Sahay v One Nine Limited
[2019] NZHC 903
•26 April 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2018-404-2443
[2019] NZHC 903
UNDER the Land Transfer Act 1952 IN THE MATTER
of an application under s 145A of the Land Transfer Act 1952 for an order sustaining caveat against dealings
BETWEEN
MADHU RESHMI SAHAY and WIRI HOLDINGS LTD
Plaintiffs
AND
ONE NINE LIMITED
Defendant
Hearing: 22 February 2019 Counsel:
I M Hutcheson for Plaintiffs
E St. John & K Kommu for Defendant
Judgment:
26 April 2019
JUDGMENT OF DUFFY J
This judgment was delivered by me on 26 April 2019 at 2.15 pm pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors:
Murdoch Price Ltd, Manukau Glaister Ennor, Auckland
Eugene St. John, Barrister, Auckland I M Hutcheson, Barrister, Auckland
SAHAY & WIRI HOLDINGS LTD v ONE NINE LIMITED [2019] NZHC 903 [26 April 2019]
[1] In this proceeding the plaintiffs seek orders that caveats not lapse and for variation of an occupancy order made by Hinton J as one of a series of orders which the Judge made on 12 October 2018 in a related proceeding Nandro Investment Ltd v Wiri Holdings Ltd (hereafter the fraud proceeding).1 The defendant opposes the making of both orders. It contends the caveats should lapse to allow the sale of properties against which the caveats are registered. Sale of the subject properties will necessarily impact on the occupancy order.
Background facts
[2] The subject properties are 27 and 27A Puhinui Road Papatoetoe Auckland City. The registered proprietor is the defendant, One Nine Ltd (One Nine), which is a company under the control and ownership of Deo Singh.
[3] The plaintiff Madhu Sahay is a director of the other plaintiff Wiri Holdings Ltd (Wiri Holdings). Following the sale of the subject properties to One Nine, in accordance with the terms of the orders made by Hinton J on 12 October 2018, the plaintiffs registered caveats against the titles of those properties. In accordance with the occupancy order that Hinton J also made on that day Ms Sahay has been enjoying the right to occupy 27A Puhinui Road.
[4] Ms Sahay and Mr Singh were business partners. They first worked together when Mr Singh hired Ms Sahay to manage his motel. Since then they have worked on multiple projects together in various capacities.
[5] One such project was a sub-division development at 27 Puhinui Road Papatoetoe when Wiri Holdings was registered proprietor of that property. However, Ms Sahay and Mr Singh have fallen out. They disagree about the ownership of certain development projects, company shareholdings, and business arrangements. Hence the commencement of the fraud proceeding in June 2018, which is to be heard by this Court in May this year, and in which allegations of fraud, trespass to land and breach of contract are made.
1 Nandro Investment Ltd v Wiri Holdings Ltd [2018] NZHC 2653.
[6] In the fraud proceeding Nandro Investments and Mr Singh allege that by a sale and purchase agreement dated 27 July 2017 Wiri Holdings agreed to sell 27A Puhinui Road to Nandro Investments or its nominee. They also allege that pursuant to three sale and purchase agreements dated 21 July 2017 Wiri Holdings agreed to sell Nandro Investments or its nominee lots 2-4 in the subdivision of 27 Puhinui Road. Further, that on 2 November 2016 Wiri Holdings agreed to sell Lot 1 in the subdivision of 27 Puhinui Road to Mr Singh and Kushmangaran Nair as trustees of the Nandro Trust or their nominee.
[7] The above allegations are denied by Wiri Holdings and Ms Sahay. In their statement of defence and counterclaim in the fraud proceedings dated November 2018 they allege that the sale and purchase agreements were not executed by Ms Sahay in her role as director of Wiri Holdings or known to her at the time of their execution. In short they deny that the subject properties were legally transferred to the named purchasers.
[8] One matter on which all parties appear to be agreed is that the sale and purchase agreements referred to above were executed by Mr Singh as director of Wiri Holdings for the vendor and as director of Nandro Investments Ltd or as trustee of the Nandro Trust for the purchaser.
[9] The statement of defence and counterclaim in the fraud proceeding is confusing and not well pleaded, nonetheless it does contain the denial that Wiri Holdings lawfully sold 27A and 27 Puhinui Road in the way Nandro Investments and Mr Singh allege. If Wiri Holdings and Ms Sahay can succeed with this defence at trial it may preclude Nandro Investments and Mr Singh from obtaining the relief they seek in the fraud proceeding, which includes orders requiring Wiri Holdings and Ms Sahay to complete the necessary steps to enable completion of the sales of the subject properties including the transfer of the title to the purchasers or their nominees. In short Wiri Holdings may, in terms of this proceeding, retain ownership of the subject properties. Ms Sahay and Wiri Holdings also counterclaim in the alternative for breach of a joint venture or partnership agreement for which they seek damages.
[10] However, since the commencement of the fraud proceeding there has been a further development, which, depending upon how it is viewed, has either supervened and overridden the ownership claims which Wiri Holdings makes in the fraud proceeding or it has not had this effect. I shall say more about this later.
[11] Last year, apart from the growing tensions and disputes between Ms Sahay and Mr Singh and the corporate entities to which they are attached, the development at 27A and 27 Puhinui Road experienced financial difficulties. The mortgage with the BNZ was in arrears. The bank was unwilling to extend time. Faced with an imminent mortgagee sale by the BNZ, the parties came before this Court in the fraud proceeding seeking interim relief. On 12 October 2018 Hinton J made the following order:2
(a)[Ms Sahay] immediately on behalf of [Wiri Holdings] execute the sale and purchase agreement for [27 and 27A Puhinui Road]
(b)[Wiri holdings] assigns to the purchaser at settlement all its right, title and interest in all plans, warranties and consents
(c)[Wiri Holdings] and [Ms Sahay] are ordered to specifically perform the sale and purchase agreement and the terms above by 4pm on 5 October 2018
(d)The sale and purchase agreement is amended to provide that [Ms Sahay] may occupy 27A Puhinui Road until further order of the Court
(e)Upon settlement, [Wiri Holdings] is to apply the purchase price solely to:
First, repayment of the mortgage(s) in full.
Second, the costs of sale
(f)The full balance is to be held undisbursed in the trust account of Murdoch Price Limited, pending agreement of the parties to the proceeding or order of the Court
(g)[Ms Sahay] will pay rates and insurance on 27A Puhinui Road during the period of occupation
(h)The full balance to be held undisbursed is expected to be close to
$600,000 and if not, [Wiri Holdings, Nine Investments Ltd and Ms Sahay] ha[ve] leave to refer the matter back to the court
2 Nando Investments Ltd v Wiri Holdings Ltd [2018] NZHC 2653 at [9].
(i)The costs of sale are to be strictly limited to standard and reasonable conveyancing costs
(j)These orders are made to avoid a mortgagee sale of the properties and are without prejudice to all claims and rights of all parties in the proceedings, pending further order of the Court
(k)Costs are reserved.
[12] Following the making of the above orders an agreement for sale and purchase of the two Puhinui Road properties was executed for sale by Ms Sahay as director of Wiri Holdings to Mr Singh, who nominated One Nine as purchaser. The purchase price was $2,005,000 and covered both properties. This price was reached based on a valuation from Seagers, recommending a price of $1,540,000 for 27 Puhinui Rd and
$620,000 for 27A Puhinui Rd. Mr Singh took these steps in order to avoid the properties being sold under mortgagee sale. It was common ground at the time that in relation to the fraud proceedings a mortgagee sale was not in any of the parties’ best interests. This is understandable because if the mortgagee sale by the BNZ had proceeded the key subject of the fraud proceeding and the relief sought therein would have been lost to all the parties.
[13] Following the sale of the subject properties to One Nine, Wiri Holdings and Ms Sahay lodged the caveats they now seek to sustain against those properties. They claim the purchase price in the agreement for sale and purchase of those properties was purely nominal for the purpose of the transaction which was to save the properties from mortgagee sale by the BNZ. Secondly, the true market value of the properties is considerably greater. Finally, they contend the balance of the purchase price paid after repayment of the existing mortgage to the BNZ is retained in the trust account of the solicitors for Wiri Holdings and Ms Sahay pursuant to Court order pending resolution of the fraud proceedings. In view of these claims, the caveat that Wiri Holdings and Ms Sahay lodged on 5 October 2018 asserts “a beneficial interest in the land … under cestui que trust of which the registered proprietor is the trustee (the caveatee) and the caveators are the beneficiaries”. Nowhere else in the application for order sustaining the caveat does Wiri Holdings or Ms Sahay set out the basis for the existence of the alleged trust. Wiri Holdings and Ms Sahay do, however, contend that the caveats were lodged “to protect the plaintiffs’ interests in the properties pending a final judgment in
the fraud proceedings”. Those interests would include beneficial ownership of the subject properties as pleaded in the statement of defence.
[14] In this proceeding One Nine has taken steps to lapse the caveat. It claims neither Wiri Holdings nor Ms Sahay have a beneficial interest in the properties; at most they have a damages claim in the fraud proceedings. Further, that the sale to One Nine was at fair market value. Finally, that the caveat is causing One Nine constant loss; the original sale was made to avoid a mortgagee sale by the BNZ and if it is unable to deal with the property there is likely to be another mortgagee sale as the purchase required significant financial restructuring by Mr Singh on One Nine’s behalf.
[15] Regarding the occupation order, One Nine claims that the basis on which the order was made is no longer valid. Ms Sahay is said to be living with her boyfriend elsewhere rather than residing at the property. Further, One Nine claims that Ms Sahay is in fact is renting the property to “hooligans” who are damaging the property, and that Ms Sahay is failing to make the agreed upon outgoing payments.
[16] Ms Sahay disagrees. She says that she continues to reside at the property, and she offers CCTV footage of her coming and going from the property. Further, that she never received the invoices for the outgoings and has now arranged to pay them but disputes any requirement to pay rates.
Discussion
Lapse of caveat
[17] The approach for determining the lapse of a caveat was affirmed by the Court of Appeal in Sims v Lowe:3
It is clear that this summary procedure for the removal of a caveat against dealings is wholly unsuitable for the determination of disputed questions of fact. From this it follows, and has been consistently held, that an order for the removal of such a caveat will not be made under s 143 unless it is patently clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as then existed no longer does
3 Sims v Lowe [1988] 1 NZLR 656 (CA) at 659-660.
so … The patent clarity referred to will not exist where the caveator has a reasonably arguable case in support of the interest claimed
… The caveator seeks to clog or fetter the proprietary interest of another. As a matter of principle is seems right that he must justify the continued existence of his caveat. He will do that if he can show he has a reasonably arguable case for the interest he claims
[18] Even if a reasonably arguable case is established, there is a residual discretion as to whether to make an order removing the caveat. The discretion is to be exercised cautiously, for example when there is no practical advantage to maintaining a caveat and the caveator will not be prejudiced.4
[19] The burden of showing a reasonably arguable case for a beneficial interest is on Wiri Holdings and Ms Sahay.
[20] Counsel for Wiri Holdings and Ms Sahay submits that the beneficial interest in the subject properties arises out of “the disputes as to the particular change appointing Mr Singh as a director of Wiri Holdings on 4 May 2017” and “the purported execution of the disputed agreement for sale and purchase by Mr Singh on behalf of both vendor and purchaser”. This is a reference to the sale and purchase agreements pleaded in the fraud proceeding and which are described at [6] herein. This submission is consistent with the statement of defence and counterclaim filed in the formal proceeding. If the sale and purchase agreements pleaded in that proceeding are found to be fraudulent they cannot be relied upon to effect sales of the properties and Wiri Holdings would therefore retain ownership of those properties. However, this overlooks the fact that the sale to One Nine was in accordance with Hinton J’s orders.
[21] One Nine essentially argues that its purchase of the subject properties in accordance with the terms of Hinton J’s order has extinguished any beneficial interest Wiri Holdings and Ms Sahay might otherwise have had in those properties. One Nine claims that all Wiri Holdings and Ms Sahay are now left with is a monetary claim based upon the various allegations they have made in their counterclaim. If the effect of Hinton J’s orders is seen in this light, the sale to One Nine has deprived Wiri Holdings and Ms Sahay of any beneficial interest in the subject properties. However,
4 Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) NZCPR 813 at [24]- [25].
that view of the orders’ effect is not consistent with (j) of the order which states that the orders are made to avoid the mortgagee sale and are without prejudice to all claims and rights of all persons in the fraud proceedings. The language in this sub paragraph suggests that the sale to One Nine was not intended to pass clear title of the subject properties to that company. The language of the other subparagraphs of the order do not contradict this view.
[22] Furthermore, no party in the formal proceeding has amended its pleading to include reference to the transfer to One Nine and its potential consequences. The conduct of the parties in this proceeding suggests they are of the view that the allegations raised in the fraud proceeding remain live and capable of giving rise to legal consequences. This is also consistent with the view that the sale to One Nine has not altered the legal or equitable position as between the parties in the fraud proceeding.
[23] Accordingly, if the effect of (j) of the order is to preserve the beneficial rights of ownership in the subject properties that Wiri Holdings asserts in its statement of defence in the fraud proceedings, the subsequent sale to One Nine can be understood to have proceeded only on the basis that One Nine became the registered proprietor of the Puhinui Road properties subject to the beneficial rights that Wiri Holdings claimed in those properties by virtue of the statement of defence in the fraud proceeding. On this basis Wiri Holdings would have an arguable beneficial interest in the subject properties that is capable of surviving the sale to One Nine, and therefore is also capable of supporting the caveats.
[24] Clearly the sale to One Nine suited all parties better than a mortgagee sale by the BNZ. If Nandro Investments and Mr Singh can maintain their claims in the fraud proceeding they will have ready access to the subject properties as Mr Singh is also a director of One Nine and in terms of (j) of Hinton J’s order it can be said that One Nine took title to the properties subject also to the interests which Nandro Investments and Mr Singh claimed in those properties.5 Similarly, if Wiri Holdings and Ms Sahay can maintain their defence in the fraud proceedings Wiri Holdings will be able to
5 Mr Singh’s knowledge can be attributed to One Nine: Catley v Waipa Corporation Ltd HC Auckland CIV-2008-404-7975, 22 February 2010.
maintain its claim to ownership of the subject properties, subject of course to its ability to reimburse One Nine for payment of the BNZ mortgage liability.
[25] Moreover, Wiri Holdings has some basis for alleging it retains beneficial ownership of the subject properties because insofar as Mr Singh signed the earlier sale and purchase agreements for both vendor and purchaser he may have done so in circumstances where he breached his fiduciary obligations as a director to Wiri Holdings. Company directors owe fiduciary duties of loyalty to their company, a breach of which can amount to equitable fraud. When a director sells a company’s assets to another company of which he is also a director this amounts to self-dealing, which engages the principles recognised in Robb v Sojourner6 and in Catley v Waipa Corporation Ltd.7 In such circumstances it is for the conflicted self-dealing director to prove that he has acted in the interests of the vendor company by ensuring the purchasing company has paid fair value to the vendor company. If he does not do so the vendor company can have the transaction set aside, or, as is the case here, raise these matters as a defence to claims for Court orders requiring completion of the impugned sale process. Here Mr Singh admits he signed the relevant sale and purchase agreements in his role as director of the respective vendor and purchaser companies. It is for him, therefore, to prove the purchases were at fair value.
[26] One Nine argues that the subject properties were sold to it at fair value. However, this overlooks the arguably controversial character of the earlier sales of those properties by Wiri Holdings to Nandro Investments (27A and Lots 2, 3 and 4 of 27 Puhinui Road) and the Nandro trustees (Lot 1 of 27 Puhinui Road). The subsequent sales to One Nine were arguably on the basis that company took ownership of the properties subject to all claims and rights that the parties in the fraud proceeding could maintain.8 In which case it remains open to Wiri Holdings and Ms Sahay to argue that the earlier sales were self-dealing transactions by Mr Singh that can still be unravelled. There is no question of indefeasibility protecting One Nine because its sole director is
6 Robb v Sojourner [2007] NZCA 493, [2008] 1 NZLR 751.
7 Catley v Waipa Corporation Ltd HC Auckland CIV-2008-404-007975, 22 February 2010.
8 See (j) of the Orders of Hinton J 12 October 2018.
Mr Singh and therefore his knowledge of any self-dealing conduct can be readily attributed to One Nine.9
[27] Thus, until Mr Singh and the related company have discharged the onus of proving the earlier sales were made at fair value there is an arguable basis for Wiri Holdings to claim it remains the rightful owner of the subject properties.
[28] I am not satisfied that Ms Sahay has a claim in her own right to a beneficial interest in the subject properties. She may have such a claim on the basis she is acting as a director of Wiri Holdings and so claims on the company’s behalf. However, that company has also lodged the caveats so any action by Ms Sahay on this basis is superfluous. Whilst I can see no proper basis for Ms Sahay to sustain the caveats her presence as caveator has little practical effect on One Nine. There is a proper basis here for Wiri Holdings to sustain the caveats in which case it is of little consequence if Ms Sahay remains as a caveator as well. The fraud proceedings are to be determined in May of this year. If Wiri Holdings is successful in that proceeding and retains ownership of the subject properties the caveats will have served their purpose. If Wiri Holdings is not successful the caveats can then be lapsed. The presence of Ms Sahay as a caveator in the meantime is of no real consequence.
[29]Accordingly, I am satisfied the caveats should not lapse.
Variation of occupancy order
[30] The High Court may vary an occupation order through its inherent jurisdiction and under Rule 7.49. Rule 7.49 provides:
(1) A party affected by an interlocutory order … may apply to the court to vary or rescind the order or decision if that party considers that the order or decision is wrong
(6)The Judge may,-
(a) if satisfied that the order or decision is wrong, vary or rescind the order or decision; or
9Meridian Global Funds Management Asia v Securities Commission [l995] 13 NZLR 7 (PC) at l l;Victoria Street Apartments Ltd (in Liq) v Sharma HC Auckland CIV-2009-404-8377, 14 October 2011 at [37] and [38].
(b) on the Judge’s own initiative or on the application of a party, transfer the application to the Court of Appeal
[31] The occupation is an interim order. It was not made by consent of the parties and continues “until further order of the Court”.
[32] One Nine submits that it was implicit in the making of the occupation order that Ms Sahay would continue to reside at the premises until the order elapsed, and that she would not allow any harm to come to the property during her occupation. He submits the order should be revoked as the following constitute a material change in circumstances.
[33] One Nine claims Ms Sahay is no longer living at the premises. In support of this, Mr Singh mentions that he lives at 27 Puhinui Road and has not seen Ms Sahay at the premises for weeks. Instead, he swears that strangers are living at the property. He describes them as hooligans. Mr Singh fears that these strangers will cause significant damage to the property. Further, he notes that these strangers have left the property in a “state of neglect” and attached a photo taken on 10 December showing police visiting the property.
[34] One Nine points to Ms Sahay’s failure to pay rates or insurance. In support, it provides copies out the outstanding invoices. Ms Sahay’s statement that she did not and does not consider herself responsible for the owing rates is difficult to reconcile with paragraph 8 of Hinton J’s order.
[35] Ms Sahay claims she is still living at 27A Puhinui Road. She claims she was absent for a short time due to being in hospital with an eye fracture and subsequently staying with her cousin, but that she and her partner Bobby do reside at 27A Puhinui Road. She explains the “strangers” that come and go from the property as being thought to be associates of Mr Singh, or alternatively, people that come as a result of damage to the gate. In his affidavit evidence for One Nine Mr Singh says that this is implausible because the property is down a long driveway.
[36] Mr Singh further says that an important reason for the original granting of the occupation order was the mental health of Ms Sahay, but no evidence has been
produced to support this. However, this was also the case at the time of the order being issued and cannot constitute a material change in circumstances. Further, there is no suggestion that the order was expressly or impliedly conditional on Ms Sahay’s mental health issues being substantiated.
[37] I consider the occupancy order should remain in force until the fraud proceeding is heard. The Court is not able in the context of an originating application proceeding involving caveats to resolve factual disputes of the type the parties have raised here.
[38] Insofar as Ms Sahay has failed to make financial payments she is required to make as part of the terms of the occupancy order she should act to remedy that default forthwith.
[39]Accordingly, the application to vary the occupancy order is dismissed.
Result
[40] Caveats numbered 112.50128.1 registered against CT identifiers 750429 and 750430 North Auckland Registry shall not lapse.
[41]The occupancy order in favour of Ms Sahay remains in force.
[42]The parties have leave to file memoranda on costs.
Duffy J
0
2
0