Petranz Limited (in liquidation) v Smith
[2017] NZHC 1225
•7 June 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-3139 [2017] NZHC 1225
IN THE MATTER of an application for particular discovery
before proceeding commenced under Rule
8.20 of the High Court Rules 2009BETWEEN
PETRANZ LIMITED (IN LIQUIDATION) Applicant
AND
BRUCE PETER JAMES SMITH AND AVIEMORE TRUSTEES (2013) LIMITED
Respondents
Hearing: 12 May 2017 Appearances:
N Malarao for the Applicant
J Belthazar for the RespondentsJudgment:
7 June 2017
JUDGMENT OF GORDON J
This judgment was delivered by me
on 7 June 2017 at 12.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors: Meredith Connell, Auckland
Gibbs Mills Livingston, Highland Park, Auckland
PETRANZ LTD (IN LIQ) v SMITH [2017] NZHC 1225 [7 June 2017]
Introduction
[1] Darrell and Diana Petera are the directors and shareholders of Petranz Ltd (the applicant), which was incorporated on 21 August 2002. On 30 January 2009, the High Court at Auckland placed the applicant into liquidation.1 In 2015, the High Court ordered the Peteras to pay a total of $349,310 to the applicant.2 The Peteras failed to make payment and consequently were adjudicated bankrupt on 28 July
2016. The applicant has submitted a proof of debt in the bankruptcies.3
[2] In addition to the proof of debt filed in the bankruptcies, the applicant considers that it may be appropriate to bring proceedings against the respondents to set aside certain dispositions of property under s 348 of the Property Law Act 2007 (PLA). The applicant believes that the respondents may have been part of a scheme designed to systematically alienate property belonging to the Peteras in order to place that property beyond the reach of creditors. If successful in its proposed claim, the applicant would seek orders requiring the respondents to pay reasonable compensation to the applicant to reflect the value of that property. That money
would be vested in the Official Assignee4 and would be available to pay debts owed
by the Peteras, including debts owed to the applicant.
[3] For the purposes of making its claim the applicant seeks orders for pre- commencement discovery under r 8.20 of the High Court Rules 2016. The respondents oppose the application.
[4] This Court may make an order for pre-commencement disclosure if it appears that:
(a) The applicant is or may be entitled to claim relief against the respondents;
(b)It is impossible or impractical to formulate the claim without the documents sought; and
1 Affidavit of Henry David Levin dated 7 December 2016 at [2].
2 Madsen-Ries v Petera [2015] NZHC 538.
3 Affidavit of Henry David Levin dated 7 December 2016 at [49].
4 Property Law Act 2007, s 350(1)(a).
(c) There are grounds to believe that the documents may be or may have been in the possession of the respondents.
In this judgment I determine each of these three issues so as to decide if pre- commencement discovery should be ordered. I also determine whether costs should be ordered.
Factual background
[5] The factual background to the proposed claim is somewhat convoluted, involving a number of different properties and individuals over nearly 20 years. It is convenient to set out the relevant events in more or less chronological order although, as will become apparent, it is important to draw links between dealings with the individual properties.
[6] The events leading up to the present application commenced in 1994 when Mrs Petera’s mother, Dulcie Smith, settled the Dulcie Smith Family Trust.5 The original trustees were David Gibbs, Clement Milne and Mrs Smith.6 Mr Gibbs was (and is) a solicitor and partner of the firm Gibbs Mills Livingstone, while Mr Milne’s profession is unclear. The nature and value of the trust property upon settlement is unclear. The number of beneficiaries is also unclear although Mrs Petera and her
brother, Bruce Smith (the first respondent, now deceased), were amongst them.
[7] In 1996, Mr and Mrs Petera purchased a property at 3 Puriri Road, Manurewa.7 On the same day, a mortgage in favour of Trust Bank New Zealand Ltd was registered against the Puriri Road property.8 The Puriri Road mortgage was subsequently vested in Westpac Banking Corporation and later in Westpac New
Zealand Ltd.
5 Affidavit of Henry David Levin dated 7 December 2016 at [13].
6 Affidavit of Henry David Levin dated 7 December 2016 at [14]; see also affidavit of David
Malcolm Vince Gibbs dated 7 March 2017 at [24(a)].
7 Affidavit of Henry David Levin dated 7 December 2016 at [15].
[8] Mr Milne retired as a trustee of the Trust in 2000 and was replaced by
Peter Clark, a chartered accountant with the firm Milne Maingay.9
[9] On 24 May 2002, the Trust purchased a property at 65 Millhouse Drive, Northpark.10 As required at law, the registered proprietors were Mr Gibbs, Mr Clark and Mrs Smith. Mrs Smith lived in the Millhouse Drive property from the time of its purchase until her death.11 Approximately one year later, on 9 May 2003, the Trust purchased a second property at 16 Ormiston Road, Otara.12 Again, the registered proprietors were Mr Gibbs, Mr Clark and Mrs Smith.
[10] In or around 2007, the Peteras ran into problems relating to the Puriri Road mortgage. The mortgagee, Westpac New Zealand Ltd, required repayment of the loan, as a result of which there was a threat of a mortgagee sale.13 The trustees determined to take an assignment of the Puriri Road mortgage and paid the settlement sum of $160,404.45 as consideration for the assignment of the mortgage to the Trust.14 Mr Gibbs, Mr Clark and Mrs Smith were listed as the mortgagees.
[11] Mrs Smith died on 29 December 2012. At around the same time, Mr Clark retired from his position as trustee.15 Accordingly on 4 April 2013, Mrs Petera and Mr Smith were appointed as trustees alongside Mr Gibbs. On 24 April 2013, the properties at Millhouse Drive and Ormiston Road were transmitted to Mr Gibbs and Mr Clark by right of survivorship and then transferred into the names of the new trustees: Mr Gibbs, Mr Smith and Mrs Petera.
[12] A few days later, on 29 April 2013, the Millhouse Drive property was sold to unrelated third parties for $675,000.16 The following day, 30 April 2013, the Trust
purchased another property at 18 Crannich Place, Wattle Downs, for the sum of
9 See affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [24(b)].
10 Affidavit of Henry David Levin dated 7 December 2016 at [17]; see also affidavit of David
Malcolm Vince Gibbs dated 7 March 2017 at [27(a)].
11 Affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [27(a)] and [27(b)].
12 Affidavit of Henry David Levin dated 7 December 2016 at [19].
13 Affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [29(b)].
14 Affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [29(a)].
15 See affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [24(c)].
16 Affidavit of Henry David Levin dated 7 December 2016 at [29]; see also affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [27(b)]. The agreement for sale and purchase was entered into before Mrs Petera’s appointment as a trustee.
$875,000.17 As required by law, the registered proprietors were Mr Gibbs, Mr Smith and Mrs Petera.18 On the same day, a mortgage was registered against the Crannich Place property in favour of Graeme McNair, a private lender, and Mr Gibbs.19
[13] Mrs Petera did not retain her position as a trustee. On 3 October 2013 she resigned from her role. Mr Gibbs, who has sworn affidavits in this proceeding, deposes that Mrs Petera was asked to resign as a trustee shortly after her appointment, once the other trustees realised the extent of the claims brought against her by the applicant. She was not replaced.20 At the same time, Mr Gibbs retired as a trustee and was replaced by Aviemore Trustees (2013) Ltd, one of the respondents.21 Aviemore is a company incorporated by the partners of Gibbs Mills Livingston to act as an independent trustee of trusts settled by its clients.22 Mr Gibbs is one of the directors of Aviemore.23
[14] From 3 October 2013, the trustees of the Trust were Mr Smith and Aviemore. On 29 November 2013, the properties at Ormiston Road and Crannich Place were transferred to Mr Smith and Aviemore.24 The Puriri Road mortgage was not transferred to the new trustees. The reason for this omission is not precisely clear, although it may be attributable to a caveat over the Puriri Road property which had been registered by the applicant in 2011 following liquidation.
[15] In or around June 2014, Mr and Mrs Petera entered into an agreement to sell the Puriri Road property to unrelated third parties for the price of $420,000.25 By that time, the Puriri Road mortgage had increased from the original sum of
$160,404.45 to $350,453.26 The process by which this increase occurred is unclear.
A letter from Mr Gibbs to Mr and Mrs Petera dated 16 September 2013 states that the amount owing to the Trust and secured by mortgage over the title to the Puriri
17 Affidavit of Henry David Levin dated 7 December 2016 at [31]; see also affidavit of David
Malcolm Vince Gibbs dated 7 March 2017 at [28(a)].
18 Affidavit of Henry David Levin dated 7 December 2016 at [30].
19 Affidavit of Henry David Levin dated 7 December 2016 at [32]; affidavit of David Malcolm
Vince Gibbs dated 7 March 2017 at [28(b)].
20 See affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [24(e)].
21 See affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [24(e)].
22 Affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [2].
23 Affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [3].
24 Affidavit of Henry David Levin dated 7 December 2016 at [34].
25 Affidavit of Henry David Levin dated 7 December 2016 at [38] and [42].
Road property is $162,108.45.27 However, a settlement statement prepared prior to the sale of the Puriri Road property shows that, at 31 March 2013, the total amount owed to the Trust was $192,983.13.28 The settlement statement also shows that between April 2013 and January 2014 the Trust advanced a further $131,604.10 to Mr and Mrs Petera. These sums are clearly inconsistent with Mr Gibbs’ letter of
16 September 2013. Mr Gibbs deposes in his affidavit that the letter dated
16 September 2013 was addressed to Mr and Mrs Petera and was intended to be indicative only, and not binding upon the trustees.29 He says the letter showed the original sum advanced and secured by mortgage and took no account of interest or any further advances.
[16] As noted above, the applicant had registered a caveat over the title to the Puriri Road property. In order to effect settlement of the sale of the Puriri Road property, Mr and Mrs Petera agreed to the retention of $20,250 in their solicitors’ trust account pursuant to a solicitor’s undertaking to hold such funds undisbursed, pending determination of the applicant’s claim to a proprietary interest in those
funds.30
[17] On settlement, the caveat over the Puriri Road Title was discharged.31 The Puriri Road mortgage was transmitted to Mr Gibbs and Mr Clark as survivors32 and then to Mr Smith and Aviemore as current trustees.33 The Puriri Road mortgage was then discharged and the Puriri Road property transferred to the purchasers.34
[18] A few days later, the mortgage registered against the Crannich Place property was discharged and the Crannich Place property became fully unencumbered.35 The
money derived from the sale of the Puriri Road property (or, more specifically,
27 Annexure M to the affidavit of Henry David Levin dated 7 December 2016.
28 Annexure O to the affidavit of Henry David Levin dated 7 December 2016.
29 Affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [29(e)]
30 Affidavit of Henry David Levin dated 7 December 2016 at [39]. The funds were later paid to the applicant with the consent of the Official Assignee.
31 Affidavit of Henry David Levin dated 7 December 2016 at [43(a)].
32 The registered mortgagees being Mr Gibbs, Mr Clark and Mrs Smith.
33 Affidavit of Henry David Levin dated 7 December 2016 at [43(b)] and [43(c)].
34 Affidavit of Henry David Levin dated 7 December 2016 at [43(d)] and [43(e)].
derived from the repayment of the sums secured by the Puriri Road mortgage) was then used to repay the sum secured by the Crannich Place mortgage.36
[19] The relevant transactions in relation to each of the assets referred to in [7] to
[18] above is summarised in the table annexed to this judgment.
[20] Mr and Mrs Petera now live in the Crannich Place property.37 They pay market rent to the trustees.38
Subsequent dealings between the parties
[21] The relationship between the liquidators and the trustees of the Trust appears to be somewhat less than cordial. The dispute between these parties regarding access to trust documents dates back to at least 2013, when the liquidators made requests to the trustees for information regarding the affairs of the Trust, particularly relating to Mrs Petera. Mr Gibbs, writing on behalf of the trustees, refused to provide the information sought.
[22] The Official Assignee by letter dated 10 October 2016 requested information
regarding the Trust and Mrs Petera’s affairs. Mr Gibbs responded by letter dated 23
November 2016 attaching various documents relating to those matters. A copy of that letter was also provided to the liquidators by email dated 13 December 2016. I note in his cover letter to the Official Assignee, Mr Gibbs lists a number of documents which he says are attached to the letter; however, a number of those documents are missing from the letter annexed to his affidavit. Nevertheless, Mr Gibbs has maintained that the documents provided in that letter are sufficient to disprove the liquidators’ claim and that no further disclosure is required.
[23] On 9 December 2016, the applicant filed the present application seeking particular discovery before the commencement of a substantive proceeding. The
categories of documents sought were:
36 Affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [28(c)].
37 Affidavit of Henry David Levin dated 7 December 2016 at [45]; affidavit of David Malcolm
Vince Gibbs dated 7 March 2017 at [28(d)].
38 Affidavit of David Malcolm Vince Gibbs dated 7 March 2017 at [28(d)]
(a) Documents establishing the terms on which the Trust was settled;
(b)Documents recording the appointment, retirement and/or resignation of the trustees of the Trust;
(c) The last will and testament of Dulcie Smith;
(d)Documents that relate to and/or substantiate the various loan advances, repayments and interest charges in respect of the loan(s) to Mr Petera and/or Mrs Petera that were secured by mortgage over the Puriri Road property;
(e) Documents concerning the various transfers relating to the Millhouse Drive property, the Ormiston Road property and the Crannich Place property;
(f) Correspondence, minutes and resolutions relating to the properties described in (e) above; and
(g) Accounts and/or financial statements and accounting records for the
Trust.
[24] The respondents in their Notice of Opposition dated 7 March 2016 did not oppose the making of orders in relation to paras (a) to (e) above. In an affidavit dated 7 March 2016, Mr Gibbs affirmed that the respondents were willing to provide certain documents falling into those categories, provided that the applicant first paid the actual costs incurred by the Trust in providing copies of those documents. Mr Gibbs also indicated that the respondents would be seeking solicitor-client costs against the applicant.
[25] By memorandum dated 29 March 2017, the applicant agreed, for pragmatic reasons, to accept limited disclosure of the documents listed in Mr Gibbs’ affidavit. The applicant accordingly sought orders requiring the respondents to file an affidavit of documents, to be served within 15 working days; and requiring the respondents to make the documents available for inspection in electronic format. However, the
applicant rejected the respondents’ request that the applicant pay the costs of providing the listed documents. The applicant also sought costs on the interlocutory application.
[26] On 31 March 2017, the respondents filed a memorandum in response, withdrawing their previous offer of cooperation. The respondents now oppose the making of any order for pre-commencement discovery. However, if such order is to be made, they maintain that the applicant should be required to pay the costs of compliance. The respondents also seek an order for solicitor/client costs against the applicant.
[27] Following receipt of the respondents’ memorandum, Mr Levin filed an affidavit in reply, deposing that he had misunderstood the respondents’ previous offer. Specifically, Mr Levin said that he had not previously understood the respondents were opposed to an order requiring them to file an affidavit of documents and had not understood that the respondents were seeking solicitor/client costs. In light of that new understanding, Mr Levin indicated that the applicant would seek full discovery of all categories of documents listed in the Notice of Application and would seek increased costs in relation to the hearing of the application.
Relevant law
[28] Rule 8.20 of the High Court Rules provides:
8.20 Order for particular discovery before proceeding commenced
(1) This rule applies if it appears to a Judge that—
(a) a person (the intending plaintiff) is or may be entitled to claim in the court relief against another person (the intended defendant) but that it is impossible or impracticable for the intending plaintiff to formulate the intending plaintiff’s claim without reference to 1 or more documents or a group of documents; and
(b) there are grounds to believe that the documents may be or may have been in the control of a person (the person) who may or may not be the intended defendant.
(2) The Judge may, on the application of the intending plaintiff made before any proceeding is brought, order the person—
(a) to file an affidavit stating—
(i) whether the documents are or have been in the
person’s control; and
(ii) if they have been but are no longer in the person’s control, the person’s best knowledge and belief as to when the documents ceased to be in the person’s control and who now has control of them; and
(b) to serve the affidavit on the intending plaintiff; and
(c) if the documents are in the person’s control, to make those
documents available for inspection, in accordance with rule
8.27, to the intending plaintiff.
(3) An application under subclause (2) must be by interlocutory application made on notice—
(a) to the person; and
(b) to the intended defendant.
(4) The Judge may not make an order under this rule unless satisfied that the order is necessary at the time when the order is made.
[29] The object of r 8.20 is to allow the intending plaintiff to properly formulate its claim.39 The jurisdictional requirements for obtaining an order under this rule were summarised by McGechan J as follows:40
(a) That the intending plaintiff is or may be entitled to claim relief against another person. This means that there must be a “real probability of a claim against someone.”41 McGechan J described this as a “‘sufficient substratum of fact’ … which takes matters beyond mere fishing; mere trawling or speculation”.42
(b)That it is impossible or impracticable for the plaintiff to formulate the claim without the documents sought. The Court of Appeal has
39 See discussion in JR Wild and others McGechan on Procedure (online looseleaf ed, Brookers) at
[HR8.20.02].
40 Welgas Holdings Ltd v Petroleum Corp of NZ Ltd (1991) 3 PRNZ 33 (HC) at 40.
41 Exchange Commerce Corp Ltd v NZ News Ltd [1987] 2 NZLR 160 (CA) at 164.
42 Welgas Holdings Ltd, above n 40, at 43; affirmed in Hetherington v Carpenter [1997] 1 NZLR
699 (CA) at 704.
defined “impossible or impracticable” to mean “an inability to plead the claim in accordance with the requirements of the rules”.43
However in a later case Hetherington Ltd v Carpenter, the Court of Appeal observed that one of the purposes of r 8.20 “is to enable the intending plaintiff to consider prior to issue whether the proposed proceedings should indeed be issued, and if so whether their scope should be narrower than originally contemplated.”44
(c) That there are grounds for belief that the documents may be or may have been in the possession of the person concerned. The relevant belief is that of the court, not the deponent.45
The respective positions
[30] The applicant has provided a draft statement of claim which sets out its intended claim.46 The intended claim relates to a possible claim for relief under subpt 6 of pt 6 of the PLA, which empowers a court to require a person who has acquired or received property through a disposition to pay, in respect of that property, reasonable compensation to the Official Assignee (if, as in this case, the debtor is a bankrupt).47
[31] The applicant believes that it may have a claim against the respondents arising from the respondents’ involvement in various property transactions. In particular, the applicant submits:
(a) There is a demonstrable discrepancy in the outstanding debt owing under the Puriri Road mortgage. In September 2013, the applicant says, the debt owed was only $162,108.45 yet only nine months later, the debt owing was said to be $350,453. The effect of this discrepancy is that the amount owing under the Puriri Road mortgage
has increased substantially, eroding the equity in the Puriri Road
43 Exchange Commerce Corp Ltd, above n 41, at 164.
44 Hetherington v Carpenter, above n 42, at 705.
45 McGechan on Procedure, above n 39, at [HR8.20.03(3)].
46 Subject, of course, to the caveat that further disclosure may be required of the respondents in order to properly formulate the claim.
47 Property Law Act, ss 348 and 350.
property. This erosion decreased the sum available to the applicant upon sale and resulted in a corresponding increase in the value of the respondents’ assets, to the ultimate benefit of Mrs Petera (as a beneficiary). The money derived from repayment of the Puriri Road mortgage was then applied towards improving the respondents’ equity in the Crannich Place property, where Mr and Mrs Petera now live.
(b)Mrs Petera was a registered proprietor of the Millhouse Drive property until that property was sold to an unrelated third party.
(c) Mrs Petera was a registered proprietor of the Ormiston Road property and the Crannich Place property until those properties were transferred into the names of the respondents.
[32] The applicant submits that the documents sought in the present application are required to confirm how the loan secured by the Puriri Road mortgage was drawn down and applied, and how the proceedings of its repayment were applied; the existence of the Trust and Mrs Petera’s appointment as trustee; and to provide clarity around the transactions involving the Millhouse Drive property, the Ormiston Road property and the Crannich Place property.
[33] The applicant submits that the transactions above clearly demonstrate the probable existence of a claim against the respondents. Further, it says, the respondents must be taken to have conceded the same by their (initial) non- opposition to production of the documents listed in paras (1)(a)(i)(A)–(E) of the
Notice of Application.48
[34] Regarding the requirement that it must be impossible or impractical to formulate a claim without the documents sought, the applicant submits that it will be sufficient for an intending plaintiff to demonstrate that pre-commencement disclosure is necessary in order to determine whether a claim should be brought. The liquidators say they take their duties seriously and do not wish to initiate
substantive proceedings without assessing documents which are critical to the
48 As set out in [23] above.
existence of a claim. If the documents they seek show that there have been no prejudicial dispositions by Mr and/or Mrs Petera, then no claim will be filed.
[35] Finally, the applicant notes that there is no dispute that the respondents are in possession of the documents sought.
[36] The respondents oppose the application for pre-commencement discovery on a number of grounds.
[37] The respondents first contend that the application for pre-commencement discovery is misconceived as the applicant is not entitled to bring a claim against the respondents under the PLA. There are two (related) limbs to this submission. The first limb is that the proper person to make such an application would be the Official Assignee and that the applicant must rely on the Official Assignee to realise any assets from Mr and Mrs Petera’s estates. The second limb of this submission is that the applicant does not have standing to bring the intended claim. The respondents do not provide any authority for these points.
[38] In any case, the respondents submit, the applicant has failed to meet the jurisdictional requirements for the orders sought. The respondents submit that the application for pre-commencement discovery is in the nature of a fishing expedition and that there is no factual basis for the intended claim against the respondents. The respondents also refer to the recent Supreme Court decision in Erceg v Erceg in support of their submission that the documents sought from the respondents are
confidential and should not be disclosed to the applicant.49
[39] If the Court is minded to grant the application for pre-commencement discovery, the respondents submit that the documents disclosed should be limited to those which are genuinely necessary in order to formulate the intended claim. The respondents argue that there is no connection between the intended claim and, for example, accounting records which pre-date the applicants’ litigation against Mr and
Mrs Petera.50
49 Erceg v Erceg [2017] NZSC 28, [2017] 1 NZLR 320.
50 In oral submissions Mr Malarao, who appears for the applicant, accepted that the accounting records should be those from 31 March 2011.
The intending plaintiff is or may be entitled to claim relief against another person
[40] In order to succeed in a claim under s 348 of the PLA the applicant will be required to prove, inter alia, that Mr and Mrs Petera made a disposition of property to the respondents with the intent to prejudice a creditor, or by way of gift, or without receiving reasonably equivalent value in exchange.
[41] A preliminary point which arises in relation to this issue concerns the identity of the defendants to the intended claim. Ms Belthazar, who appears on behalf of the respondents, submits that the defendants to a claim under s 348 of the PLA should be the persons who allegedly made the relevant disposition of property, in this case Mr and Mrs Petera, rather than the recipients of that disposition, in this case the respondents.
[42] There is nothing in this point. Rule 4.3(1) of the High Court Rules 2016 provides that any person may be joined as a defendant against whom it is alleged there is a right to relief arising out of the matter. The intended claim seeks relief under s 348(2)(b), which provides that the Court may make an order:
(b) requir[ing] a person who acquired or received property through the disposition to pay, in respect of that property, reasonable compensation to the person (for any applicable purpose) specified in section 350.
It is clear from the words of that section that the intended claim seeks relief against the respondents, not against Mr and Mrs Petera. Accordingly, the respondents may properly be named as the defendants to the intended claim.
[43] Returning to the content of the intended claim, s 345 of the PLA defines key terms as follows:
345 Interpretation
…
(2) In this subpart, unless the context otherwise requires,—
disposition means—
(a) a conveyance, transfer, assignment, settlement, delivery, payment, or other alienation of property, whether at law or in equity:
(b) the creation of a trust:
…
(f) a transaction entered into by a person with intent by entering into the transaction to diminish, directly or indirectly, the value of the person’s own estate and to increase the value of the estate of another person
proceeds, in relation to any property, mean—
(a) the proceeds of the sale or exchange of the property; and
(b) if the property is money, other property bought with that money
property includes the proceeds of any property
[44] The relevant (alleged) dispositions for the purposes of the intended claim appear to be as follows:
(a) The sale of the Millhouse Drive property to unrelated third parties on
29 April 2013, which occurred at a time when Mrs Petera was a legal owner of that property;
(b)The purchase of the Crannich Place property on 30 April 2013, funded in part by the proceeds of the Millhouse Drive property;
(c) The change in ownership of the Ormiston Road property on
29 November 2013, which removed Mrs Petera as a legal owner of that property;
(d) The change in ownership of the Crannich Place property on
29 November 2013, which removed Mrs Petera as a legal owner of that property;
(e) The increase in the loan secured by the Puriri Road mortgage, which had the effect of eroding Mr and Mrs Petera’s equity in the Puriri Road property to the benefit of the Trust;
(f) The application by the respondents of funds received from the repayment of the Puriri Road mortgage towards repayment of the Crannich Place mortgage, to the benefit of the Trust; and
(g)The application by Mr and Mrs Petera of proceeds received from the sale of the Puriri Road property towards repayment of the Crannich Place mortgage, to the benefit of the Trust.
[45] I turn first to the sale and purchase of the properties at Millhouse Drive, Ormiston Road and Crannich Place. Mr Malarao, who appears on behalf of the applicant, submits that there is reason to believe the applicant may be entitled to claim relief against the respondents in respect of these transactions. In making that submission, he relies upon the intimate relationship between Mrs Petera and the Trust. In particular, Mr Malarao notes that Mrs Petera is the daughter of the settlor of the Trust, she has been a trustee, she is a beneficiary of the Trust and it is clear that the trustees are looking out for her interests, most recently by permitting Mr and Mrs Petera to live in the Crannich Place property. Further, Mr Malarao says, at the time when those transactions took place, Mrs Petera was aware that she owed large sums of money to her creditors and so there would have been an incentive for her to manipulate her affairs to hide any assets under the guise of Trust dealings.
[46] I acknowledge that Mr Malarao’s submissions, as they refer to factual matters, are supported by the evidence. However it is clear, in my view, that there is at this stage no real probability of a claim against the respondents in respect of their dealings with the Millhouse Drive and Ormiston Road properties. Those properties were purchased in 2002 and 2003 respectively, in one case prior to the incorporation of Petranz and in the other, at a time when Petranz was solvent. The Millhouse Drive property was used as a residence by Mrs Smith and was sold after her death. The agreement for sale and purchase in respect of the Millhouse Drive property was entered into before Mrs Petera’s appointment as a trustee. The Trust retains ownership of the Ormiston Road property. Although Mrs Petera’s name was briefly listed on the legal title to those properties, that circumstance is satisfactorily explained by her appointment and subsequent resignation as a trustee of the Trust. There is nothing about the dealings with the Millhouse Drive and Ormiston Road
properties which, on the surface, indicates any impropriety. The fact that Mrs Petera is a beneficiary and might have an incentive to misrepresent her interactions with the Trust is insufficient, without more, to found a “‘sufficient substratum of fact’ … which takes matters beyond mere fishing; mere trawling or speculation”.
[47] Similarly, there is nothing about the purchase of the property at Crannich Place that indicates any real probability of a claim against the respondents. The purchase was funded in part by the proceeds of selling the Millhouse Drive property and partly by a mortgage of $200,000. Those funding arrangements are evidenced by a copy of the ledger print out for that transaction provided in Mr Gibbs’ affidavit
of 7 March 2017.51 At the time of purchase, Mrs Petera was a trustee and her name
was therefore recorded on the title as a legal owner of the Crannich Place property. Her name was later removed from the title after she resigned as a trustee. In my view, the application for pre-commencement discovery of documents relating to these transactions can properly be described as a fishing expedition.
[48] The situation in respect of the transactions which relate to the Puriri Road mortgage and the repayment of the Crannich Place mortgage is more complex.
[49] I turn first to the matter of the Puriri Road mortgage. The mortgage was assigned to the Trust in 2007, at which time the respondents say Mr and Mrs Petera owed a debt of $162,404.45. The applicants do not appear to dispute this figure. By June 2014, the sum secured by the Puriri Road mortgage had increased to $350,453. The only evidence to support this figure is a statement dated 25 June 2014, which
relevantly states:
TO Balance owing as at 01/04/13 186,583.13 TO Further advance 26/04/13 20,000.00 TO Further advance 07/08/13 10,000.00 TO Further advance 21/08/13 100,000.00 TO Further advance 10/01/14 1,604.10 TO Interest at 9% to 31/03/14 24,495.91 BY Payment on account 0.00 BY Balance owing as at 31/03/14 342,683.14 $350,453.26 $350,453.26
51 Annexure C to the affidavit of David Malcolm Vince Gibbs dated 7 March 2017 (Client Project number 8768.10).
[50] As noted at [15] above, the dates and figures shown in this statement are entirely inconsistent with a letter sent by Mr Gibbs to Mr and Mrs Petera on
16 September 2013, in which he stated that the amount owing to the Trust and secured by the Puriri Road mortgage was $162,107.45. Mr Gibbs has deposed that his letter was intended to be indicative only and not binding on the trustees. However, as a trustee, Mr Gibbs would have known of the further advances to Mr and Mrs Petera, which by 16 September 2013 amounted to $130,000. Given that knowledge, it is difficult to understand how he could have misstated the amount owing under the Puriri Road mortgage by such a large margin. In the absence of further evidence, an inference which may arise is that the advances listed above were not actually made to Mr and Mrs Petera in the manner described in the statement.
[51] The irregularity which the applicant has identified in respect of the Puriri Road mortgage is sufficient, in my view, to “[take] matters beyond mere fishing”. I am satisfied that there is a real probability that the applicant may have a claim against the respondents in relation to the Puriri Road mortgage.
[52] The remaining property transactions concern payments made to discharge the mortgage over the Crannich Place property. Mr Levin deposes that in his view, the timing of those payments suggests that a portion of the mortgage proceeds and/or equity in the Puriri Road property may have been applied towards improving the Trust’s equity in the Crannich Place property. In reply, Mr Gibbs accepts that the loan secured by the Crannich place mortgage was repaid when Mr and Mrs Petera sold the Puriri Road property and repaid the loan secured by the Puriri Road mortgage. He does not comment on Mr Levin’s allegation that Mr and Mrs Petera may have applied their equity in the Puriri Road property for the same purpose.
[53] I am satisfied that the respondents did apply funds received from the repayment of the Puriri Road mortgage towards repayment of the Crannich Place mortgage. However, the relevance of that transaction to the intended claim is unclear. Section 348 of the PLA empowers this Court to make orders regarding dispositions of property by a debtor. The decision of the respondents to use money derived from repayment of the Puriri Road mortgage to repay other debts owed by the Trust is not a disposition of property by the debtors, Mr and Mrs Petera.
Accordingly, I am not persuaded there is a real probability that the applicant has a claim against a person in relation to this transaction.
[54] In respect of Mr Levin’s second allegation, there is no evidence to support the suggestion that Mr and Mrs Petera’s equity in the Puriri Road property was applied towards the Crannich Place mortgage. The trustees purchased the Crannich Place property on 30 April 2013. The purchase was funded, in part, by a loan of $200,000 secured by a mortgage over the Crannich Place property. Settlement of the Puriri Road sale occurred in June 2014, at which time the trustees received repayments of more than $350,000 from Mr and Mrs Petera. The sum which the Trust derived from the repayment of the Puriri Road mortgage was more than sufficient to satisfy the debt owed by the Trust under the Crannich Place mortgage. That being the case, the suggestion that Mr and Mrs Petera may have contributed money towards repayment of the loan secured by the Crannich Place mortgage is purely speculative and cannot provide a basis for a claim against the respondents.
[55] I am satisfied that the applicant may be entitled to claim relief against the respondents under s 348 of the PLA in respect of various increases in the loan secured by the Puriri Road mortgage between the time when the mortgage was assigned to the respondents in 2007 and the discharge of that mortgage in June 2014.
It is impossible or impractical to formulate the claim without the documents sought
[56] The respondents appear to accept that, in the event that the first jurisdictional requirement is met, some form of pre-commencement discovery will be justified. However Ms Belthazar submits that the classes of documents sought by the applicant are stated in unnecessarily wide terms. She submits that the Court should limit the documents sought to documents that are relevant to properly plead the applicant’s claim.
[57] I accept that submission. I consider that pre-commencement discovery should be limited to those documents which are necessary in order to establish there
is some factual basis for the intended claim in respect of the Puriri Road mortgage.52
Pre-commencement discovery should therefore be limited to documents which evidence the existence of the Trust and the individuals who have been appointed as trustees; as well as documents which relate to and/or substantiate the various loan advances, repayments and interest charges in respect of the loan secured by the Puriri Road mortgage. These are the documents sought in paras (1)(a)(i)(A), (B) and (D) of the Notice of Application.53
[58] I decline to make any order in respect of the documents sought in para (1)(a)(i)(C), (E), (F) or (G). I give my reasons below.
[59] Paragraph (1)(a)(i)(C) of the Notice of Application concerns the last will and testament of Dulcie Smith. As noted above, Mrs Smith is the mother of Mrs Petera. Mr Malarao submits that it is often the case that a trust will vest upon the death of the settlor. In that case, he submits, then Mrs Petera may very well have inherited property upon the death of her mother. The difficulties which Mr Malarao faces in respect of this submission are twofold. The first is that there is nothing, on the evidence before the Court, that would suggest the Trust had vested upon the death of Mrs Smith. The second difficulty is that, even if the Trust had vested upon Mrs Smith’s death, the distribution of Trust properties amongst the beneficiaries would be determined by the Deed of Trust, rather than Mrs Smith’s will. The Deed of Trust is relevant to the Puriri Road mortgage and will be disclosed on that basis. I am not satisfied that it would be impossible or impractical to formulate the intended claim without Mrs Smith’s will.
[60] Paragraph (1)(a)(i)(E) of the Notice of Application concerns documents relating to the properties at Millhouse Drive, Ormiston Road and Crannich Place. The applicant has been unable to show that it is or may be entitled to bring a claim against the respondents in respect of those properties and accordingly there is no
basis for ordering pre-commencement discovery of those documents.
52 Horspool v Glaister Ennor [2016] NZHC 1386 at [63].
53 As set out in [23] above.
[61] Lastly, paras (1)(a)(i)(F) and (G) are very broad in terms. So broad, in fact, that it is simply not plausible to suggest that it would be impossible or impractical to formulate the intended claim without access to all of those documents. The applicant appeared to accept as much when, in the earlier stages of this proceeding, it agreed to abandon its claim in relation to the documents listed in paras (1)(a)(i)(F) and (G), provided that the respondents disclosed the remainder of the documents sought in the application. I note that some of the documents listed in paras (1)(a)(i)(F) and (G) will fall into the class of documents which the respondents are required to disclose in relation to the Puriri Road mortgage, being “documents that relate to and/or substantiate the various loan advances, repayments and interest charges”. Beyond that, however, there is no basis for ordering pre-commencement discovery of the documents listed in paras (1)(a)(i)(F) and (G).
The documents may be or may have been in the possession of the respondents
[62] Mr Gibbs in his affidavit of 7 March 2017 affirmed that respondents would be willing to provide various documents including:
(a) Copy Deed of Trust of the Dulcie Smith Family Trust dated 21
November 1994;
(b)Various documents evidencing appointments and resignations of trustees;
(c) Copy Deed of Assignment of Mortgage C946690.2 (CT NA16A/82) (3 Puriri Road, Manurewa, Auckland) dated 14 June 2007 between Westpac New Zealand Ltd and the Trust;
(d)Copy email from Minter Ellison Rudd Watts dated 15 June 2007 showing the consideration required of $160,404.45 for the assignment of mortgage from Westpac New Zealand Ltd to the Trust;
(e) Copy of trustees minute dated 14 June 2007 to acquire the Westpac mortgage security over Puriri Road;
(f) Copy of a letter from the trustees’ lawyers to Mr and Mrs Petera dated
20 June 2007 recording the interest rate payable being 9 per cent per annum and the required monthly payments.
[63] I am accordingly satisfied that those documents may be or may have been in the possession of the respondents.
[64] Mr Gibbs did not offer to disclose other documents relating to and/or substantiating the various loan advances, repayments and interest charges in respect of the loan secured by the Puriri Road mortgage. However, Mr Gibbs has been involved with the Trust since its inception, first as a trustee and now as a director of the trustee company, Aviemore. He has a thorough knowledge of the Trust’s affairs. I am satisfied that those documents may be or may have been in the possession of the respondents.
[65] The respondents raised the issue of confidentiality. In his affidavit, Mr Gibbs deposes that all accounting records are confidential to the Trust.54 However, the High Court Rules provide sufficient protection to ensure that confidential Trust information is not misused. In particular, the combined effect of rr 8.27 and 8.30 is that any confidential documents which are disclosed to the applicant may only be used for the purposes of the intended claim and must not be disclosed to any other
person.
Result
[66] For the above reasons, I am satisfied that the application for pre- commencement discovery should be allowed in part.
Orders
[67] I order:
(a) That the respondents file an affidavit stating:
54 Affidavit of David Malcolm Vince Gibbs dated 7 March 2016 at [26].
(i)Whether the documents set out at [68] below are or have been in their control; and
(ii)If the documents have been but are no longer in the respondents’ control, their best knowledge and belief as to when the documents ceased to be in their control and who now has control of them; and
(b) To serve the affidavit on the applicant; and
(c) To make the documents available for inspection to the applicants in accordance with r 8.27 of the High Court Rules.
[68] The documents in question are:
(a) Documents establishing the terms on which the Trust was settled;
(b)Documents recording the appointment, retirement and/or resignation of the trustees of the Trust;
(c) Documents that relate to and/or substantiate the various loan advances, repayments and interest charges in respect of the loan(s) to Darrell Warren Karaneihana Petera and/or Diana Joy Petera that was secured by mortgage over the property at 3 Puriri Road, Manurewa, including but not limited to correspondence, minutes, resolutions, accounts and/or financial statements and accounting records for the Trust.
Costs
[69] Both parties filed full submissions in relation to costs.
[70] The respondents seek an order requiring the applicant to pay costs of discovery under r 8.22 of the High Court Rules. That rule provides:
8.22 Costs of discovery
(1) If it is manifestly unjust for a party to have to meet the costs of complying with an order made under this subpart, a Judge may order that another party meet those costs, either in whole or in part, in advance or after the party has complied.
(2) Despite subclause (1), the court may subsequently discharge or vary an order made under that subclause if satisfied that a different allocation of those costs would be just.
(3) If an order is made under rule 8.20(2) or 8.21(2), the Judge may, if the Judge thinks it just, order the applicant to pay to the person from whom discovery is sought the whole or part of that person’s expenses (including solicitor and client costs) incurred in relation to the application and in complying with any order made on the application.
[71] In the present case, the Court is primarily concerned with r 8.22(3). There are two matters to consider. The first is whether the Court should order the applicant to pay the respondents’ expenses incurred in relation to the present application. The Court’s general discretion as to costs applies. Factors which are relevant to the exercise of the discretion include the respondents’ motivation for opposing the application, whether the opposition was reasonable, and the extent of success
achieved.55 The second matter which the Court must consider is whether to order the
applicant to pay the costs of complying with the discovery order.
[72] The applicant opposes any order requiring it to pay the respondents’ costs incurred in relation to the application for pre-commencement discovery. Mr Malarao says that the applicant has been seeking documents concerning the Trust for many years. He says that the respondents have had ample opportunity to provide the requested documents on an informal basis without the need for court proceedings, but that the respondents refused to cooperate. Accordingly, he says, there is no basis for an order under r 8.22(3).
[73] The respondents, on the other hand, consider that they are entitled to recover their full costs of responding to the application. Ms Belthazar referred me to a number of cases where this Court had adopted that approach. However, in most of
those cases the respondents to the application were non-parties; in other words, the
55 Clear Communications Ltd v Telecom Corporation of NZ Ltd (1994) 8 PRNZ 200 (HC) and
Westpac New Zealand Ltd v Adams [2013] NZHC 3113 at [73].
respondents were not the intended defendants. Her submissions on this point appear to be linked to her submission, considered above, that the proper defendants to the intended claim would be Mr and Mrs Petera, rather than the respondents. However, as I have said, that submission is misconceived. I see no reason for departing from the approach to costs described at [71] above.
[74] The respondents were only partially successful in their opposition to the application for pre-commencement discovery. Further, while there was some justification in opposing the original application, which was very wide in its scope, the respondents’ later refusal to cooperate with a more limited form of disclosure unless the applicant paid their solicitor-client costs was less reasonable. For that reason, I decline to make any order for costs in favour of the respondents.
[75] Nor, however, do I consider that this is an appropriate case in which to order costs in favour of the applicant. Mr Malarao sought an order requiring the respondents to pay increased or indemnity costs on the application. There is no basis for that order. The application for pre-commencement discovery was unnecessarily wide and the respondents have successfully opposed a number of the orders sought by the applicant.
[76] I consider that this is a case where it would be appropriate to let the costs of the application lie where they fall.
[77] The applicant also opposes the making of an order requiring it to pay the respondents’ costs of compliance under r 8.22(3). Mr Malarao submits that the documents sought are relatively limited in number and are unlikely to be particularly lengthy or cumbersome to locate. Accordingly, he argues, it is unlikely that providing the documents will be an onerous task for the respondents.
[78] Ms Belthazar submits that an order requiring the applicant to pay the costs of compliance would be appropriate in this case. However, her submissions in relation to this matter are vulnerable to the same criticisms I have identified at [73] above.
[79] I do not think it is necessary to make an order requiring the applicants to pay costs of compliance in this case. The orders which I have made are relatively limited in their scope. The respondents should not be put to any significant cost or inconvenience in providing the relevant documents.
[80] For completeness, I note that the respondents have filed a second affidavit of Mr Gibbs dated 31 March 2017 in support of an order for costs of compliance to be paid in advance. That affidavit was filed without leave. Further, the applicant opposes its admission on the basis that it includes privileged material, inadmissible opinion evidence and pejorative statements. I accept those submissions. Finally, the evidence contained in the second affidavit does not assist the Court in determining the question of costs. For all of these reasons, I decline leave to file the second
affidavit.
Gordon J
ANNEXURE
Property Transactions
Property Year Registered interest held by
Notes
Puriri Road property 1996 Mr and Mrs Petera Date of purchase: 25 January
1996
2011 Petranz Ltd Caveat registered
2014 [Unrelated third parties] Date of settlement: 27 June 2014
Puriri Road mortgage Trust Bank New Zealand
1996
Ltd Registered on 25 January 1996
Unknown
Westpac Banking
Corporation
Westpac New Zealand Ltd
Mortgage transferred
Mr Gibbs, Mr Clark,
2007
Mrs Smith Mortgage transferred to trustees
2014 Mr Gibbs, Mr Clark Mortgage transmitted by survivorship
MrSmith, Aviemore Mortgage transferred to new trustees
[None] Mortgage discharged
Millhouse Drive
property 2002
Mr Gibbs, Mr Clark,
Mrs Smith Date of purchase: 24 May 2002
2013 Mr Gibbs, Mr Clark Transmitted by survivorship
Mr Gibbs, Mr Smith,
Mrs Petera Transferred to new trustees
[Unrelated third parties] Date of settlement: 29 April 2013
Ormiston Road
property 2003
Mr Gibbs, Mr Clark,
Mrs Smith Date of purchase: 9 May 2003
2013 Mr Gibbs, Mr Clark Transmitted by survivorship
Mr Gibbs, Mr Smith,
Mrs Petera Transferred to new trustees
Mr Smith, Aviemore Transferred to new trustees
Crannich Drive property
2013 Mr Gibbs, Mr Smith,
Mrs Petera Date of purchase: 30 April 2013
Mr Smith, Aviemore Transferred to new trustees
0
4
0