Patel v Patel

[2014] NZHC 1744

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-2593 [2014] NZHC 1744

BETWEEN

RENUKA PATEL

Plaintiff

AND

NARENDRA HIRABHAI LALABHAI PATEL

First Defendant

AND

PRAFUL PATEL Second Defendant

AND

VIADUCT WATERFRONT INVESTMENTS LIMITED Third Defendant

Continued over page …

Hearing:

15 and 16 April 2013

Further Submissions: 23 April, 13 and 25 September and
31 October 2013

Appearances:

Lady Deborah Chambers QC and E Eggleston for Plaintiff
AE Hinton QC and DCS Morris for First Defendant
DM Salmon, M Heard and S Ma Ching for Fourth to Ninth
Defendants
J McBride for Tenth Defendant

Results
Judgment:

18 December 2013

Reasons

Judgment:

25 July 2014

REASONS JUDGMENT OF TOOGOOD J

This judgment was delivered by me on 25 July 2014 at 3:00 pm

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

PATEL v PATEL & ORS [2014] NZHC 1744 [25 July 2014]

AND

CITYMED HEALTH CARE LIMITED

Fourth Defendant

AND

CHANCERY PROPERTY INVESTMENTS (NO. 1) LIMITED Fifth Defendant

AND

CHANCERY PROPERTY INVESTMENTS (NO. 2) LIMITED Sixth Defendant

AND

CHANCERY PROPERTY INVESTMENTS (NO. 3) LIMITED Seventh Defendant

AND

CHANCERY PROPERTY INVESTMENTS (NO. 4) LIMITED Eighth Defendant

AND

CHANCERY PROPERTY INVESTMENTS (NO. 5) LIMITED Ninth Defendant

AND

APEX MEGA CENTRE LIMITED Tenth Defendant

Introduction

[1]      This judgment provides reasons for miscellaneous interlocutory orders made in a judgment dated 19 December 2013.1    Brief reasons for what were essentially procedural rulings were given in the results judgment.  Although no party appealed against any of the orders or directions made, the parties require reasons that are more fully developed.

[2]      For convenience, I have incorporated into this judgment relevant passages taken from the results judgment.   I do not provide reasons for orders made by consent.    Nor do  I consider it  necessary to  address  a number of the  orders or directions  which  have  been  the  subject  of  later  applications,  in  the  light  of subsequent events, and have been superseded by more recent orders.

[3]      The nature and some of the history of the proceedings bear repeating.

Background and relevant procedural history

[4]      Mrs Renuka Patel and Mr Narendra Patel are a wife and husband who are domiciled in Australia.   They are estranged and Mrs Patel is living in the family home in Sydney with at least one child of the relationship.   She commenced proceedings in Australia seeking orders for the division of property, spousal maintenance  and  child  support.     The  assets  which  are  the  subject  of  those proceedings include shares in New Zealand-registered property-owning companies which are held by Praful Patel, Narendra Patel’s brother, having an estimated total value of some NZ$30 million.

[5]      Four separate proceedings dealing with matters related to Mrs Patel’s claims

were commenced in this Court, but they have now been consolidated.

[6]      At the heart of the consolidated proceeding are equitable claims by Mrs Patel asserting her entitlement to beneficial ownership  of the  shares in  the defendant

companies and/or their assets.  She claims that the shares in Praful Patel’s name are

1      Patel v Patel [2013] NZHC 3470.

in fact held in trust for her former husband, either solely or jointly with Mrs Patel.  In support of those claims, Mrs Patel registered caveats against properties owned by the companies.

[7]      Orders were made in September 2012 which, among other things, released a Browns Bay property owned by one of the companies from constraints on its disposition, but on conditions to be applied until the further order of the Court requiring Narendra Patel, Praful Patel and the companies to act transparently and to account to Mrs Patel for their dealings, for the purpose of preserving such interests in the companies or their assets as she may be able to establish.

[8]      The  orders  restraining  the  companies  from  disposing  of  their  assets  and requiring the defendants to account for their dealings have been varied from time to time to permit the sale of certain properties upon terms.   Mrs Patel continues to object to the dissipation of company assets and to the making of certain payments by the companies.; the defendants continue to argue that, in their present form, the orders are an undue constraint on their ability to carry out ordinary commercial dealings and have the effect of diminishing the value of the shares.

Application to restrain the companies from paying Mr Narendra Patel and

Mr Praful Patel

[9]      Mrs Patel applied for a variation to the orders made on 10 September 2012 by adding a condition that the companies be restrained from paying for any services rendered  by  Narendra Patel  or  Praful  Patel  without  her  written  agreement.    In support of that application she claimed that although Narendra Patel and Praful Patel had not previously been paid by the company for their services, the companies having engaged Asset Metro Limited to manage all of the leasing arrangements, shareholder dividends totalling at least $1,571,000 were declared in favour of the two defendants in the 2012 financial year.  She also referred to an affidavit of Praful Patel dated 5 March 2013 in which he had indicated that invoices would be rendered to the companies for services provided by Narendra Patel and him.  Mrs Patel said that although she had requested information from Praful Patel’s solicitors as to what services were to be rendered, and the basis on which the remuneration would be made, she had not received a response.

[10]     A remuneration report attached to Praful Patel’s affidavit of 8 April 2013 suggested a remuneration figure for him of between $100,000 and $130,000 plus a bonus.   Mrs Patel objected to the payment of such remuneration in circumstances where substantial dividends had been paid and the purported repayment of “foreign loans”  was  also  used  as  a  device  by  Narendra Patel  to  take  money  out  of  the companies.    She  referred  to  the  payment  of  $5 million  to  Mumtaz  Kassim  in

2011/2012.   Mrs Patel also complained that the payment to Mr Patel was being sought in circumstances where Mr Patel and the companies claimed there was a net deficit in the company accounts of $1,572,000.

[11]     I was satisfied on the untested evidence contained in the affidavits filed that there was sufficient proof, on a balance of probabilities, of the payment out of the defendant companies of substantial sums by way of shareholder dividends.   The orders made on 10 September 2012 restrain the companies, without first providing Mrs  Patel’s  solicitors  21  days’ written  notice  of  their  intention  to  do  so,  from undertaking certain financial transactions or make amendments to the companies’ constitutional documents.  On 18 December 2012, by consent, an order was made adding to the relevant condition the following provision:

the companies shall not, without the consent of Renuka Patel:

(vi)     paying [sic] any part of the first and second defendants’ legal costs,

which will be separately accounted for;

(vii)     Pay any personal expenses of Narendra Patel or Praful Patel; (viii) Declare any dividends to the first and second defendants.

[12]     I was told by counsel that there was a dispute as to the meaning of the additional conditions.  Mrs Patel took the view that the added provision should be read as stand-alone orders which are not governed by the obligation merely to give notice of the proposed transactions.   She argued that effect of the variation is that defendants are not to undertake such payments or declarations without her consent. The companies claim that the orders are ambiguous.

[13]     Without having heard full argument from the parties on the point, I was inclined to accept Mrs Patel’s proposition that the defendants had agreed that from

18 December 2012 payment of legal costs, personal expenses and the declaration of

dividends should not be undertaken without her consent.  In the event of any dispute about the reasonableness of Mrs Patel’s  withholding consent,  recourse  could be made to the Court under leave reserved.  This amendment would not apply to the alleged  payment  of  dividends  in  excess  of $1.5 million  undertaken  in  the 2012 financial year.

[14]     In  the  results  judgment,  without  referring  to  the  wording  of  the  agreed variations on 18 December 2012, I addressed the issue of remuneration and distribution of profits by restricting them to payments made with the leave of the Court.

[15]     If Mrs Patel establishes that shares in the companies are held on trust for her, payments made in the 2012 financial year may have the effect of depriving her of the fruits of any judgment given in her favour if they cannot be traced.  I considered that, in the absence of any undertaking by the defendants to protect her position pending trial  and  a  substantive  judgment,  it  was  appropriate  to  leave  in  place  orders preventing the making of any distribution of profits without the leave of the Court.

[16]     I accepted that Mr Praful Patel should not be unremunerated for managing the affairs of the companies, but I took a similar view of the risk of dissipation by the making of extraordinary payments of salary or other remuneration by the companies. I held that I was not in a position to say that a remuneration figure for him of

$100,000 of per annum was unreasonable, when spread across the third to ninth defendants, and that leave should be reserved for the companies to apply to the Court for further authorisation to make payments which are otherwise restrained by the Court's interlocutory orders.  For those reasons, I ordered that:

(a)      Until further order of the Court, the third to ninth defendants shall   not   make   any   distribution   of   profits,   by  way  of shareholder dividends or otherwise, without the leave of the Court.

(b)Until further order of the Court, the third to ninth defendants shall not make any extraordinary or unusual payment of remuneration to any director or employee without the leave of the  Court.    For  the  purposes  of  this  order,  payments  of

remuneration to Mr Praful Patel totalling up to $100,000 per annum shall not be considered extraordinary or unusual.

Application for orders concerning alleged UBS accounts

[17]     Mrs Patel alleged that Narendra Patel misled the Court concerning his interest in accounts held in his name or on his behalf in the Union Bank of Switzerland (UBS).   She applied for orders requiring Mr Patel to sign documents authorising officials of UBS to provide her with access to the relevant bank records.

[18]     The evidence provided by Mrs Patel in the affidavits she has filed contains allegations of substantial sums of cash being diverted from businesses operated by her  husband  to  family  members  and  off-shore  banks  during  the  course  of  the marriage  while  the  couple  were  living  both  in  the  United  Kingdom  and  more recently in Australia.  Among other things, she alleges that her husband transported cash to Geneva for depositing in numbered bank accounts with the Union Bank of Switzerland.  She alleges being present on an occasion when a Swiss bank manager opened an account for them.   She refers to other visits in which Building Society cheques and traveller’s cheques were taken by her husband, accompanied by her, on day trips while they were living in the United Kingdom.  Mrs Patel alleges also that her husband arranged telegraphic transfers of funds from the Swiss accounts into an account held in the name of his sister, Nayantika.

[19]     Mrs Patel alleges that representatives of UBS visited her husband in Australia to hand over bank statements related to the numbered accounts and she annexes copies of statements which she alleges provide evidence of holdings in the bank accounts.   There is also an email exchange between Mr Patel and the person apparently employed by UBS in Switzerland in which balances of NZ$1,264,506 and AUS$748,827,000 respectively are referred to.

[20]     Mr Patel denies the existence of any UBS accounts holding funds belonging to him, alleging that family members, including his sister, are the beneficial owners of the bank balances which Mrs Patel attributes to him.

[21]     It appears that much of the evidence upon which Mrs Patel relies became available to her after she undertook a search of computers left in the matrimonial home after Mr Patel and she separated.  The solicitors for Narendra Patel and for Praful Patel and the companies protested that documents available on the computers and other documents including the UBS statements had not been properly disclosed by Mrs Patel.

[22]     I ordered by consent that, unless she had already done so, Mrs Patel should, by 17 January 2014, file and serve an affidavit as to documents in respect of the documents held on her working computer in Sydney and the UBS statements.

[23]     I was satisfied that there is an arguable case that Mr Narendra Patel has a beneficial interest in UBS and other foreign bank accounts and that the details of the accounts ought to be disclosed if they are relevant to any issue in the proceedings. The failure of Mr Narendra Patel to list documents related to such accounts and to provide inspection of them may amount to a breach of his obligations to the Court and Mrs Patel concerning discovery.  Whether that is so is likely to depend on their relevance and whether they can be proved to exist.  Mrs Patel’s allegations about the accounts were denied, however, and I considered that the Court was not in a position in the interlocutory proceedings to resolve the credibility issues surrounding their alleged existence.

[24]     I was not satisfied, however, that the Court was in a position to direct Mr Patel to provide such authority and I declined to do so.  Proof of the existence of funds in which Mrs Patel has an arguable interest, but which are held in foreign banks in Narendra Patel’s name, is not a fact directly relevant to the proceeding in this Court.  At best, it may affect Mr Patel’s credibility and demonstrate a propensity to attempt to hide assets which are the subject of the matrimonial property claims in the Australian proceedings.

[25]     In the absence of fuller argument on the relevance of the alleged Swiss and other foreign bank accounts, and on this Court’s jurisdiction to make directions affecting the disclosure of information by the banks or Mr Patel, I was not prepared to make the orders sought.  Findings at trial, or in a substantive hearing at which the

parties are subject to cross-examination and susceptible to credibility findings, that Mr Narendra Patel has given false or misleading evidence about UBS accounts, or any other matter relating to the conduct of his financial affairs and his dealings with the assets of the marriage, may assist the Court to determine Mrs Patel’s claims about the true ownership of the shares in the New Zealand companies. As I observed in the results judgment, adverse findings on credibility issues are likely to result in the making of coercive orders against Mr Patel in the substantive proceeding.

Discovery by Mrs Patel

[26]     I  did  not  overlook  that  Mrs  Patel  also  has  continuing  obligations  as  to discovery and that her credibility relating to at least some aspects of her conduct regarding documents is the subject of strong criticism.

[27]     In an affidavit dated 2 August 2012, Mrs Patel deposed that Narendra Patel paid all of the expenses of a man named Muslim Dharamishi for a trip to New Zealand in July 2012.  She annexed as an exhibit proving her allegation a copy of a document  which  appeared  to  be  a  tax  invoice  from  Cascade’s  Motor  Lodge addressed to Muslim Dharamishi dated 2 July 2012 and numbered 20111205 for the amount of $400 including GST. The allegation was made on the basis that one of the defendant companies, Viaduct Waterfront Investments Limited, had falsely claimed to have made the payment.  An astute observer would have noticed that while the accommodation period referred to in the description of the services provided and covered    by    the    tax    invoice,    the    accommodation    dates    were    between

5 December 2011 and 9 December 2011.   Waterfront Investments Limited was in possession of an identically numbered invoice for the same amount and for the same accommodation but dated 5 December 2011 and addressed to Viaduct Waterfront Investments.  The allegation made by Mr Patel is that the copy invoice annexed to Mrs Patel’s affidavit is a forgery designed to suit allegations she has made in the proceeding.

[28]     As I understand it, Mrs Patel’s explanation for the existence of the document attached to her affidavit is that it was a replacement invoice prepared at her request sometime after the event (hence the 2 July 2012 date) in order to reflect what she

believed to be the true position; namely, that Mr Dharamishi had incurred the expenses personally.

[29]     I considered I was not in a position, in these interlocutory proceedings, to resolve   the   credibility   issues   raised   by   the   Cascades   Motor   Inn   invoices. Nevertheless,  I  held  it  was  appropriate  that  Mrs Patel  also  should  provide  a comprehensive and up-to-date affidavit of documents on the same basis as that supporting the orders made against Mr Narendra Patel and Mr Praful Patel.   I was satisfied, however, that it was appropriate that Mrs Patel’s affidavit of documents should be filed after the affidavits to be filed by the first and second defendants.

[30]     I directed that disclosure of relevant documents by Mrs Patel should include disclosure of all documents relevant to the invoice from Cascades Motor Lodge, there being no tenable argument that the documents are privileged.

Non-party discovery and costs

[31]     Disclosure of information by non-parties had been frustrated by an argument over whether the non-parties’ costs which Mrs Patel had undertaken to pay were reasonable and whether it was manifestly unjust that she should be required to meet them before disclosure.   Mrs Patel’s principal complaint was that she had been invoiced for services not directly connected to the cost of providing the verified list of  the  discoverable  documents.    They  included,  for  example,  invoices  totalling

$16,313.88 from the solicitors for one non-party who have recorded a total of just under hours worked by six authors.   It was submitted that the non-party, a bank, simply needed to comply with the Court’s order by copying the discoverable documents and forwarding the copies to Mrs Patel’s solicitors.  It was argued that the bank’s decision to obtain legal advice about compliance with an order made by consent should not properly result in additional cost to Mrs Patel.

[32]     I held that I was not in a position to determine whether the costs charged were reasonable and I considered it would not be an appropriate use of the Court’s time for a judge to be called upon to arbitrate such an issue as a matter of routine. Accordingly I regarded it as reasonable that the costs of third party discovery should

be charged by analogy with the scale applicable to category 2B proceedings.   I delegated the resolution of any dispute over those costs to the Registrar.  I considered it  appropriate,  before  third  parties  could  be  compelled  to  provide  discovery,  to require Mrs Patel to give an undertaking to meet reasonable costs as determined by the  Registrar  and  for  the  parties  to  agree  on  a  timetable  for  the  making  of submissions  on  costs  issues  in  the  absence  of  agreement.    I also  considered  it appropriate for the parties to have recourse to the Court in the event of continued disagreement about costs.

Application   by   the   defendants   for   disclosure   of   Mrs   Patel’s   funding

arrangements – application by defendants for security for costs

[33]     The defendants applied for an order for security for costs against Mrs Patel. Because she has entered into a litigation funding agreement with a third party, the defendants also sought disclosure of details of the agreement.   Mrs Patel opposed both applications.  She argued that the evidence put before the Court in the context of the numerous  interlocutory applications  for  discovery and  interim  restraining orders established a strong case of deception by her husband and, consequently, in favour of findings that she was a beneficial owner in the shares and assets of the new Zealand companies.   She also argued that disclosure of the terms of the funding agreement would provide the defendants with a tactical advantage in that they would know, or could estimate, the basis upon which cost considerations would force the plaintiff into settlement.

[34]     The parties had an opportunity to provide the Court with submissions on the implications of the Supreme Court’s judgment in Waterhouse v Contractors Bonding Limited.2  I was able, accordingly, to apply that judgment so far as it is relevant notwithstanding that it was issued after the hearing.  I dealt with the issue of security for costs at the same time, as they are related.

[35]     The Supreme Court held at [63] that, if an application for security for costs had been required in that case, whether or not there was litigation funding would have had obvious relevance.  The Court considered that it was strongly arguable that

the courts would have had the power to order disclosure, at least of the existence of a

2      Waterhouse v Contractors Bonding Limited [2013] NZSC 89.

litigation funder and the relevant terms of the funding agreement, but made no definitive comment on the point as it was not argued.  In that case security for costs had been provided voluntarily.

[36]     The Court noted, however, that it had been held in the judgment of the Court of Appeal  that  disclosure of funding arrangements  should  not  generally include details that might give rise to a tactical advantage to the non-funded party such as information  about  any  “war  chest”  or  other  commercially  sensitive  details.3

I decided that details as to the circumstances in which funding might be withdrawn

comes within that category.

[37]     Mrs Patel is resident out of New Zealand and is liable to an order for security for costs.   Since it is not clear that her litigation funder is susceptible to the jurisdiction of the Court, I reached the tentative view that security for costs ought to be ordered.  I determined, however, that I should adjourn the application for security for costs sine die for further submissions, if necessary.  The purpose of adopting that course was to provide Mrs Patel with an opportunity to decide whether to continue to resist the application for security for costs, in which case it would be necessary to hear fuller arguments on whether disclosure of the funding arrangements should be made in accordance with the obiter but persuasive tentative views of the Supreme Court.  I expressed the opinion that, if security for costs is provided voluntary then, as in the Waterhouse v Contractors Bonding Limited case, it is likely that the funding arrangements would cease to be relevant.

Removal of caveats

[38]     The defendants argue that, even if Mrs Patel succeeds in establishing that some of the shares in the defendant companies are held on trust for her, there is no proper basis for arguing that she has a caveatable interest in the companies’ assets; permitting such a claim against the property assets would amount to lifting the veil of incorporation.

[39]     I was not persuaded that Mrs Patel has no arguable claim to an interest in the properties owned by the defendant companies such as to justify making an interlocutory order requiring removal of the caveats over the properties concerned. It is arguable, in my view, that if Mrs Patel can establish that the shares in the companies are held by the first and second defendants as constructive trustees for her, the closely-held companies may also hold the properties in trust for her, being merely vehicles for the investment of funds contributed by Mrs Patel or on her behalf.  Such an argument will depend on the basis on which it can be established, if at all, that funds in which Mrs Patel had a proprietary interest were advanced to the

companies and used to acquire the assets.4  Whether a claim to a beneficial interest in

the properties themselves can be established will be a matter for determination at trial.

[40]     I was satisfied that orders restraining any of the defendant companies from disposing  of  properties  except  on  notice  should  achieve  a  reasonable  balance between permitting the companies to operate in the ordinary course of business but also protect Mrs Patel from the improper disposition of assets over which she has an arguable claim.

[41]     I held, therefore, that I was inclined to make orders in terms of paragraph 3 of Schedule 1 to the companies’ application for variation of the interim orders but not to make them conditional upon the giving of an undertaking by Mrs Patel.  I was not persuaded on the evidence before me in respect of these matters that the order at paragraph [28](g) of the Court’s judgment of 10 September 2012 should be discharged.   In light of the passage of time since the hearing, however, I reserved leave for the parties to make further submissions on these matters before ruling on them.

................................................

Toogood J