Rudyard Holdings Limited v Kiwibank Limited
[2013] NZHC 3367
•13 December 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-3684 [2013] NZHC 3367
BETWEEN RUDYARD HOLDINGS LIMITED Plaintiff
ANDKIWIBANK LIMITED Defendant
Hearing: 10 December 2013
Counsel: P J Dale for Plaintiff
S A Barker for Defendant
Judgment: 13 December 2013
JUDGMENT OF RODNEY HANSEN J
This judgment was delivered by me on 13 December 2013 at 4.30 p.m., pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors: Neilsons Lawyers Limited, Auckland
Buddle Findlay, Wellington
RUDYARD HOLDINGS LTD v KIWIBANK LTD [2013] NZHC 3367 [13 December 2013]
Introduction
[1] Rudyard Holdings Limited (Rudyard) sues Kiwibank Limited (Kiwibank) for damages arising out of Kiwibank’s refusal to continue to fund a property development contrary, it is said, to an agreement reached by the parties and representations made by Kiwibank. Land owned by Rudyard and secured to Kiwibank was later sold at a mortgagee sale by Kiwibank. Rudyard also seeks to recover losses arising out of the mortgagee sale.
[2] Rudyard applies to join as an additional plaintiff the trustees of a trust which transferred the land to Rudyard. The trustees intended to claim that they were induced to transfer the land by actionable representations made by Kiwibank and the trust has suffered substantial losses as a result. The application is opposed. Kiwibank contends there is no jurisdiction to order joinder; there is no tenable cause of action; there has been undue delay in seeking joinder; and joinder would jeopardise the hearing of the proceeding which is scheduled to commence on 17
March 2014.
[3] I am also asked to consider a claim for costs by one of the proposed additional plaintiffs, Mr Graeme Halse. The proceeding commenced with a claim by Kiwibank against Mr Halse, which was discontinued after Rudyard counterclaimed. Mr Halse seeks costs on the discontinuance.
Further background
[4] In 2008 Kiwibank had significant loan exposure to interests associated with Robert and Carolyn Reece (the Reece interests). Mr Reece had enjoyed success as a property developer but had suffered reverses as a result of his business association with Mrs May Wang and the collapse of the Dynasty group of companies with which they were involved. Mr and Mrs Reece had guaranteed advances made by Kiwibank to family trusts. They were facing a claim of up to $2 million.
[5] Mr and Mrs Reece were beneficially interested in two properties: 15 sections at Keri Vista, Papakura (the Crest View land) and land at Naylors Drive, Mangere
(the Naylors Drive property) which was the subject of a resource consent for a development of seven dwellings and 25 apartments. Together they had a value of
$6.425 million. The Crest View land was mortgaged to the extent of $700,000. The
Naylors Drive property was unencumbered.
[6] The Reece interests proposed a restructuring of their arrangements with Kiwibank. As part of the arrangements, they proposed the transfer of the Crest View land and the Naylors Drive property to a new entity with a view to a staged development of the Crest View land and the progressive retirement of the bank debt. The development would be undertaken by a company of which Mr Halse would be the sole director and shareholder and would receive 20 per cent of the development profits.
[7] The arrangement was implemented. The first stage of the development of the Crest View land took place with loan finance provided by Kiwibank. Three residential dwellings were built and sold. A second stage was then completed with a further loan facility provided by Kiwibank. However, Kiwibank refused to provide funding to enable the completion of the third stage of the development comprising construction of a further three houses. Kiwibank came to the view that a better result would be achieved by the sale of the property without further construction. Ultimately, the two properties were sold, resulting in an overall shortfall of a little over $100,000 which Kiwibank sought to recover from Mr Halse.
Claims against Kiwibank
[8] Rudyard claims that in refusing to provide further funding to complete the subdivision, Kiwibank was in breach of an agreement reached in 2008 when the overall arrangements were finalised and of subsequent loan agreements and a supplementary agreement made in 2011. In the alternative, Rudyard claims that an estoppel arose by virtue of representations made by Kiwibank at the time of the initial discussions. There is a third cause of action claiming a breach of the duty of care owed Rudyard under s 176 of the Property Law Act 2007 to obtain the best reasonably obtainable price at the time the properties were sold.
[9] The proposed additional claim is by Mr Reece and Mr Halse in their capacity as the trustees of the Double R Trust which is pleaded to be the beneficial owner of the property transferred. The basis of the claim is set out as follows in the draft statement of claim:
43The second plaintiff only agreed to transfer the Crest View and Naylors Drive properties to RHL in reliance upon the following representations:
(a) That KBL would provide sufficient funding to enable the construction of all fifteen houses on the Crest View subdivision.
(b) That KBL would fund the completion of the Naylors Drive development.
(c) The representations referred to in paragraphs 10 to 15 hereof.
(d) The assumptions referred to in paragraph 20 hereof.
44As a consequence of KBL’s failure to honour the representations and assurances referred to in the preceding paragraph the second plaintiff has suffered the loss of its equity in the Crest View and Naylors Drive properties of $5.725 million.
Principles governing joinder
[10] By r 4.56 of the High Court Rules, the name of a person may be added as a plaintiff if the person ought to have been joined or their presence before the Court may be necessary to adjudicate on and settle all questions involved in the proceeding. As McGechan on Procedure notes,1 there is first a jurisdictional question which involves a consideration of the factors raised by r 4.56 and of whether the proposed plaintiff has a tenable cause of action. For that purpose the Court will ordinarily accept the applicant’s factual assertions relevant to the proposed cause of action.2 The second part of the enquiry is the discretionary question of whether joinder should occur. It will include a consideration of the reasons for a late application for joinder and any prejudice to the other parties.
[11] For Kiwibank, Mr Barker submitted that the jurisdictional requirement is not met as the trustees do not have standing to sue and do not have a tenable cause of
1 Andrew Beck and Others McGechan on Procedure (looseleaf ed. Brookers) at [HRPt 4.56.06].
2 Bridgeway Projects Ltd v Webb HC Auckland CIV-2003-404-1965, 7 June 2003 at [10].
action. Accordingly, their presence is not necessary to adjudicate and settle all questions involved in the proceeding. If there is jurisdiction, it is submitted that joinder should not be ordered as there was unreasonable delay in seeking joinder and the addition of the further plaintiffs would jeopardise the trial date and/or otherwise prejudice Kiwibank.
Jurisdiction
[12] As earlier mentioned, the Double R Trust is said to have been the beneficial owner of the two properties transferred to Rudyard. At the time of the transfer, the registered proprietors were Legacy Developments (2003) Limited and Legacy Developments (2004) Limited. On the basis of Rudyard’s pleading, it will have held the properties on trust for the Double R Trust.
[13] Mr Barker submitted that the trustees of the Double R Trust have no standing to sue. He relied on the principle stated as follows by the Privy Council in Hayim v Citibank NA:3
... a beneficiary has no cause of action against a third party save in special circumstances which embrace a failure, excusable or inexcusable, by the trustees in the performance of the duty owed by the trustees to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate.
[14] Mr Barker argued that, as there is no evidence of a failure by the companies who owned the land in trust for the Double R Trust to perform their duty to protect the trust estate or the interests of beneficiaries, the Double R Trust as beneficiary has no cause of action against Kiwibank.
[15] In reply, Mr Dale referred to the evidence of Mr Halse who explains the background to the ownership of the property and how the trustees of the Double R Trust, as beneficial owners, directed the transfer of the land to Rudyard. He points out that Messrs Halse and Reece, the trustees of the Double R Trust, were present at key meetings and the lack of any evidence that Kiwibank representatives were not aware of the existence of the Double R Trust.
[16] None of this is, however, an answer to the concern raised on behalf of Kiwibank. The trustees of the Double R Trust seek to claim as trustees of the beneficial owner of the properties. That is contrary to the principle in Hayim v Citibank which holds that, in the absence of special circumstances, they have no cause of action against Kiwibank.
[17] Assuming, however, that the trustees of the Double R Trust are entitled to sue, I pass to consider whether they have a tenable cause of action. As appears from paragraph 43 of the draft statement of claim,4 there is reliance on representations by Kiwibank that it would provide funding to enable construction of 15 houses on the Crest View subdivision and to complete the Naylors Drive development and the representations and assumptions referred to in paragraphs 10 – 15 and 20 of the statement of claim. It is necessary to set out in full those passages of the draft
statement of claim:
10.In the course of the meeting Mr Beer on behalf of KBL orally represented that:
(a) Because of his own family background experiences, and the likelihood of a substantial shortfall, Mr Beer and KBL were anxious to trade the Reece family out of their present difficulties.
(b) KBL was “not in the position of selling properties by way of
mortgagee sale or bankrupting people, that is not our style.”
(c) The parties should continue discussions with a view to enabling a restructure, and which would include the Double R Trust assets.
11. That at a further meeting between the same parties on or about 7 July
2008, Mr Beer on behalf of KBL suggested that a restructure of the
Reece Family Trusts’ indebtedness could be achieved by the entering into of a joint venture agreement with a Wellington based property company named Titan One, and whose principals were known to Mr Beer. (“the proposed joint venture agreement”).
12.That in the course of the meeting and in subsequent email exchanges on 7 August 2008, the parties discussed the following proposals:
(a) That the properties owned by the Double R Trust be transferred to the proposed joint venture parties and developed by constructing 15 houses at Crest View.
(b) The joint venture parties undertaking a subsequent comprehensive development on the Naylors Drive property.
(c) KBL would fund the proposed joint venture.
(d) That the parties to the proposed joint venture would share in the profits derived from those developments.
(e) That there would be sufficient funds to repay KBL’s existing advances to the Reece Family Trusts and any further borrowings advanced to the proposed joint venture.
13.That Mr Beer in the course of those discussions also made reference to the possible sale of houses built on the Crest View land referred to in paragraph 12 (a) hereof to the Auckland Community Housing Trust (“ACHT”) and which Mr Beer represented was funded by KBL through Housing New Zealand.
14.ACHT was a Trust set up to provide community housing and which was committed to acquiring in Auckland approximately 1500 community houses.
15.The joint venture discussions included a proposal that the Crest View subdivision be completed by constructing three houses at the time up to the total of fifteen, and which would upon completion be sold to ACHT.
...
20.KBL and Mr Beer were aware by reason of the previous discussions that the offer made by the first and second plaintiffs and Mr Halse was also made in reliance upon the following assumptions:
(a) KBL would be required to provide loan funds in respect of all fifteen dwellings because otherwise RHL could not service the interest on any further loan advances, or otherwise complete the development.
(b) Mr Halse was reliant upon KBL funding all fifteen sections because he was providing a personal guarantee of RHL’s obligations.
[18] An equitable estoppel arises when:5
... one party has by words or conduct made to the other a clear and unequivocal promise or assurance intended to affect the relations between them and to be acted on accordingly, then once the other party has taken him at his word and acted on it, the one who gave the promise or assurance is bound by that assurance unless and until he has given the promise a reasonable opportunity of resuming his positions (16 Halsbury’s Laws of England (4th ed) para 1514).6
5 Burbery Mortgage Finances v Hindsbank Ltd [1989] 1 NZLR 356 (CA) at 361.
6 Burbery Finance v Hindsbank Ltd [1989] 1 NZLR 356 (CA) at 361.
[19] For Kiwibank, it is submitted that there was no sufficiently clear and unequivocal promise or assurance made to the trustees by Kiwibank and Kiwibank could not have created a belief or expectation on the part of the trustees that it would fund both developments. This submission has two elements.
[20] First, it is contended that, on the pleading and on the available evidence, Kiwibank did not make any representation or promise to the trustees of the Double R Trust in their capacity as trustees. Mr Barker pointed out that at the relevant times Kiwibank was dealing only with its existing customers. That is what is pleaded and the evidence goes no further than to assert that Kiwibank knew that the Reece family had interests in the Double R Trust and that it owned the properties.
[21] I accept that the pleading does not make it clear that what was said at the meetings was directed to Mr Reece and Mr Halse in their capacity as trustees. The evidence adduced thus far also tends to suggest that the Double R Trust was not in any real sense a party to the discussions. However, for present purposes, I would not exclude the possibility of a finding that representations could be construed as having been directed to Messrs Halse and Reece in their capacity as trustees.
[22] The second element of Kiwibank’s argument concerns the nature of the alleged representation. The pleading7 refers to a series of meetings at which solutions to the difficulties faced by the Reece interests were explored. These are characterised as discussions. It could not be contended that anything said could be relied on to found an estoppel.
[23] These discussions led to a meeting on 18 August 2008, in which the Reece interests proposed a revised structure. This is pleaded in paragraph 19 of the draft amended statement of claim which is not relied on for the purpose of the proposed Double R Trust cause of action but which provides context to the pleading in paragraph 20. Paragraph 19 reads as follows:
In the course of the meeting and in reliance upon the representations made in paragraphs 10 to 15 hereof, the plaintiffs suggested the following revised restructure:
(a) Instead of the proposed joint venture agreement with Titan One, the Double R Trust would transfer the Crest View sections to RHL which would undertake the developments on its own, but with the support of KBL.
(b) KBL would be given a first mortgage security over the Double R
properties.
(c) KBL would refinance the existing mortgage over the Double R
properties.
(d) RHL would guarantee the obligations to KBL of the Reece Family
Trusts.
(e) Another company named Rudyard Homes Limited would be incorporated to construct the houses on the Crest View subdivision.
(f) Mr Halse would be the sole director of RHL and Rudyard Homes
Limited.
(g) Mr Halse would underwrite the sales of the houses once complete, and in return for a 20% share of the profit.
(h) Mr Halse would provide a personal guarantee.
(i) Mr Halse would ensure that the Reece interests received independent legal advice.
[24] Paragraph 20 of the draft statement of claim asserts that the offer set out in paragraph 19 was made in reliance upon the assumption that Kiwibank would provide funding to complete the Crest View development. This assumption appears to be the basis for the pleading in paragraph 43(a) of the draft amended statement of claim; there is no other factual foundation pleaded for that allegation and none at all
for the representation in paragraph 43(b).8 There is nothing in the detailed narrative
to indicate that Kiwibank at any time made a clear and unequivocal representation that it would provide sufficient funding to enable the proposed developments to be completed. Nor is there anything in the evidence, which includes a quite detailed account of the meetings by Mr Halse, to indicate that any statements were made which could found an estoppel.
[25] Had the trustees been able to show a tenable cause of action, it might have been possible to overcome the problem of standing by substituting the legal owners of the land as additional plaintiffs. I tend to the view that, in that event, it would
have been possible for joinder to occur without disturbing the trial date. Notwithstanding the lateness of the application for joinder, I would have been inclined to exercise my discretion in favour of the applicants.
[26] It may be of comfort to the Reece interests to consider, however, that even if they had been permitted to pursue the alternative cause of action, it would not have been to their ultimate advantage. The trustees claim to recover the equity of the Double R Trust in the land transferred to Rudyard. This appears to assume that the land was transferred for no consideration, whereas Mr Halse says it was agreed that the Double R Trust would receive 80 per cent of the profits on the developments. Mr Halse, as the sole director and shareholder of Rudyard, was to receive the other
20 per cent. As Mr Barker said, it would appear then that Rudyard holds the land in trust for Double R Trust as to 80 per cent of the profits on any development. It follows that if Rudyard is successful in its claim for the loss of profits on the development, the Double R Trust will end up receiving precisely what it expected to receive when transferring the property. The losses which Rudyard seeks to recover encompass any damages suffered by the Double R Trust. On that basis, the joinder of the trustees (or the landowning companies) would add nothing to the claim against Kiwibank.
Costs application
[27] As earlier mentioned, the proceeding was commenced by Kiwibank. It applied for summary judgment against Mr Halse to recover the balance outstanding after sale of the land pursuant to Mr Halse’s personal guarantee. The sum involved was a little over $100,000.
[28] In November 2012, Mr Halse applied to join Rudyard as counterclaim defendant, at which point Kiwibank withdrew its summary judgment application and agreed to pay Mr Halse’s costs on a category 2, band B basis.
[29] On 30 September 2013, Kiwibank discontinued its claim. Mr Halse seeks an order that Kiwibank pay him costs of $10,447.50 comprising:
Commencement of defence by defendant $3,980.00
Preparation for case management conference 14 November 2012 $497.50
Preparation of memorandum for conference 22 February 2013 $497.50
Preparation of memorandum for conference 26 June 2013 $497.50
Preparation of list of documents $4,975.00
[30] Kiwibank resists the order of costs on the grounds that it was entitled to bring its initial claim; it was reasonable to discontinue the claim; and discontinuance is not an admission of defeat by Kiwibank or a success for Mr Halse.
Relevant principles
[31] By r 15.23 of the High Court Rules, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant unless otherwise agreed or the Court otherwise orders. The presumption created by r 15.23 may be displaced if there are circumstances which make it just and equitable that it should not apply.9
[32] The Court is not limited in the factors it may take into account when considering whether the presumption is displaced but generally:10
(a) The merits will not be considered unless they are so obvious that they should influence the costs outcome.
(b)The Court will consider the reasonableness of the stance of both parties: whether it was reasonable for the plaintiff to bring and continue the proceeding and for the defendant to oppose the proceeding up to the point of discontinuance.
(c) Conduct prior to the commencement of the proceeding may be relevant as may be the reason for discontinuing.
Discussion
[33] There is no doubt that Kiwibank was entitled to bring the claim against
Mr Halse. On the face of it, he was liable as guarantor for the outstanding balance.
9 North Shore City Council v Local Government Commission (1995) 9 PRNZ 182 (HC); Kroma
Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973.
10 Andrew Beck and Others McGechan on Procedure (looseleaf ed. Brookers) at [HRPt 15.23.01].
Until Rudyard sought to counterclaim, Kiwibank’s claim to recover was straightforward.
[34] Kiwibank says it discontinued its claim against Mr Halse once Rudyard had brought its counterclaim as the counterclaim vastly exceeded Kiwibank’s claim against Mr Halse and expanded the scope of the issues; Kiwibank’s claim against Mr Halse was within the District Court jurisdiction and would have required little court time to be heard; and Kiwibank can assert its claim to the balance by way of set-off against Rudyard so it is unnecessary for Kiwibank to participate as plaintiff.
[35] Mr Dale’s theory that the real reason Kiwibank discontinued was to avoid paying hearing fees seems more plausible. A claim by way of set-off against Rudyard has utility only if Rudyard succeeds in its claim. If Kiwibank prevails, it would be required to issue fresh proceedings against Mr Halse to recover under the guarantee.
[36] In these circumstances, I see no reason why Kiwibank should not be required to pay Mr Halse’s costs in the normal way. However, I consider those costs should be confined to the commencement of the defence and preparation for the first case management conference. Rudyard was joined as a counterclaim defendant on
14 November 2012. The memoranda for later conferences were on behalf of both Mr Halse and Rudyard. The list of documents was prepared for them jointly. Costs in relation to those attendances should await the outcome of the trial. If I were to order Kiwibank to pay costs in relation to those attendances at this stage and Kiwibank were to succeed at trial, it would effectively have paid the costs of the losing party. Any award of costs for such attendances should follow the event.
Result
[37] Rudyard’s application for joinder is dismissed.
[38] Kiwibank is to pay Mr Halse costs of $4,477.50 on the discontinuance of its claim against him.
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