Peart v Samudrala
[2020] NZHC 76
•3 February 2020
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2019-488-103
[2020] NZHC 76
BETWEEN RUSSELL CHARLES PEART
Plaintiff
AND
SURESH CHANDRA SAMUDRALA
Defendant
AND
HELEN MARGARET PEART
Third Party
Hearing: 3 February 2020 Appearances:
N Hartwell for the Plaintiff A Singh for the Defendant
P M Hoskins for the Third Party E Lim for Craig Griffin & Lord
(2nd Defendant in CIV-2019-404-2471)
Judgment:
3 February 2020
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
[Re: transfer of proceeding from District Court into High Court]
Solicitors:
WRMK Lawyers (Nicola Hartwell), Whangarei, for the Plaintiff Patel Nand Legal, Penrose, Auckland, for the Defendant
Corban Revell (Peri Hoskins), Henderson, for the Third Party
Copy for:
A Singh, Papatoetoe, Auckland, for the Defendant
Fee Langstone (Ella Lim), Auckland, for Craig Griffin & Lord, Mt Eden, Auckland
PEART v SAMUDRALA and PEART [2020] NZHC 76 [3 February 2020]
[1] The third party, Mrs Helen Peart, applies under s 91 of the District Court Act 2016 to transfer a proceeding in the Whangarei District Court to this court, as her counterclaim is for an amount above the District Court civil jurisdiction limit of
$350,000. The plaintiff, Mr Russell Peart, her former husband, abides the decision of the court. The defendant, Mr Suresh Samudrala, opposes. He contends that these matters can be heard in the District Court.
[2] There is also a related proceeding which Mrs Peart has begun in the Auckland High Court under CIV-2019-404-2471. She sues Uma Chandra, the wife of Suresh Samudrala, as first defendant, and Craig Griffin & Lord, solicitors, as second defendant. Mrs Peart proposes that on the District Court proceeding being transferred to the High Court, it should be heard at the same time as her claim against Uma Chandra and Craig Griffin & Lord.
[3] Mr Russell Peart began this proceeding in 2017. He applied for summary judgment. In a decision of 27 October 2017, District Court Judge D J McDonald, gave background to the matters in dispute between Russell Peart and Suresh Samudrala.1
Background
[7] Mr Peart and his wife, Mrs Helen Peart, some 12 years ago purchased a property at 56A George Street, Hikurangi. It comprised 5.967 hectares. There is a house on the property as well. Mr and Mrs Peart separated in 2013.
[8] On 3 December 2013, Mr Peart, and his separated wife, entered into a standard form of sale and purchase agreement as vendors with Mr Samudrala, his wife, and Mrs Helen Peart as purchasers. Mr and Mrs Samudrala as to two-thirds, and Mrs Peart as to one-third. The purchase price was $500,000. Settlement was to be on 5 February 2014.
[9] Mr Peart was to be paid $165,000 as his share of the purchase price. There are three purchasers, including his estranged wife, who is both a vendor and purchaser. The property was mortgaged to the ANZ Bank. $332,500 was drawn down on the mortgage on 5 February 2014.
[10] On 3 February 2014, prior to settlement, Mr Peart, as investor, Helen Peart, as part owner and Mr Suresh Chandra (the defendant) of D-consortium as part-owner, signed an agreement that was drafted by Mr Samudrala.
[11]The agreement is as follows:
1 Peart v Samudrala [2017] NZDC 24255 at [7]-[14].
(a) The investor to release funds to facilitate development activity, the owners of 56A George Street (check), Hikurangi, Whangarei Dist. to a sum of $565,000.
(b) The part-owners have agreed to take funds available from investor for the project that they agreed to the following:
1.0 The part owners agree to a minimum return on the investment of either 15 per cent per annum return of the investment and/or 50 per cent share of both part owner’s share of the property.
2.0Investor’s involvement in the development activity will primarily be financial input and facilitation of mortgage payments agreed at $517.50 per week to a maximum of three years. In that even it is assured by both part owners that the share of the profit is paid as mentioned above.
3.0 The part owners shall at every stage of development report progress and updated the situation to the investor. The investor also understands that the project management fee will be charged to 6 per cent of the total cost of the project to derive at the net profit of the project.
Now this agreement witnesses as follows:
1. Upon signing this agreement the investor undertakes to invest the funds in to an account which is administered by both the part owners.
[12] Mr Peart paid $163,000 into a bank account administered by both the defendant and Mrs Helen Peart. It is alleged that Mr Samudrala obtained the entire sum for himself, having withdrawn it from the account without Mrs Helen Peart’s consent. $163,000 has not been repaid nor has any interest on it. In addition, Mr Peart paid $22,610 to Mrs Helen Peart to be paid to Mr Samudrala to assist him in his mortgage obligations with the ANZ bank.
[13] The plaintiff claims he advanced money to help Mr Samudrala develop the property that he and his then wife, Mrs Helen Peart, sold. He has completed his part of the agreement. He has made demand for repayment of both the $163,000 and the mortgage contributions.
[14] The defendant’s position is that the $165,000 was paid to him by the plaintiff subject to all the conditions set out in the agreement including “the facilitation of mortgage repayments agreed $570.50 per week to a maximum of three years”. Mr Peart did not facilitate that. As a result, the defendant defaulted on his mortgage and the property was sold by the bank. The plaintiff is not entitled to anything as this was a joint agreement to develop the property which failed. The plaintiff must bear his loss of that failure.
[4] Judge McDonald was only setting out the background to the claim by Mr Peart against Mr Samudrala. There are other matters. Mr Samudrala says that Mr Peart did make the payments of $1,190 per fortnight but he made those payments to Helen Peart’s bank account, not to Mr Samudrala. Mr Samudrala says that Mrs Peart paid him $595.00 per fortnight, but that payment was for occupying the property at 54 George Street.
[5] As further background, Mr Samudrala is a property developer in Auckland. Mr and Mrs Peart’s property at 56A George Street, Hikurangi, Whangarei, had potential to be developed into residential lots, but there were access problems. The property’s frontage was apparently not wide enough for access to serve a number of residential lots. If the adjoining property at 54 George Street were acquired, that would provide a solution to the access problem.
[6] Since Judge McDonald’s decision on the summary judgment application there have been other developments in the proceeding. Mr Samudrala counterclaimed against Mr Peart. He says that the payments that Mr Peart made to Helen Peart were not payments in accordance with the agreement, and Mr Peart’s failure to pay Mr Samudrala meant that Mr Samudrala did not have the funds to service a mortgage on the property at 56A George Street. The mortgage fell into default, even though Mr Samudrala met some of the mortgage payments. ANZ Bank sold the property as mortgagee and the proposed property venture failed.
[7] Mr Samudrala has counterclaimed against Mr Peart for $89,082.96. There are various components to that. He has claimed for payments he made to the ANZ Bank. He alleges that if Mr Peart had paid him directly what was required under the agreement, there would have been no default under the mortgage. He also had to pay ANZ Bank a sum to make up for the shortfall incurred on the mortgagee’s sale. There was a loss on the purchase and relocation of a home installed on the property. There was wasted expenditure in carrying out the development.
[8] Mr Samudrala’s claim is for damages arising from the failure to pay sums of money. There are legal issues surrounding the recoverability of additional losses
above and beyond the amount required to be paid. That will require further consideration at a defended hearing.
[9] Mr Samudrala also joined Mrs Peart as third party. He sues her for breach of the agreement set out in Judge McDonald’s decision, blaming her for not paying him the full amounts which Russell Peart paid into her bank account. His claims against her are for the same losses which he alleges against Mr Peart.
[10] At the outset, Mrs Peart did not have legal representation. She filed a counterclaim herself. Later, she successfully applied for legal aid and now has legal representation. She made an application for non-party discovery against ANZ Bank. That provided her with documents. That led to her counsel filing an amended counterclaim in September last year. While she acknowledges the agreement recorded in Judge McDonald’s decision, she says that was only one aspect of a wider agreement which she describes as a “joint venture” with herself, Mr Samudrala and Uma Chandra for the development of both 54 and 56A George Street, Hikurangi. She contends the joint venture agreement included the following:
(a)Mr Samudrala would buy the adjoining property at 54 George Street to solve the access problems;
(b)Mr Peart would sell his 50 per cent interest in 56A George Street, and the property would then be subdivided with mortgage finance obtained with the approval of Mrs Peart;
(c)Mr Samudrala would manage the development and would keep her informed regarding the development, including the financial matters;
(d)Mr Samudrala was to pay the mortgage and council rates for the properties;
(e)Mr Samudrala would pay her a 15 per cent interest on her 50 per cent interest in the property at 56A George Street;
(f)She was to have 15 per cent interest on her 50 per cent ownership of 56A George Street;
(g)She would continue to live in the house at 56A George Street and she would not have to pay rent; and
(h)She would receive 15 per cent of the development’s net profit when the development was finished.
On her side, she agreed to keep her equity in 56A George Street after the sale of Russell Peart’s share, and she would continue to pay the insurance premiums on 56A George Street while the development was carried out.
[11] Mrs Peart also pleads that in January 2014, Mr Samudrala and his wife arranged mortgage finance with the ANZ Bank to complete the purchase of 56A George Street. They borrowed $332,500, with Mr Samudrala also obtaining an advance of a further $50,000 so that the total borrowings were $382,500. The bank required Mrs Peart to give a guarantee for that amount. When it came to signing the guarantee, Mr Samudrala arranged for her to be advised by Auckland lawyers, Craig Griffin & Lord. She complains that they did not give her truly independent advice.
[12] She pleads that after the sale by Russell Peart in February 2014, Russell was paid his intended advance of $165,000 and he in turn advanced $163,000 back to Mr Samudrala for property development. Mr Samudrala and his wife also gave Mrs Peart a written indemnity for any loss which she might suffer arising from the ANZ mortgage and the guarantee.
[13] She says that Mr Samudrala prepared the agreement Judge McDonald referred to in his summary judgment decision. She signed it without having independent legal advice. She says that that written document is not the entire agreement, although it is evidence to some extent of the joint venture which she relies on for her claim. She pleads that Mr Samudrala and his wife used 56A George Street as collateral to obtain additional funds borrowed on mortgage to buy 54 George Street in their own names
but not in her name. Mr Samudrala and his wife sold 54 George Street in August 2017, but they did not account to her for any sale proceeds.
[14] She pleads that Mr Samudrala did not meet the required mortgage payments under the ANZ mortgage for either 56A George Street or 54 George Street. He also failed to pay the District Council rates, he did not take adequate or timely steps to progress the development, and he failed to apply the funds he received from Mr and Mrs Peart to meet the ANZ mortgage. He persuaded Mrs Peart to pay the insurance on 54 George Street, which she did. While Mr Samudrala arranged a sale of the property at 54 George Street, he allowed 56A George Street to go to a mortgagee’s sale. The ANZ Bank suffered a loss on that sale. She claims that the ANZ Bank held her liable for the loss of about $60,000. She lost her interest in 56A George Street entirely and she ended up homeless.
[15] In her counterclaim, she sues Mr Samudrala for breaches of the joint venture agreement, breach of fiduciary duty, for negligence, and breach of a duty of care. She also claims under the indemnity agreement. Her claim is for more than $350,000. In paragraph 54 of the statement of claim she alleges these losses:
(a)a loss of equity in 56A George Street which she puts at $307,500;
(b)the amount which the ANZ bank claims against her under the guarantee
- $60,000;
(c)a loss of contractual interest under the joint venture agreement which she calculates at some $211,000 running from 3 February 2014 to 19 September 2019;
(d)her costs in relocating from George Street and associated rental costs -
$10,000;
(e)her expenses for insurance, maintenance and costs of rectification -
$2,000;
(f)her losses of businesses she carried on from the George Street property - $15,000;
(g)grazing expenses for her sheep and horses - $5,000;
(h)the sheep and goats she lost - $20,000;
(i)legal expenses - $20,000; and
(j)general damages for distress, anxiety, humiliation and embarrassment - $50,000.
Mr Hoskins says that all those sums when added up are in the order of $700,000.
[16] I note some jurisdiction rules under the District Court Act 2016. Under s 74, the maximum amount of a civil claim is $350,000. In calculating the amount of a claim, interest claimed under the Interest on Money Claims Act 2016 is disregarded (s 82). On the other hand, claims for contractual interest are part of the substantive claim and do not come within s 82. Under s 80, a plaintiff who wants to keep a claim in the District Court can abandon so much of the claim as exceeds the jurisdiction limit under s 74. Under s 81 if the parties agree the District Court can hear a claim, even if the amount of the claim is for more than $350,000.
[17]Section 91 of the District Court Act 2016 says:
91Transfer of proceeding to High Court if counterclaim exceeds jurisdiction
(1) This section applies to a proceeding in the court in which a counterclaim or set-off and counterclaim involves a matter that is outside the jurisdiction of the court.
(2) A party to the proceeding may apply, within the time prescribed by the High Court Rules 2016, to the High Court for an order transferring the proceeding, or the proceeding on the counterclaim or set-off and counterclaim, to the High Court.
(3)A Judge of the High Court may order that—
(a)the proceeding be transferred to the High Court; or
(b)the proceeding be heard and determined in the District Court; or
(c)only the proceeding on the counterclaim or set-off and counterclaim be heard in the High Court and that the rest of the proceeding be heard and determined in the District Court.
(4) Execution of a judgment of the court in favour of a claimant in a proceeding to which subsection (3) (c) applies must, unless the High Court orders otherwise, be stayed until the proceeding transferred to the High Court is heard and determined.
(5) The court has jurisdiction to hear and determine a proceeding to which this section applies if—
(a)no application is made under subsection (2) within the time prescribed by the High Court Rules 2016; or
(b)the High Court orders that the proceeding be heard and determined in the District Court.
(6)Subsection (5) overrides anything to the contrary in any other enactment.
(7)Where the High Court makes an order under this section, the Registrar of the relevant registry of the High Court must send a copy of the order to the Registrar of the relevant office of the District Court.
[18] Mr Hoskins cited four cases decided under s 45 of the District Courts Act 1947. While there are drafting differences between s 45 of the 1947 Act and s 91 of the 2016 Act, there are no significant differences in substance. The cases are Wix Corporation New Zealand Ltd v Hayward, Foley v Driver, Stoupe v Nutrimetrix International NZ Ltd, and Cromwell Property Holdings & Development v Checketts McKay.2
[19] In Cromwell Property Holdings & Development v Checketts McKay, Master Venning referred to Essar (NZ) Ltd v The Spa and Pool Factory Ltd.3 There Penlington J noted that the following matters can properly be taken into account:
(a)the amount by which the counterclaim exceeds the jurisdiction of the District Court;
(b)the nature and extent of the matters in issue, whether of fact or of law;
2 Wix Corporation New Zealand Ltd v Hayward HC Auckland CP292/86, 11 April 1986; Foley v Driver (1992) 6 PRNZ 79; Stoupe v Nutrimetrics International NZ Ltd (1997) 10 PRNZ 389; and Cromwell Property Holdings & Development Ltd v Checketts McKay (1999) 13 PRNZ 709.
3 Essar (NZ) Ltd v The Spa and Pool Factory Ltd HC Auckland, 15 March 1991.
(c)the relative costs in each court;
(d)the relative time to dispose of the case in each court; and
(e)other factors including public or other importance.
In the Cromwell case, Master Venning also noted that it was relevant whether the counterclaim can be regarded as so inextricably linked to the claim that both should be considered together.
[20] The cases show a variety of results: both claim and counterclaim transferred to this court, both claim and counterclaim kept in the District Court, and claims kept in the District Court and the counterclaim removed to this court. Each case was decided on its own circumstances. In all the cases, the only parties were plaintiffs and defendants.
[21] In this case, Mr Samudrala’s claims against Mr Peart and against Mrs Peart are within the jurisdiction of the District Court. Mrs Peart’s counterclaim is for more than the District Court’s limit of $350,000 under s 74 of the District Court Act 2016. In an amended statement of claim, Mr Peart sought judgment of $185,000 for the advances he had made, plus interest at 15 per cent per annum. Mr Hoskins has calculated that as at today (3 February 2020) those claims, including contractual interest, come to
$347,969.66. By the time this case gets to a hearing, his claim will certainly be for more than $350,000. I issued a minute asking the parties to address that question. Ms Hartwell filed a memorandum indicating that while Mr Peart abided the decision of the court, if the court decided that the case should stay in the District Court Mr Peart would cap his claim at $350,000. If the court decided that the case should move to the High Court, his claim would not be capped at $350,000.
[22] Mr Hoskin was concerned that if this case were to stay in this court, his client’s claim would be limited to $350,000. That is not how s 91 is meant to work. One of the cases cited illustrates the point. In Foley v Driver,4 a proceeding in the District Court with a counterclaim for more than the District Court’s jurisdiction was kept in that court notwithstanding the excess of the jurisdiction. That is clearly contemplated
4 Foley v Driver (1992) 6 PRNZ 79.
by s 91(5) under which the court can order that the proceeding be heard in the District Court. That direction can override anything to the contrary in any other enactment. In other words, the jurisdiction limit under s 74 is expressly overridden under s 91(6). Accordingly, on this matter, I can direct that Mrs Peart’s claim be heard in this court, notwithstanding that it is for more than $350,000. On the hearing of the counterclaim, the Judge will be able to give her damages to the full extent of her claim, even if she establishes that her losses are more than $350,000.
[23] I accept that all claims and counterclaims in the District Court proceeding are closely linked. In his claims against Mr Peart and Mrs Peart, Mr Samudrala is saying that at least one of them must be liable for his not having received the payments which Mr Peart was required to pay under the agreement of February 2014. It would not make sense to have his claim against Mr Peart heard separately from his claim against Mrs Peart. The matters he has raised in his counterclaim also operate by way of defence to Mr Peart’s claim against him. Likewise, Mr Peart’s claim should be heard at the same time as Mr Samudrala’s claim against him and Mr Samudrala’s claim against Mrs Peart. Equally, Mrs Peart’s claims against Mr Samudrala arise out of the same matters as his claims against her – that is, the agreements for the failed development of 56A George Street, Hikurangi. Indeed, Mrs Peart’s claim is in part based on the same agreement which is the basis for Mr Peart’s claim against Mr Samudrala and Mr Samudrala’s claim against Mr Peart and Mrs Peart.
[24] I enquired when the case might be heard in the District Court and in the High Court. The District Court schedulers have advised the civil deputy registrar in Whangarei that the District Court could hear the case from July this year. On the other hand, if this case were transferred to the High Court, whether that be the Whangarei registry or the Auckland registry, it would take much longer for this case to be heard. I would estimate that, all going well, a hearing is unlikely to be available until some time in 2021. There are better chances of an earlier hearing in the Whangarei High Court than in the Auckland High Court. If the case were heard in the Auckland High Court a hearing is unlikely to be available until mid-2021.
[25] The filing fees in the District Court are lower than in the High Court. Mrs Peart has legal aid. That means that for the other parties there is a corresponding advantage
if they can keep their costs in this court down as they will have limited recourse against her if she is unsuccessful in her counterclaim.
[26] Mr Singh has criticised the time taken for Mrs Peart to launch her counterclaim. I accept, however, that she has provided an explanation for that. I do not regard that factor as critical to the decision I am required to make today.
[27] There remain two factors for consideration. One is whether the issues in this case are unsuitable for determination in the District Court. The second is whether this proceeding should be tied to the new proceeding against Mrs Uma Chandra and Craig Griffin & Lord.5
[28] As to the first point, I do not regard the issues in this case as unsuitable for determination in the District Court. It is likely that in the District Court this case will be allocated a fixture as a long cause – likely requiring up to five days. In that event, the District Court is likely to arrange for a judge with a civil warrant who ordinarily takes long cause civil fixtures to hear the case. That judge will typically come from out of town and not be local. I would expect any District Court judge, with a background of hearing civil cases to have no difficulty dealing with the issues in this case. It must be said that there is a “messiness” about the arrangements the parties entered into. The arrangements were certainly unconventional and strange. In deciding the case a judge will need to make careful findings of fact and credibility. I accept Mr Singh’s submission that once the findings of fact are made, the rest of the case ought to fall into place. In other words, findings on questions of law are likely to follow the findings of fact.
[29] Mr Hoskins submitted that judges in the High Court have more experience in dealing with cases alleging breach of fiduciary duty. That may be so, but it is not beyond the competence of a District Court judge. The parties made certain arrangements. It will be necessary to work out what those arrangements were. That will in turn depend not only on the written documents but also oral discussions. The next will be to see whether the parties followed what they had agreed to and, to the extent that they do not, where the liabilities lie. To that extent, it is mainly a contractual
5 Peart v Chandra and Craig Griffin & Lord, CIV-2019-404-2471.
dispute. In short, the issues in the case do not necessarily require removal into the High Court.
[30] There is the matter of the proceeding against Mrs Uma Chandra and Craig Griffin & Lord. Mr Singh advises me that he will not have instructions for Mrs Chandra. Instead, arrangements have been made for her to have alternative representation. The claim against Mrs Chandra is in substantially the same terms as Mrs Peart’s claim against Mr Samudrala. Mrs Peart might have joined Mrs Uma Chandra as a counterclaim defendant, but she did not do so. Broadly, I regard Mrs Peart’s claims against Mrs Uma Chandra and against Craig Griffin & Lord as secondary. That is, her primary claim is against Mr Samudrala. If she succeeds in that claim and Mr Samudrala is good for the damages, it will not be necessary for her to proceed with the claim against Mrs Uma Chandra and against Craig Griffin & Lord. If she fails in her counterclaim, she is unlikely to need the proceeding against Mrs Uma Chandra. She may still have a claim against Craig Griffin & Lord but that depends very much on the basis on which she fails against Mr Samudrala. Her claim against the lawyers may be required only if the person primarily liable, Mr Samudrala, turns out to be a man of straw and it is necessary to resort to the professional advisors for not protecting Mrs Peart against the failings of the agreement.
[31] I am conscious that if this case were transferred to the High Court and linked to the other proceeding, that would slow down the proceeding started in the District Court. Mr Peart started the proceeding in 2017 and has the prospect of a hearing this year. On the other hand, the proceeding in the Auckland High Court has only just been started and is unlikely to be heard until some time in 2021. I do not regard it as fair to Mr Russell Peart to be kept waiting further while Mrs Peart pursues remedies against other people. While there may be some overlap between the proceeding started in the District Court, matters would be procedurally more complex to handle if the two proceedings were combined, with up to five different lawyers involved. That would impose an unacceptable burden on Mr Peart who has been waiting some time already for a hearing. In the circumstances, the proposed linking of the two proceedings has not persuaded me that the factors favouring keeping the proceeding in this court are outweighed.
[32] There is one final matter I would like to comment on: the extent to which Mrs Peart’s claim exceeds the jurisdiction of the District Court. Mrs Peart’s heads of loss may combine inconsistent matters. On one hand she is claiming for the position she would have been in if the scheme had gone ahead as planned, and on the other hand she is also claiming for being worse off as a result of her having entered into these arrangements with Mr Samudrala. She may have to elect between some heads of loss and others. I do not regard her claim as necessarily amounting to $700,000. Her excess over the District Court’s jurisdiction is not necessarily as great as she would contend. There does seem to be some fat in her claim.
[33] The matter is still within the competence of a District Court Judge notwithstanding the amounts that she has claimed. Overall, I am satisfied that Mr Peart’s claim (including the associated third party claim and the counterclaims) all ought to be heard in the District Court and do not need to be transferred to the High Court. Although it is not for me to do the District Court’s case management, it may be useful for the District Court Registrar to arrange a case management conference to discuss what further steps need to be taken before a hearing can be given. Mr Singh said that there may be a request for particulars. Mr Hoskins re-joined that Mr Samudrala has had the counterclaim since September last year and has not raised the question so far. The case should be capable of being made ready for hearing in the District Court in a fairly short time. Accordingly, I direct that the case is to stay in the District Court.
[34] The question of costs is reserved. That is because Mrs Peart is legally aided. For the assistance of any judge who has to consider costs later, I do not consider that there is anything in the way of exceptional circumstances in this application for an order for costs to be made against Mrs Peart notwithstanding the grant of legal aid. In other words, while she was unsuccessful in her application, it was not an irresponsible application.
……………………………….
Associate Judge R M Bell
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