr Arbuckle and Mr Copson to be recalled for cross examination, depending on the content of Mr Corbett’s evidence, insofar as any evidence given by those two witnesses (or any other witness for the first and second defendants) required challenge, to satisfy the obligations imposed by s 92 of the Evidence Act 2006. Such last minute steps would have been contrary to the advance preparation and notice that is now a feature of civil trials. Matvin’s counsel could not be expected to attempt to call Mr Corbett’s evidence in such circumstances.
[86] In Ithacca (Custodians) Ltd v Perry Corporation the Court of Appeal referred to the principle of evidence, which allows a Judge in a civil case to infer that, where there has been an unexpected failure by a party to call a witness, this evidence would not have assisted that party’s case.7 In Ithacca the Court of Appeal traversed earlier New Zealand case law in which this long recognised principle was either applied or discussed.8 The Court of Appeal’s summation of the principle, including the three conditions for its application, was as follows:9
[153] In our view, it is not helpful to analyse the position in terms of broad and narrow views. Neither it is helpful to refer to the “rule” in Jones v Dunkel. There is no rule. Rather, there is a principle of the law of evidence authorising (but not mandating) a particular form of reasoning. The absence of evidence, including the failure of a party to call a witness in some circumstances, may allow an inference that the missing evidence would not have helped a party’s case. In the case of a missing witness such an inference may arise only when:
(a) the party would be expected to call the witness (and this can be only when it is within the power of that party to produce the witness);
(b) the evidence of that witness would explain or elucidate a particular matter that is required to be explained or elucidated (including where a defendant has a tactical burden to adduce evidence to counter that adduced by the other party);
(c)the absence of the witnesses is unexplained.
[154] Where an explanation or an elucidation is required to be given, an inference that the evidence would not have helped a party’s case is inevitably an inference that the evidence would have harmed it. The result of such an inference, however, is not to prove the opposite party’s case, but to strengthen the weight of the evidence of the opposite party or reduce the weight evidence of a party who failed to call the witness.
[87] Here for reasons already given, I consider the reasonable expectation was that Mr Corbett would be called as witness by the first and second defendants. So the first condition of Ithaca is satisfied.
[88] In Ithacca, the appellants argued the trial judge had misapplied the Jones v Dunkel principle. In relation to one of the witnesses, the Court of Appeal considered the trial judge was wrong to conclude that an adverse inference could be drawn. The
7 Ithacca (Custodians) Limited v Perry Corp [2004] 1 NZLR 731 at [150].
8 The principle has become associated with a well-known Australian case Jones v Dunkel (1959) 101 CLR 298, [1959] ALR 367 and is often referred to as the rule in Jones v Dunkell.
9 Ithacca (Custodians) Limited v Perry, above n 7, at [153]—[154].
Court of Appeal found this absent witness could not have added to evidence already given by other Perry Corporation personnel, particularly as the managing director, chief financial officer at the relevant time, and head trader, (who were all principally and directly involved in the subject equity swap transactions at issue) had given evidence. In this regard the Court of Appeal found that an adverse inference cannot be drawn from the failure of a party to call multiple witnesses to give cumulative evidence.10
[89] However, in relation to another possible witness, Mr Madan, the Court of Appeal found there was no explanation for why he had not given evidence, and it was open to the trial judge to have concluded that Mr Madan’s absence required explanation. The Court of Appeal specifically referred to a telephone call between Mr Madan for Perry Corporation and Mr Rosen for Ithacca (Custodians) Ltd, and found that this telephone call required evidence from both participants. Mr Madan was the only person who could have given an explanation of the language used by him in the particular conversation in issue. The Court of Appeal found that Mr Madan’s absence as a witness for Perry Corporation was something from which the trial judge could draw the inference that his evidence would not have helped Perry Corporation’s case.
[90] In the present case, there were numerous conversations between Mr Corbett and either Mr Clark or Mr Ellingham regarding the acquisition and development of 122 Hobsonville Road. Mr Clark and Mr Ellingham have provided the Court with the Matvin explanation of the language that was being used in those communications. Mr Corbett is the only person who could have explained the language that he used in those exchanges. Accordingly, I consider Mr Corbett’s evidence would have elucidated the extent to which he discussed Matvin participating in a joint venture with Crown for the acquisition and development of 122 Hobsonville Road. Thus, I find the second condition of the Ithaca principle is satisfied.
[91] No satisfactory explanation for Mr Corbett’s absence was advanced. There had been some argument about whether Mr Corbett had authority to bind Crown, and
10 At [158].
the Court was directed to his contract of services, which made it clear he had no such authority. However, there was no evidence that Matvin were aware of these restrictions at the time it was discussing 122 Hobsonville Road with Mr Corbett. There are many occasions in the email communications Mr Corbett had with Matvin directors, and with Mr Arbuckle, where Mr Corbett referred to a joint venture with Matvin in relation to the acquisition and development of 122 Hobsonville Road. Whilst he may not have had Crown’s authority to bind it in relation to any legal arrangements, in my view Mr Corbett was holding himself out as Crown’s representative who was authorised to act on its behalf. Mr Corbett did this in the presence of Mr Arbuckle, when both attended meetings with Matvin. He did this in emails to Matvin that were copied to Mr Arbuckle and Mr Copson. He did this in the reports he wrote for Crown, some of which were copied to Matvin. There is no contemporaneous evidence to show Mr Arbuckle ever pulled Mr Corbett up on how he was conducting himself or presenting Crown’s engagement with Matvin at the time. Nor is there evidence that Mr Arbuckle took any action himself to disabuse Matvin of any idea a joint venture with Crown was possible. Accordingly, I do not think the fact Mr Corbett was contractually restricted from legally binding Crown to any arrangements could remove the need for the first and second defendants to call evidence from Mr Corbett. Accordingly, I find the third condition for the application of the Ithaca principle is met.
[92] At trial, the first and second defendants sought to present Crown’s involvement as that of a mezzanine lender and not as a potential joint venture participant with Matvin. In such circumstances, I consider the logical inference to be drawn from the late decision not to call Mr Corbett, is that his evidence about his discussions with Matvin, and in particular regarding Matvin and Crown becoming involved in a joint venture project with 122 Hobsonville Road, would not have helped Crown’s case. I consider it telling that the person from Crown who was most involved with Matvin was not called to give evidence. Further, this decision was made at a late stage that made it difficult for Matvin to call Mr Corbett. By the time it knew Mr Corbett was not going to give evidence, Matvin had closed its case.
[93] There is some contemporaneous documentary evidence which shows that Mr Arbuckle also referred to what was being proposed between Matvin and Crown as
a “joint venture” development, but this evidence does not provide the elucidation that Mr Corbett’s evidence could have provided. It is difficult to envisage how he could have resiled from the multiple instances when he referred to the parties as engaging in a joint venture project to acquire and develop 122 Hobsonville Road. It is also difficult to see how he could explain the mutual sharing of information relevant to the project if the parties were to be no more than borrower and lender.
[94] Crown’s case at trial was that at all relevant times: (a) it did not want to be in a joint venture with Matvin; (b) it never held itself out as being interested in such an arrangement; and (c) it made it clear at all material times that Crown was no more than a lender and Matvin a potential borrower. Crown disputed Matvin’s evidence that, provided the investigative work showed positive results, the acquisition and development of 122 Hobsonville Road would be done as a joint venture arrangement between Matvin and Crown, albeit with the exact terms of that joint venture yet to be decided.
[95] Mr Arbuckle was the only witness for Crown who had been actively engaged with Matvin. Mr Copson was not directly involved in the discussions with Matvin at any stage. His role in events came into focus later in October when Crown made funding offers to Matvin.
[96] Mr Arbuckle’s evidence covering the period from when he was first introduced to Matvin’s directors and up to 9 October 2013, is reasonably consistent with Matvin’s account of those events. Mr Arbuckle acknowledged that Crown had been involved in joint ventures in the past. He characterised his use of the term “joint venture” as used in association with mezzanine financing, development finance or joint venture funding. He rejected the suggestion that in discussions with Matvin he used the phrase “joint venture dressed up as a loan”. He also said that there was no discussion about precisely what “joint venture” meant. He said that for Crown to enter into a legal partnership or “full joint venture” specific relevant matters such as capital requirements, ownership structure, voting rights would have needed to be documented and that nothing like this was discussed.
[97] Under cross-examination Mr Arbuckle sought to present a different gloss on the proposed arrangement between Matvin and Crown. He acknowledged that at no time did he say to either Matvin or Mr Corbett “we are not joint venturers and we won’t be joint venturers”. He then sought to distance the potential arrangement from a joint venture by saying:
Because my interpretation of the joint venture, the words joint venture and mezzanine funding, were in my mind the same, had the same connotations.
He maintained his discussions with Matvin were in terms of a financing proposal and that was his interpretation when using the words “joint venture”. When asked to explain what element of the Matvin/Crown arrangement could be viewed as a joint venture if it was no more than Crown advancing money, Mr Arbuckle’s response was:
Well we had a relationship where we, yeah, we had a borrower/lender relationship. That’s a joint venture in my mind.
[98] I do not find this aspect of Mr Arbuckle’s evidence plausible. The contemporary documents in which he used the words “joint venture” show him to be referring to something more than a mere borrower/lender relationship. I cannot see how someone in Mr Arbuckle’s position could equate a borrower/lender relationship with that of joint venturers.
[99] I accept that the type of negotiated terms a legal joint venture or partnership can involve were not negotiated at the outset or at the time up to the end of September or early October 2013. However, this was never a case where Matvin and Crown could have negotiated a joint venture arrangement and then proceeded to implement it. When the parties met in July 2013 the potential project was already live, insofar as the potential property was on the market. The idea was, Matvin would take on the developer role and Crown would provide the needed funding to allow the purchase to go unconditional, and then to assist with funding the development, albeit with the additional help of a primary trading bank. However, until the land was purchased Matvin could not use it as security to obtain a mortgage from a primary trading bank. The funds it first received from Crown were to be used to pay the deposit when the sale and purchase agreement went unconditional, and for subsequent steps to be taken to advance the project before it had reached the point where a primary trading bank
would lend money on it. This would not be until settlement date which was April 2014.
[100] If the project was to be pursued, Matvin as developer had to do the preliminary and first stage work while keeping Crown abreast of the evolving project. If the ongoing investigations did not produce positive assessments nothing could have eventuated. Until the sale and purchase agreement went unconditional everyone was free to walk away from the project and Matvin would have carried the lead-up costs. The indications at the time from Mr Corbett and Mr Arbuckle suggest to me that up to early October 2013 Crown was considering and open to engagement with Matvin in some form of joint venture, perhaps along the lines of the joint venture Crown had participated in with Tony Gapes of the Redwood Group. The specific terms on which Matvin and CAPG would conduct the joint venture, however, were yet to be decided.
[101] This view of events is not inconsistent with the first and second defendants’ evidence insofar as Mr Copson said “joint venture” is a term often used by financiers and clients to describe “mezzanine” type financing contracts where there can be an element of profit share. This type of joint venture arrangement is likely to be contractually based, which would exclude the imposition of mutually owed fiduciary duties. Further, the several offers of funding that Crown ultimately made did include profit sharing, albeit in a way that was different from what Matvin had envisaged.
[102] Matvin’s own evidence is that it anticipated a company being incorporated for the purpose of carrying out the joint venture, which is a form of joint venture that is not consistent with the presence of fiduciary duties.
[103] Accordingly, I consider that the final form of any negotiated joint venture arrangement may have excluded fiduciary duties.
[104] I also consider that the parties’ relationship broke down before they entered into discussions on the precise form of joint venture arrangement. However, given the early stages of the development project were already up and running by late July 2013 and from here the project was in a process of evolution, the question is whether, as
they moved along this evolving process, the parties reached a state where equity might impose mutual fiduciary duties which each owed to the other.
[105] Insofar as Mr Arbuckle attempted in his evidence to suggest that Crown was not being treated by Matvin as a potential joint venture participant throughout the period from July 2013 to early October 2013, I reject that suggestion. It is at odds with the contemporaneous documentary evidence and with Matvin’s evidence. This evidence shows that Crown was always involved in the ongoing assessments/investigations that Matvin was undertaking to see if development of 122 Hobsonville Road was a profitable project or not.
[106] Crown did not merely sit on the side-lines in the role of a lender that would become engaged at the relevant time when finance was needed. If that is all its role was to be it is hard to see why Matvin’s directors and Mr Corbett (and to a lesser extent, Mr Arbuckle) engaged with each other so much between July 2013 and up to 9 October 2013.
[107] The active participation of Crown through Mr Corbett is also confirmed by Mr Arbuckle’s evidence that Crown was providing Matvin with information to assist with investigation into the project’s profitability. This conduct is more consistent with being a profit share participant in a commercial project than a lender. In his evidence Mr Copson also referred to Crown having provided Matvin with such information and emphasised the support Crown had given to Matvin.11
[227] In CF Partners (UK) LLP v Barclay’s Bank PLC the Court confirmed that special collation and presentation of information, the individual components of which are not of themselves individually confidential, may have the quality of confidence.24 The Court gave as an example a customer list composed of particular names all of which were publicly available but the list would nevertheless be confidential.25 The Court referred to Gurry on Breach of Confidence26 which also recognised that something that has been constructed solely from materials in the public domain may possess the necessary quality of confidentiality. Further, the Court referred to pieces of information which individually might appear to have limited value and marginal
24 CF Partners (UK) LLP v Barclay’s Bank PLC [2014] EWLH 3049 (Ch).
25 At 125.
26 Gurry on Breach of Confidence, above n 23 at [5.16].
secrecy, but in combination in particular hands having special composite value and confer on the recipient a considerable advantage.27 I am satisfied that the due diligence information discussed herein falls within this category of confidential information.
[228] Accordingly, I am satisfied that the information made available to Crown was information which was communicated to Crown in circumstances that imported an obligation of confidence. Here the purchase of 122 Hobsonville Road was done by Viscount. But it was done in circumstances where Mr Arbuckle was the sole director of Crown and, therefore, knew all that Crown knew in terms of the confidential information Matvin had provided to Crown and was also a director of Viscount. In this way the knowledge that he obtained through his role as a director of Crown was then utilised by him as a director of Viscount to enable Viscount to complete the acquisition.
[229] Further, under cross-examination Mr Arbuckle had acknowledged that Crown could not make confidential information it received available to another CAPG entity for its own purpose. Thus, Mr Arbuckle has admitted Viscount received confidential information which it then misused for its own end. There is no evidence to involve the second defendant in the second cause of action.
[230] Accordingly, I am satisfied that Crown, being the party in possession of confidential information disclosed to it by Matvin, made an unauthorised disclosure of that information to Viscount which that company then used to the detriment of Matvin. Had Crown and Viscount not been in possession of that information Viscount could not have made the unconditional offer that it did on 25 October 2013 in which case Matvin may have had sufficient leeway to either negotiate an extension of time for payment with Mr Buljan or find alternative funding. The evidence shows that on 24 October 2013 Matvin’s solicitor had provided Mr Snedden (Mr Buljan’s solicitor) with an offer to negotiate new terms for payment of the deposit, which were seen to be acceptable by Mr Snedden. Had Viscount not been in a position where it could offer Mr Buljan exactly what he would have gained from Matvin originally it is reasonable to infer that Mr Buljan may have been open to accepting Matvin’s
27 CF Partners (UK) LLP v Barclay’s Bank PLC, above n 25, at 126, citing Arklow [1998] 3 NZLR 680 at 700.
alternative offer. Accordingly, I find the second cause of action proved against Crown, as the party in breach of confidence. I also find the second cause of action proved against Viscount as the knowing recipient of information that was the subject of breach of confidence.
Third cause of action: breach of fiduciary duties as lender
[231] The plaintiffs allege that the defendants owed fiduciary obligations as a lender. These obligations are said to arise in relation to dealing with confidential information provided by a borrower, not to interfere with the plaintiffs’ commercial negotiations with a vendor or to make loan offers on terms intended to ensure the plaintiffs would not accept and thereby create an opportunity for the lender to purchase the property for its own benefit. Nor to make a loan offer on commercially onerous terms or terms such that a borrower could not reasonably accept. This cause of action appears to be a mix of the first and second causes of action, but based on the parties being in a relationship of lender and borrower.
[232] In closing submissions no authorities were cited in support of this cause of action. Gurry on Breach of Confidence states that the nature of a number of professional relationships imposes on the professional person who is consulted or whose services are engaged an obligation to respect the confidentiality of disclosures made to him or her in their professional capacity. He cites as a leading authority on a banker’s duty of confidence Tournier v National Provincial & Union Bank of England.28 In that case the basis of the duty was said to be a legal one arising out of contract. Further, Gurry states the rule from Tournier is not restricted to the relationship between a banker and the holder of a bank account; it applies to a variety of other types of financial arrangements such as between customers and building societies and credit unions as well as between mortgagor and mortgagee.29 The scope of the duty is said to extend beyond simply information relating to the account and extends to any information provided to the banker by the customer.
28 Tournier v National Provincial & Union Bank of England [1924] 1 KB 456.
29 Gurry on Breach of Confidence, above n 23 at [9.46].
[233] However, the duty of confidence is said to begin only when the banking contract is entered into and so any private information disclosed before the contract begins (such as information used to obtain a loan) is not protected by the duty if no contract is subsequently concluded.30 Gurry states this does not mean such information would not be protected by confidence at all but rather that it would not be protected by the banker as a special duty owed to the prospective buyer. The protected information is that which is obtained during the banking relationship.
[234] Here no contractual relationship was entered into between Matvin and Crown. I do not see how equity can impose obligations of confidence on a banker/financier and a potential client simply by virtue of their relationship. The circumstances of this case do not support an enforceable equitable obligation arising simply from Crown being viewed as funder and Matvin as a borrower. Insofar as Matvin seeks to impose obligations protecting the confidentiality of the information it provided to Crown I consider it must do so either under its first or second cause of action. Accordingly I find this cause of action fails against Crown.
[235] The evidence does not link the second defendant or Viscount to this cause of action. Accordingly, I find this cause of action fails against those defendants.
Fifth cause of action: estoppel, first to third defendant
[236] Here the plaintiffs rely on the same circumstances as they do for the first and second causes of action. They allege they were encouraged to believe the defendants would use the information they supplied only in furtherance of the joint venture enterprise. The estoppel cause of action is pleaded as an alternative to the first and second causes of action. It is pleaded that if the Court should find the first or second causes of action do not succeed then nonetheless the defendants: (a) encouraged the plaintiffs to believe there was a joint venture or (b) the due diligence information supplied would be kept confidential or (c) the defendants would fund any property acquisition on reasonable commercial terms utilising prime bank funding with additional equity funding from the first defendant and if the joint venture did not proceed Matvin would have sufficient time to obtain funding from an alternative
30 Tournier v National Provincial & Union Bank of England, above n 28 at 401.
source. Further, that no personal guarantees would be required from Mr Clark and Mr Ellingham. It is pleaded that in consequence of the plaintiffs’ reliance upon the defendants’ encouragement the plaintiffs have suffered loss and in particular such loss enabled the defendants to obtain the property for themselves. In such circumstances it is alleged it would be unconscionable for the defendants to resile from the representations.
[237] I have found for the plaintiffs on the first and second causes of action. The third cause of action is an alternative cause of action. The findings made on the first and second causes of action dispose of the need to determine this cause of action. It would be possible to tailor the findings I have reached on Matvin and Crown’s arrangements and how they conducted themselves as between each other to the elements of the fifth cause of action. However, that is unnecessary in the face of the more appropriate first and second causes of action.
Sixth cause of action: dishonest assistance
[238] The sixth cause of action, dishonest assistance, is brought against Viscount. Whilst the plaintiffs have referred to this cause of action as knowing assistance, I prefer to use the name by which it is typically known.
[239] Dishonest assistance is a cause of action in which equity imposes accessory liability on a third party that has assisted another in a breach of trust or breach of fiduciary duty.31 The defining element of this cause of action is dishonest participation in a breach of duty.32 There must first have been a breach of trust or fiduciary duty by another party, to which the defendant was an accessory.
[240]The three key elements of dishonest assistance are as follows:33
(a)money or property, including realty, is lost as a result of a breach of trust or a breach of fiduciary duty;
31 Eden Refuge Trust v Hohepa [2011] 1 NZLR 197 (HC) at [190].
32 See Burmeister v O’Brien [2010] 2 NZLR 395 (HC) at [92].
33 See Burmeister v O’Brien, above n 32, at [93], cited in Eden Refuge Trust v Hohepa, above n 31, at [207]. These elements were affirmed on appeal: see Fletcher v Eden Refuge Trust [2012] NZCA 124, [2012] 2 NZLR 227.
(b)the defendant has participated in the breach of duty by helping or assisting in some way with those breaches; and
(c)there is dishonesty (objectively assessed) on the part of the defendant.
[241] In Coumat Ltd v Whitford Properties Ltd the Court of Appeal found that a third party company that knew of the fiduciary’s breach and as a result of that breach acquired land at a reduced price was liable for dishonest assistance, as was the director of the company, who was the natural person instrumental in implementing the dishonest acquisition.34 The present case is analogous insofar as Viscount has only acquired a property through Crown’s breach of fiduciary duty, which is something Viscount knew through the two companies having a common director.
[242] I have found Crown owed a fiduciary duty to the plaintiffs, which arose from the circumstances of the joint venture between Matvin and Crown to acquire and develop 122 Hobsonville Road. I have also found that Crown breached that duty through its disloyal actions from 9 October 2013 onwards, which resulted in that property being acquired by Viscount.
[243] Viscount participated in Crown’s breach of fiduciary duty by purchasing 122 Hobsonville Road on 25 October 2013. Crown and Viscount are part of the CAPG. Both companies have a common director in the form of Mr Arbuckle. He is the sole director of Crown and one of two directors of Viscount. The knowledge Mr Arbuckle held as a director of Crown regarding the joint venture with Matvin to acquire and develop 122 Hobsonville Road can through Mr Arbuckle’s directorship of Viscount be attributed to that company.
[244] Accordingly, at the time Viscount purchased the property it knew those actions were part of conduct initiated by Crown through Mr Arbuckle to ensure the property was solely acquired by a Crown related entity. Viscount’s shares are held by HWI Nominees Ltd, which owns all shares in the companies that comprise the CAPG as trustee for the Copson Family Trust. Further Viscount assisted Crown in its breach of fiduciary duty by acting as the legal vehicle for the purchase.
34 Coumat Ltd v Whitford Properties Ltd [2018] NZCA 15.
[245] The dishonesty element of dishonest assistance is to be objectively assessed.35 In Westpac New Zealand Ltd v MAP and Associates Ltd, Tipping J in the Supreme Court described the third element in this way:36
[26] In Barlow Clowes, which represented a significant volte-face from the decision of the House of Lords in Twinsectra Ltd v Yardley, Lord Hoffmann summarised the state of the law on dishonest assistance. The major difference between Twinsectra and Barlow Clowes is that in the latter case their Lordships recognised, as had Lord Millett in his dissenting speech in Twinsectra, that although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant’s mental state would be described as dishonest, it is irrelevant that the defendant has different standards and does not appreciate that his conduct, by ordinary standards, would be regarded as dishonest. We would adopt his Lordship’s summary in Barlow Clowes but with some elaboration as regards when suspicion amounts to dishonesty. In that respect the Privy Council said that the necessary state of mind could consist in suspicion combined with a conscious decision not to make inquiries which might result in knowledge.
[27] The key ingredient in the cause of action for dishonest assistance is the need for a dishonest state of mind on the part of the person who assists in the breach of trust. We agree with the statement in Barlow Clowes that such a state of mind may consist in actual knowledge that the transaction is one in which the assistor cannot honestly participate. But it may also consist in what we would describe as a sufficiently strong suspicion of a breach of trust, coupled with a deliberate decision not to make inquiry lest the inquiry result in actual knowledge. For the purpose of this alternative, it is necessary that the strength of the suspicion that a breach of trust is intended makes it dishonest to decide not to make inquiry. That state of mind, which equity equates with actual knowledge, is usually referred to as wilful blindness. It involves shutting one’s eyes to the obvious and can thus fairly be equated with the dishonesty involved when there is actual knowledge.
[246] Further guidance as to what is meant by a “dishonest state of mind” can be found in the speech of Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan:37
Before considering this issue further it will be helpful to define the terms being used by looking more closely at what dishonesty means in this context. Whatever may be the position in some criminal or other contexts (see, for instance, Reg v Ghosh [1982] QB 1053), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective
35 See Fletcher v Eden Refuge Trust, above n 33 at [67].
36 Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751 (footnotes omitted).
37 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (PC) at 389.
element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.
In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others’ property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless.
[247] The starting point is what the defendant knew or suspected about the facts of the transaction that gave rise to a breach of trust or fiduciary duty. The defendant does not need to appreciate that a breach of trust or fiduciary duty has occurred. However, the defendant’s actions (considering their knowledge of the transaction) must be objectively dishonest. This means that an honest person with the knowledge that the defendant had about the facts of the transaction would not have participated in it. In the same vein, a person can be “dishonest” if they have suspicions about a transaction, but they shut their eyes and refrain from making further inquiries.
[248] Through Mr Arbuckle Viscount had actual knowledge of what had transpired between Matvin and Crown in the lead up to 25 October 2013. Viscount also knew the information it relied on to make an unconditional offer came from the joint venture engagement between Matvin and Crown. I consider an honest person with Viscount’s knowledge would not have proceeded with the purchase.
[249] Accordingly, I am satisfied all elements of dishonest assistance are satisfied. It follows that Matvin has proved the sixth cause of action against Viscount.
Conclusions on the defendants’ liabilities and relief
[250]The plaintiffs have proved the first cause of action against the first defendant.
[251] The plaintiffs have proved their second cause of action against the first and third defendants.
[252] The plaintiffs have failed to prove the third cause of action against the first defendant.
[253] The plaintiffs at trial abandoned the fourth cause of action against all defendants.
[254] In light of the decisions made on the first and second causes of action the fifth cause of action has not been determined.
[255]The plaintiffs have proved the sixth cause of action against the third defendant.
[256] All the plaintiffs’ causes of action as pleaded against the second defendant have failed for want of proof against that defendant.
[257] The plaintiffs have sought relief in the form of an account of profits where parts of the subject property have subsequently been sold by Viscount and, insofar as Viscount continues to hold parts of the subject property, the plaintiffs seek a declaration that it does so subject to a constructive trust for the benefit of the plaintiffs.
[258] No evidence was led to show how or to what extent the defendants have profited from the actions which have resulted in the liability findings I have made against them. An account of profits will require a further hearing to enable the Court to determine profits, and how they should be shared as between the plaintiffs and the first and third defendants. It is not clear to me to what extent the first defendant has profited if at all and whether the profits now all lie with the third defendant. These are matters that can be clarified in a hearing for an account of profits. Regarding the balance of the subject land for which the plaintiffs seek a declaration of constructive
trust there is insufficient information available to me to enable me to determine to what extent that land should be made subject to a constructive trust.
[259] In Chirnside v Fay the Supreme Court was of the view that in a case of breach of fiduciary duties flowing from a joint venture the appropriate relief is an account of profits.38 There can be arguments as to what extent some allowance and credit needs to be made to the offending party for the efforts it has undertaken in arriving at the profit. The measure is not what the plaintiff has lost but what the defendant has gained, whether or not that has been realised in monetary terms.39
[260] An account of profits is also an appropriate remedy against an unsuccessful defendant in a breach of confidence action, be they the confidant who made the unlawful disclosure or the third party recipient of this confidential information. Viscount argued that damages were the more appropriate remedy. I disagree. Viscount’s liability under the second cause of action arises in equity not from contract. An account of profits is a traditional remedy for equitable wrongdoing.40 Indeed, until Aquaculture Corporation v NZ Green Mussel Co the general view was that compensatory damages were not available for breach of confidence and that a plaintiff had to look to traditional equitable remedies, which would include account of profits.41
[261] Accordingly, I am not persuaded in this case that a declaration of constructive trust in relation to the property now owned by Viscount should be made. I am satisfied that in relation to all causes of action on which the plaintiffs have succeeded the appropriate remedy here is an account of profits. The measure to which the plaintiffs are entitled will need to be determined.
Defences
[262] The defendants raised various affirmative defences in their statements of defence. Some were dependent on the counterclaim they brought against Matvin. At trial the counterclaims were abandoned, which removed the factual foundation for the
38 Chirnside v Fay, above n 19 at [53].
39 At [17] and [53]–[54].
40 Aquaculture Corporation v NZ Green Mussel (No 3) 1 NZIPR 678 (HC) at 689-690.
41 See Aquaculture Corporation v New Zealand Green Mussel Co Ltd [1990] 3 NZLR 299 (CA) at 301.
defences of equitable set off (Viscount) and lack of clean hands (all defendants). There remains defences of delay and acquiescence, neither of which was pushed strongly at trial.
[263] The proceeding has been brought within six years. A money claim under the Limitation Act 2010 includes a claim for monetary relief in equity.42 This includes a claim for an account of profits. I see no basis to deny the plaintiffs the relief they seek on the basis of laches or acquiescence when the Limitation Act imposes a six year time frame in which they can bring their claim.
[264] For completeness I note that Crown contended at trial that Matvin and its directors did not disclose they had been involved in litigation with a third party. Crown sought credit checks of Matvin’s directors. Crown never expressly enquired of Matvin’s directors whether they or Matvin had been involved previously in civil litigation. Absent such enquires I see no reason why Matvin or its directors were obliged to inform Crown of their civil litigation history.
Result
[265] Judgment is entered for the plaintiffs on the first cause of action against the first defendant.
[266] Judgment is entered for the plaintiffs on the second cause of action against the first and third defendants.
[267] The plaintiffs’ third cause of action against the first and second defendant is dismissed.
[268]The plaintiffs’ fourth cause of action against all defendants is dismissed.
[269]The fifth cause of action remains undetermined.
42 Limitation Act 2010, s 12.
[270] Judgment is entered for the plaintiffs against the third defendant on the sixth cause of action.
[271] All causes of action the plaintiffs bring against the second defendant are dismissed and judgment is entered for the second defendant.
[272]The plaintiffs should file in this Court for an account of profits.
[273]Leave is reserved to the parties to file memoranda on costs.
Duffy J
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