Sareen v Op Homes Limited (in liquidation)

[2025] NZHC 2807

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-225

[2025] NZHC 2807

BETWEEN

DHEERAJ SAREEN

Plaintiff

AND

OP HOMES LIMITED (in liquidation) First Defendant (Stayed)

SAMINDER PAL SINGH
Second Defendant

BRIGHT BUILDERS LIMITED (in

liquidation) (formerly BRIGHT LINE HOMES LIMITED)

Third Defendant (Stayed)

BHUPINDER SINGH
Fourth Defendant

JAGDEEP KAUR

Fifth Defendant

Hearing:

25 July 2025

Appearances:

R J Connell and P Clark for the Plaintiff S Lukey for the Second Defendant

A Nair and M Delegat for the Fourth and Fifth Defendants

Judgment:

25 September 2025

JUDGMENT OF GARDINER J

This judgment was delivered by me on 25 September 2025 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

SAREEN v OP HOMES LTD (in liquidation) [2025] NZHC 2807 [25 September 2025]

Introduction

[1]    This case is about three acquaintances, Dheeraj Sareen (Mr Sareen), Saminder Singh (Saminder) and Bhupinder Singh (Bhupinder), who went into business together to develop a property in Manurewa.1 The plan was to renovate the existing house, build two new houses and subdivide the property into three sections. The building contract was awarded to Saminder and Bhupinder’s construction company, Bright Builders Ltd (later known as Bright Line Homes Ltd (BLH)). OP Homes Ltd was incorporated as the vehicle for the development, with Saminder acting as a director and all three parties as shareholders.

[2]    The houses were built, the subdivision completed, and the three new properties sold over 2021 and 2022. The net profits were shared equally between Mr Sareen, Saminder and Bhupinder. OP Homes was placed into liquidation once the final property was sold.

[3]    Despite the success of the venture, the relationship between Mr Sareen, and Saminder and Bhupinder, deteriorated towards the end of the project. Mr Sareen now complains about actions taken by Saminder and Bhupinder during the development which he says caused him financial loss.

Mr Sareen’s claims

[4]    Mr Sareen explains that he brought these proceedings because he was frustrated with the defendants’ lawyers’ responses to his requests for financial information. Mr Sareen believed financial information about OP Homes was being exchanged between the defendants, to his exclusion.

[5]    Mr Sareen’s original statement of claim, filed before OP Homes was placed into liquidation, sought an order that OP Homes be placed into receivership. The claim also sought damages from  Saminder  for  breaches  of  his  duties  as  director  of  OP Homes.

1      Due to their common last name and meaning no disrespect, I refer to Saminder Singh and Bhupinder Singh by their first names.

[6]    In the current, second amended statement of claim,  Mr Sareen  advances  five causes of action against OP Homes, Saminder, Bhupinder and BLH:

(a)A claim under s 174 of the Companies Act 1993 (the Act) against Saminder, Bhupinder and OP Homes2 for conducting the affairs of the company in a manner that was oppressive to him. Mr Sareen claims that, although Bhupinder was not officially a director of OP Homes, he acted in a way that he could be construed to be a de facto director such that an action under s 174 can be pursued against him.

(b)A claim in breach of contract against Saminder. Mr Sareen claims that under clause 3 of a shareholders’ agreement the parties signed, Saminder assumed duties and responsibilities to Mr Sareen.

(c)A claim that Saminder breached fiduciary duties to act in the best interests of the company and not to exercise his powers as a director for an improper purpose.

(d)A claim under the Fair Trading Act 1986 that Saminder, Bhupinder and BLH3 were at all material times in trade and acted against Mr Sareen in a way that was deceptive and misleading.

(e)A claim in negligence against Saminder for breach of his duty of care as a director.

(f)A claim against Saminder and Bhupinder that they breached the shareholders’ agreement under which the shareholders covenanted that they would not seek any collateral benefit from the company.

[7]    The specific acts of which Mr Sareen complains across these causes of action are:

2      The claim against OP Homes is stayed.

3      Mr Sareen seeks leave to continue the claim against BLH, which was placed into liquidation after the proceeding commenced.

(a)Saminder failed to prepare a business plan for OP Homes as required by the shareholders’ agreement.

(b)Saminder did not obtain adequate funding for the project.

(c)Saminder failed to provide Mr Sareen with financial updates, management  accounts,  financial  statements  and  tax  returns   for OP Homes.

(d)Saminder failed to agree construction contracts with BLH which protected OP Homes’s interests, including failing to include a scope of works in the contracts or a penalty clause for late completion.

(e)Saminder did not keep Mr Sareen informed of the progress of the development or issues arising, such as the presence of asbestos in the existing house on Lot 2. Saminder and Bhupinder gave the purchaser a $10,000 discount on the price on account of asbestos, a cost which should have been borne by BLH.

(f)Saminder mismanaged the construction project, including by not obtaining a two-stage building consent to enable the existing house on Lot 2 to be renovated and sold first to fund the new builds on Lots 1 and 3.

(g)Saminder sold Lot 3 in January 2021 at an undervalue, without shareholder approval and against Mr Sareen’s wishes.

(h)Saminder made irregular payments to BLH, including paying BLH for work before the construction contracts were signed, before BLH rendered invoices, and pursuant to backdated invoices. Further, Saminder paid BLH sums exceeding the progress payments under the construction contracts without shareholder approval.

(i)Saminder and Bhupinder failed to give Mr Sareen the exclusive agency to sell Lots 1 and 3 as agreed.

(j)Saminder and Bhupinder paid the final dividend to themselves without following proper procedure. Saminder authorised other irregular payments to Bhupinder.

(k)Saminder and Bhupinder put OP Homes  into  liquidation  without  Mr Sareen’s approval as required by the shareholders’ agreement, and when Mr Sareen wanted a court-appointed receiver.

[8]    Mr Sareen seeks compensation by way of damages for losses arising from these acts.

Defendants’ response

[9]    The defendants say that these proceedings arise from Mr Sareen’s personal grudge against them rather than any legitimate legal basis. Further, Mr Sareen is dissatisfied with the outcome of the liquidation process for OP Homes and is now seeking to recover what he believes to be lost profit through alternative means.

[10]   The defendants reject the allegation of unfair or oppressive conduct and say this claim is directly contradicted by the evidence of Mr Sareen’s active, informed and consenting involvement in the development. In any event, it cannot be said that Mr Sareen suffered any unjust detriment in the face of an ultimately profitable venture.

[11]   The defendants refute that Bhupinder could be classified as a de facto director. His role explicitly concerned managing the build. Any high-level decisions, especially regarding financial and sales strategies, were deferred to Saminder and Mr Sareen.

[12]   The defendants say that any alleged breaches of the shareholders’ agreement were authorised by unanimous consent of the shareholders and Mr Sareen cannot be permitted to retroactively withdraw his consent when he was content with the decisions during the development. The defendants rely on Re Duomatic, where it was determined that the informal unanimous decision of all shareholders in a solvent company shall be the decision of the company.4

4      Re Duomatic Ltd [1969] 2 WLR 114 (PC) at [89], applied in Westpac Securities Ltd v Kensington

[1994] 2 NZLR 555 (CA).

[13]   The defendants deny that there was a fiduciary relationship between Saminder and the shareholders. As a director, Saminder’s duties are to the company rather than to individual shareholders. Further, Mr Sareen was not in a position of peculiar vulnerability that would give rise to a fiduciary duty as he has claimed, when he was an active and involved shareholder of equal power, authority, and influence.

[14]   As to the Fair Trading Act claim, they say the allegations of misleading or deceptive conduct are refuted by Mr Sareen’s knowledge and involvement in the development. He was aware that the project was affected by unforeseeable delays and market-wide hoarding of materials. He was aware of the informal approach taken to the contracts between OP Homes and BLH and he ultimately obtained a benefit from it.

[15]   As to the negligence claim, the defendants maintain that Mr Sareen has no standing to bring this claim as any duties which Saminder was required to discharge were owed to the company, rather than any shareholder. The defendants also deny that Saminder acted negligently. The company made a profit and paid its creditors. Two sets of independent liquidators reviewed the company’s affairs and no proceedings have been issued alleging any breaches of duties. This claim essentially amounts to an inappropriate, retroactive review of management decisions made during the challenging COVID-19 period.

[16]   Finally, they deny that they breached the provision in the shareholders’ agreement which required that the shareholders not obtain collateral benefit from the company. It was known to all parties at all relevant times that BLH would be the builder for the development. The claim also ignores the collateral benefit Mr Sareen sought through the sales commission from the properties, which he earned for the sale of one lot.

Counterclaim

[17]   The defendants jointly advance a counterclaim against Mr Sareen that he has breached the shareholders’ agreement. According to the agreement, the main operating objective of each shareholder was to ensure that OP Homes successfully completed the development at 59 Russell Road. However, Mr Sareen acted to frustrate

the sale of Lot 1 (by refusing to provide photo identification and proof of address for AML purposes), which led to the defendants having to issue a notice of default.

[18]   Mr Sareen also failed to obtain consent from the owner of the neighbouring property to use the driveway for access purposes during the build, and failed to manage the use of the driveway, resulting in the company being required to remediate damages to the driveway.

[19]   Additionally, Mr Sareen failed to disclose the presence of asbestos in the dwelling on Lot 2 when he acted as the listing agent, resulting in a loss of $10,000.

Legal issues

[20]   The are several legal issues arising out of Mr Sareen’s claim that I will address at a general level first, before turning to the facts.

A claim by a shareholder against a director?

[21]   Mr Sareen’s claim against Saminder in relation to his role as a director raises two related legal issues. First, whether he, a shareholder, can bring the claim for breach of duty or whether the duty in question can only be enforced by the company. Second, whether his claim is barred by s 169(2) of the Companies Act 1993 or under common law because the loss he claims is “reflective” of company loss and should be recovered by the company rather than a shareholder.

[22]   As to the first issue, s 169(1) of the Companies Act permits shareholders to bring an action against a director for breach of a duty owed to him or her as a shareholder. The key phase is “owed to him or her as a shareholder”. Duties owed to shareholders include those at section 90 (supervising the share register), section 140 (disclosing interests) and section 148 (disclosing share dealings).5

[23]   The duty to act in good faith and in the best interests of the company (s 131); the duty to exercise their powers for a proper purpose (s 133); the duty not to trade recklessly (s 135); and the duty of care (s 137) are owed to the company and not to

5      Companies Act 1993, s 169(3).

shareholders. A shareholder has no right to sue directly in respect of a director’s breach of duty owed to the company, absent leave from the court to bring a derivative action under s 165.

[24]   Consequently, Mr Sareen cannot bring a claim against Saminder for breaching his statutory duties under ss 131, 133, 135 or 137. Correctly, at trial, Mr Sareen abandoned a cause of action against Saminder for breach of his s 135 directors’ duty not to trade recklessly.

[25]   Mr Sareen’s cause of action against Saminder for breach of the ‘contract of engagement and assumed responsibility’ relies on cl 3 of the shareholders’ agreement. This clause reads:

3. SAMINDER PAL SINGH shall:

(a)        Fulfil his obligations as director of the Company to his best possible effort and be engaged in the day-to-day management of all aspects of the Company’s business;

(b)        Manage the property development project on the land at 59 Russell Rd, Manurewa Auckland owned by the Company and provide regular updates to the shareholders on the progress on the project and any issues that are encountered and take all necessary actions efficiently to ensure successful and profitable completion of the property development project undertaken by the company;

(c)        Ensure that the GST, PAYE and income tax returns are submitted to the IRD on time and all taxes are paid within due dates.

[26]   Clause 3(a) is unusual as it refers to Saminder’s statutory duties as a director and purports to impose a contractual obligation on him to perform those duties.

[27]    Insofar as Mr Sareen purports to claim against Saminder for breaching his statutory duties as a director to act in good faith and in the best interests of OP Homes, to use his powers as a director for a proper purpose, and to exercise reasonable care, diligence and skill,  the  claim  cannot  be  advanced.  These  are  duties  owed  to  OP Homes, not to Mr Sareen as a shareholder. Mr Sareen does not bring the claim on behalf of the company as a derivative action under s 165 of the Act and he does not have permission to do so.

[28]   However, insofar as Mr Sareen’s claim is that Saminder breached independent duties and obligations he assumed under cl 3 of the contract, Mr Sareen has standing to make such a claim. A shareholders’ agreement may confer rights, powers, duties and obligations on a company and its directors and shareholders that are additional to those set out in the Companies Act.6 The rights and obligations in the shareholders’ agreement are private obligations between the parties to it and the agreement is enforced as a contract. It affects only those who are parties to it.7

[29]   The defendants raise s 31(1) of the Companies Act which provides that a provision in a constitution that contravenes or is inconsistent with the Act is of no effect. In Russell v Northern Bank Development Corp Ltd, the House of Lords confirmed that this rule extends to a provision in a shareholders’ agreement that is inconsistent with a mandatory statutory rule.8 This only applies where the agreement purports to bind the company in such a way that is inconsistent with the Companies Act. Individual shareholders remain free to contract and create personal obligations.9 Consistent with that, in Black v Giltech Precision Castings (2004) Ltd, French J noted that a contractual agreement that is inconsistent with the Companies Act may be enforceable between the parties to it, although it is not binding on the company or future shareholders who were not parties.10

[30]   OP Homes was a party to the shareholders’ agreement. However, there is no inconsistency between the obligations Saminder assumed in cl 3 and the Act. Under cl 3, Saminder agreed to manage the business of OP Homes on a day-to-day basis; manage the property development at 59 Russell Road; keep the shareholders updated on progress and any issues arising; and take all necessary actions to ensure a profitable outcome. Saminder also agreed to ensure that tax returns were submitted, and tax was paid on time. These obligations are not inconsistent with his duties under the Companies Act.

6      Sturgess v Dunphy [2014] NZCA 266.

7      Black v Giltech Precision Castings (2004) Ltd [2012] NZHC 1148, [2012] NZCCLR 13 at [16].

8      Russell v Northern Bank Corp Ltd [1992] 1 WLR 588 (HL) at 594.

9      At 593.

10     Black v Giltech Precision Castings (2004) Ltd, above n 7, at [161].

[31]   I find therefore that Mr Sareen’s claim for breach of these contractual obligations can stand.

[32]   In terms of the second issue, the defendants argue that Mr Sareen is barred from bringing his claims by s 169(2) of the Act. Section 169(2) bars a shareholder from bringing an action against a director under s 169(1) to recover any loss in the form of a reduction in the value of shares in the company or a failure of the shares to increase in value by reason only of a loss suffered, or a gain forgone, by the company. I do not see s 169(2) as applying, because Mr Sareen brings his claim under contract, and he does not claim for a diminution in the value of his shares.

[33]   However, even where a shareholder’s claim against a director is enforceable outside s 169(1), the common law has recognised a similar bar to that contained in    s 169(2). In Prudential Assurance co Ltd v Newman Industries (No 2), the English Court of Appeal stated the common law principle as follows:11

What [a shareholder] cannot do is to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a “loss” is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only “loss” is through the company, in the diminution in the value of the net assets of the company…

[34]   In contrast, the New Zealand Court of Appeal in Christensen v Scott was prepared to allow a shareholder to recover from a director “where there is an independent duty owed to the [shareholder] and a breach of that duty occurs” and further considered that “[t]he fact that the loss may also be suffered by the company does not mean that it is not also a personal loss to the individual [shareholder]”.12

[35]   In Johnson v Gore Wood & Co, the House of Lords wholly rejected this approach, favouring a more restrictive approach: that a shareholder could be precluded from recovering from a loss that was “reflective” of the company’s losses, even when the shareholder could rely on some independent  duty  to  enforce  their  rights.13  This conflict was noted by this Court as a matter for the Court of Appeal to resolve at

11     Prudential Assurance Co Ltd v Newman Industries (No 2) [1982] 2 WLR 31 (CA) at 49.

12     Christensen v Scott [1996] 1 NZLR 273 (CA) at 280.

13     Johnson v Gore Wood & Co [2002] 2 AC 1 (HL).

the appropriate opportunity, observing that there was “obvious force” to the observations made in Johnson.14

[36]   For present purposes, following Christensen, Mr Sareen’s claim for losses arising out of breach of the contract of engagement is not barred.

Unfair, discriminatory and prejudicial conduct

[37]   Section 174 of the Companies Act allows a shareholder to seek relief where it is alleged that the affairs of a company have been, are being or will likely be conducted in a manner that is “oppressive, unfairly discriminatory or unfairly prejudicial” to that person.15 The court may make an order if it considers that it is just and equitable to do so.16

[38]   In Sturgess v Dunphy, the Court of Appeal confirmed that Thomas v H W Thomas Ltd remains the leading authority on the expression “oppressive, unfairly discriminatory or unfairly prejudicial”.17 In the context of the predecessor to s 174, the Court described the three phrases as overlapping, each helping to explain the other, and that:18

… read together they reflect the underlying concern of the subsection that conduct of the company which is unjustly detrimental to any member of the company whatever form it takes and whether it adversely affects all members alike or discriminates against some only is legitimate foundation for the complaint under s 209. The statutory concern is directed to instances or courses of conduct amounting to an unjust detriment to the interests of a member or members of the company. It follows that it is not necessary for a complainant to point to any actual irregularity or to an invasion of his legal rights or to a lack of probity or want of good faith towards him on the part of those in control of the company.

[39]In Thomas:19

Fairness cannot be assessed in a vacuum or simply from one member's point of view. It will often depend on weighing conflicting interests of different groups within the company. It is a matter of balancing all the interests

14     See Jojaro Investments Ltd v ASB Bank Ltd [2012] NZHC 980, [2012] NZCCLR 22 at [108].

15     Companies Act, s 174(1).

16     Section 174(2).

17     Sturgess v Dunphy, above n 6, at [131].

18     Thomas v H W Thomas Ltd [1984] 1 NZLR 686 (CA) at 693 (emphasis added).

19     At 294 (emphasis added).

involved in terms of the policies underlying the companies legislation in general and s 209 in particular: thus to have regard to the principles governing the duties of a director in the conduct of the affairs of a company and the rights and duties of a majority shareholder in relation to the minority; but to recognise that s 209 is a remedial provision designed to allow the Court to intervene where there is a visible departure from the standards of fair dealing; and in the light of the history and structure of the particular company and the reasonable expectations of the members to determine whether the detriment occasioned to the complaining member's interests arising from the acts or conducts of the company in that way is justifiable.

[40]   Therefore, to succeed in his  claim  under  s  174  of  the  Companies  Act,  Mr Sareen must prove  that  Saminder  and  Bhupinder  conducted  the  affairs  of  OP Homes in a way that was a visible departure from the standards of fair dealing; and that this conduct was unjustly detrimental to Mr Sareen.

Fiduciary obligations

[41]   Mr Sareen’s pleaded claim for breach of fiduciary obligations relied on Saminder’s status as a director of OP Homes. It was claimed that Saminder owed  Mr Sareen duties to act in the best interests of the company and not for an improper purpose, and duties of disclosure.

[42]   In closing submissions, Mr Connell reframed the basis for the fiduciary obligations, submitting that Saminder owed Mr Sareen fiduciary obligations because of the shareholders’ agreement; because he was the sole director of OP Homes with sole authority over the bank account; and because he was also the director and 50 per cent shareholder of BLH. During the trial, Mr Sareen repeatedly characterised the arrangement between the shareholders as a “joint venture”.

[43]   Fitzgerald J summarised the legal principles concerning the extent to which fiduciary obligations can arise in the context of commercial relationships in PBL Solutions Ltd v AFT Pharmaceuticals Ltd.20 I draw from that summary.

[44]   The Court of Appeal in DHL International (NZ) Ltd v Richmond Ltd discussed the circumstances in which a fiduciary duty may arise in a commercial relationship.21

20     PBL Solutions Ltd v AFT Pharmaceuticals Ltd [2023] NZHC 2351 at [238]–[249].

21     DHL International (NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10 (CA).

They described three general characteristics of such relationships, drawn from the Canadian Supreme Court case of Frame v Smith:22

(a)the fiduciary has scope for the exercise of some discretion or power;

(b)the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and

(c)the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

[45]   In Chirnside v Fay, Mr Chirnside and Mr Fay had entered into a joint venture to develop a commercial property together.23 Their arrangement was informal and unwritten. The majority of the Supreme Court held that the relationship between them was such that fiduciary duties arose.

[46]   In Paper Reclaim, the Supreme Court emphasised a need to focus on the nature of the relationship created by the agreement between the parties rather than terminology:24

When parties have formed a contract the correct approach is first to decide exactly what they have agreed upon. Only then should the court consider whether any particular aspect of their agreement gives rise to a relationship which can properly be characterised as fiduciary, imposing an obligation of loyalty on one or both parties, which supplements the express or implied contractual terms. It is not enough to attract an obligation of loyalty that one party may have given up more than the other in entering into the contract or that the contract may be more advantageous for one party than for the other. Nor is a relationship fiduciary in nature merely because the parties may be depending upon one another to perform the contract in its terms. That would be true of many commercial contracts which require co-operation. A fiduciary relationship will be found when one party is entitled to repose and does repose trust and confidence in the other. The existence of an agreement, express or implied, to act on behalf of another and thus to put the interests of the other before one’s own is a frequent manifestation of a situation in which fiduciary obligations are owed. Partners are the classic example of parties in that situation. Their position is different from that of parties to a contract who may have to cooperate but are doing so for their separate advantages.

22     At 22, citing Frame v Smith [1987] 2 SCR 99 (SCC) at 137.

23     Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433.

24     Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 3 NZLR 169 at [31] (emphasis added and footnote omitted).

[47]   The Court concluded that the relationship between Paper Reclaim and Aotearoa International was governed solely by contractual obligations, save for Aotearoa International’s obligation of loyalty to Paper Reclaim when acting as its agent.

[48]   In Amaltal Corp Ltd v Maruha Corp Ltd, the Supreme Court again cautioned against an overreliance on the term “joint venture” in the assessment of whether fiduciary duties arise in a commercial relationship.25 The Court noted:26

The characterisation of a commercial arrangement as a joint venture can be unhelpful as a guide to whether the parties owe each other fiduciary obligations. In our view, when commercial parties elect to use an incorporated vehicle for a venture that can only loosely be called a joint venture, it is unlikely that their relationship as a whole will be fiduciary in nature.

[49]The Court went on to say:27

It is well-settled that, even in a commercial relationship of a generally non-fiduciary kind, there may be aspects which engage fiduciary obligations of loyalty. That is because in the nature of that particular aspect of the relationship one party is entitled to rely upon the other, not just for adherence to contractual arrangements between them, but also for loyal performance of some function which the latter has either agreed to perform for the other or for both or has, perhaps less formally, even by conduct, assumed.

[50]The distinguishing obligation of a fiduciary is the obligation of loyalty.28

[51]   Factors pointing away from Saminder owing Mr Sareen fiduciary obligations include that Saminder owed OP Homes statutory duties as director to act in the best interest of the company and not for an improper purpose, actions which could be enforced against him by the company (now the liquidator). Moreover, the shareholders entered into a contract (the shareholders’ agreement) which created contractual obligations on Samindar vis-a-vis Mr Sareen.

[52]   Pointing the other way is the fact that Saminder was in a position of trust in that he had interests in both OP Homes and BLH and oversight and control over

25     Amaltal Corp Ltd v Maruha Corp [2007] NZSC 40, [2007] 3 NZLR 192.

26     At [20] (emphasis added and footnote omitted)

27 At [21].

28     Chirnside v Fay, above n 23, at [15].

OP Homes’s finances including payments to BLH. On balance, I find that Saminder did owe Mr Sareen a fiduciary obligation to manage OP Homes’s contractual relationship and financial arrangements with BLH in good faith; and to only pay BLH for amounts that were due and owing under the construction contracts. I note though that he did not breach his fiduciary obligation merely because he had these two potentially conflicting interests. That is the arrangement the shareholders, including Mr Sareen, knowingly put in place.

Misleading and deceptive conduct

[53]   Section 9 of the Fair Trading Act provides that no person in trade shall “engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.

[54]   The Supreme Court in Red Eagle Corp Ltd v Ellis formulated a two-staged test:29

(a)Has the claimant proved a breach of s 9 by the defendant?

(b)If so, has the claimant suffered loss or damage by the contravening conduct of the defendant?

[55]   The test is an objective one, considering whether a reasonable person in the claimant’s situation would likely have been misled or deceived.30

Negligence

[56]   As I did not receive any submissions from Mr Sareen on the sixth cause of action (breach of duty of care), I do not propose to deal with the law relating to negligence at this stage.

The facts

[57]   I heard eight days of evidence. Mr Sareen gave extensive evidence covering a wide range of complaints about the way Saminder and Bhupinder conducted the

29     Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28]–[29].

30 At [28].

business of OP Homes, managed the development and construction, and resolved to put the company into liquidation. He claimed that Saminder and Bhupinder concealed information from him, excluded him from decisions, mismanaged the project, and siphoned money from OP Homes to BLH by creating fictitious invoices and overcharging. Mr Sareen was a difficult witness who would not answer questions directly and took every opportunity to advocate his position. I have no doubt that he feels genuinely aggrieved, but in many areas, his evidence cannot be reconciled with the contemporaneous documents. The conflicts between his evidence and the written record of events; and his constant advocacy casts doubt over the accuracy of his testimony.

[58]   Saminder and Bhupinder were comparatively straightforward witnesses. They denied that they excluded Mr Sareen, saying that the three of them were in contact with each other every day, sometimes multiple times a day. They acknowledged that the business was conducted informally but say that this was the way all three of them preferred to work, especially Mr Sareen. They reject that OP Homes paid BLH any more than what was due and owing under the construction contracts, saying that if anything, BLH undercharged OP Homes.

[59]   My general findings on the factual setting follow. I deal with further specific factual disputes in the next section when considering each head of loss.

[60]   It is important context that, when the shareholders commenced the project, they knew each other socially. Mr Sareen and Saminder had become friends while working together at Ray White Manurewa. Saminder and Bhupinder were business partners and friends. The development project was conceived and executed as an informal, trust-based venture between friends and acquaintances.

[61]   Mr Sareen was an experienced and successful property developer. He had already developed several properties, primarily in the Manurewa area. At this time, he had nine properties on the go.

[62]   Mr Sareen, or entities associated with him, was already working with BLH on three other development projects at 44A Blanes Road, 64 Christmas Road and

167 Russell Road. BLH was the builder on these projects. The 59 Russell Road project was a departure from this model because Mr Sareen, Saminder and Bhupinder would jointly own the development company and share the profits of the development.

[63]   Mr Sareen had already signed an agreement to purchase 59 Russell Road by the time the group decided to develop it together. They agreed that Bhupinder and Bhupinder’s wife, Jagdeep Kaur, would take title to the property so they could obtain residential bank lending rates. Mr Sareen nominated Bhupinder and Ms Kaur as purchasers. The purchase settled on 14 October 2019.

[64]   The plan was to subdivide 59 Russell Road into three new titles: new dwellings would be built on the new Lots 1 and 3, and the existing house on Lot 2 would be renovated. The group agreed that BLH would undertake the construction and renovation work. EMACS Group Ltd (EMACS) was engaged to prepare the plans and drawings for the development which were completed and submitted to  Auckland Council in or around September 2019.

[65]    The group agreed to use an existing shelf company, OP Homes Ltd, as the vehicle for the development. Mr Sareen, Saminder and Ms Kaur each took 330 shares in OP Homes, with Bhupinder taking 10 shares.31 A shareholders’ agreement was prepared but it is unclear whether it was signed. I return to this issue later. Per the agreement, Saminder was appointed the sole director of OP Homes.

[66]   The shareholders met with Daran Nair of Greenlane Chartered Accountants Ltd to make the necessary company and legal arrangements, including share transfers and appointing Saminder as director. The firm also prepared a Deed of Trust confirming that Bhupinder and Ms Kaur held the property on trust for OP Homes.

[67]   Mr Nair, who gave evidence for the defendants, advised the shareholders to enter into a written shareholders’ agreement because he had “seen the best of friends become the worst of enemies”. Bhupinder’s evidence is that he and Mr Sareen did not want a written agreement, but they followed Mr Nair’s advice. Mr Nair sent a first draft of the agreement to the shareholders. Mr Sareen suggested some changes and a

31     The share transfers were made on 14 November 2019.

further draft was circulated. There was one area of disagreement: whether interest would be payable on the shareholders’ current account. Mr Sareen wanted interest of 8 per cent to be payable; Saminder thought that inappropriate in the context of an agreement between friends. Mr Sareen’s evidence is that the shareholders signed the agreement on an iPad. Bhupinder also said that he recalled signing the agreement. Saminder cannot recall signing the agreement. No one has been able to locate a signed version of the document.

[68]   Whether or not the document was signed, the shareholders indicated an intention, at this stage, to be bound by its terms, except the clause concerning interest on the shareholders’ current account which was not agreed. However, it also must be acknowledged that in many ways the document, which was based on a template and not prepared by a practicing lawyer, was not suitable for the intended venture. For example, it contained a “no collateral benefit” clause when the parties planned to make collateral benefits, a point to which I will return. In this respect, the parties immediately and by consensus acted inconsistently with the shareholders’ agreement.

[69]   The shareholders conducted the business of OP Homes in an informal and collaborative fashion. They started a WhatsApp chat called “All good ya!” to communicate with each other. The transcript of this chat shows that the shareholders communicated with each other regularly about 59 Russell Road, sometimes multiple times a day. They also discussed the other developments they were involved in together on this chat. Mr Sareen expressed a preference for the shareholders to deal with issues informally and in an unwritten fashion, as can be seen in his WhatsApp messages:

Bro, honestly just do what needs to be done. You can charge what ever you want and I won’t say a thing. I trust you both, …

Hope you understand where I am coming from. I never say no to you but for this one it’s against my principal. I don’t do business with people with whom I need things written down.

[70]   Additionally, Mr Sareen and Saminder met daily, sometimes for hours at a time, to socialise and discuss business. Mr Sareen said in evidence that Saminder came to his house most days. Mr Sareen and Bhupinder also met occasionally to discuss the various developments. The shareholders also corresponded by email.

[71]   The shareholders assumed roles in the development project according to their experience  and  expertise.  Mr  Sareen   was   responsible  for  the  subdivision.   The evidence shows him corresponding with Auckland Council and EMACS about the resource consent. He arranged for drainage and other services to be installed to the subdivided lots. He had access to and regularly used the OP Homes email account.

[72]   Saminder had an overall management role, including liaising with EMACS and Auckland Council, managing OP Homes’ finances, and dealing with tax matters. Saminder had sole authority over OP Homes’ bank account.

[73]   Bhupinder, who had building experience, was responsible for the construction and renovation works. He organised tradespeople, ordered materials, and supervised construction works. It must be acknowledged that the delineation between his role as shareholder of OP Homes and shareholder/director of BLH was not clear.

[74]   Mr Sareen was kept well informed of the progress of the project, issues arising and decisions that needed to be made. This is evident from the WhatsApp chat and other contemporaneous correspondence such as email records. His allegation that he was sidelined by Saminder and Bhupinder and kept in the dark is inconsistent with these records.

[75]   At the time, Mr Sareen deferred to Saminder to make the final decision on many matters. A common theme in the WhatsApp conversation is for Mr Sareen to express a preference on a particular issue and then ask Saminder to make the final decision, often saying that he trusted him. He also explicitly delegated authority, stating, “I am happy with whatever you decide” regarding variations, and consistently concluding his input with “Rest I leave with you guys thank you”.

[76]   Each of the group was involved in the arrangement in more than one capacity. Saminder and Bhupinder were shareholders of OP Homes, while at the same time being the owners and directors of BLH. Saminder was additionally the sole director of OP Homes. Mr Sareen was a shareholder of OP Homes and the sales agent appointed, at least initially, to sell the developed properties. There were conflicts of interest inherent in these arrangements, but no one was concerned at the time.

[77]   The project was funded in an ad hoc manner, again contrary to the shareholders’ agreement which required the shareholders to contribute equal funds. Bhupinder contributed $75,000 towards the purchase price and Mr Sareen contributed

$30,000.  Bhupinder and Ms Kaur secured a loan from SBS Bank for the balance of

$416,000. Bhupinder and Ms Kaur granted SBS Bank a mortgage over the property to secure the lending. Bhupinder and Ms Kaur made the mortgage repayments and were reimbursed by OP Homes at the end of the project.

[78]   To enable construction to commence, Bhupinder and Saminder’s company BS Development Ltd advanced a loan of $200,000 to OP Homes in two tranches on 28 August 2020 and 1 September 2020.  The loan was advanced on the basis that   BS Development would be paid interest of 12 per cent, but interest was ultimately waived.

[79]   Work on Lots 1 and 3 began in October 2020, starting with the framing. Bhupinder and Ms Kaur did not sign the construction contracts between OP Homes and BLH until after the commencement of construction. For Lots 1 and 3, Bhupinder and Ms Kaur signed a new build contract on 13 December 2020. For Lot 2, Bhupinder and Ms Kaur signed an additions and alterations contract on 6 January 2021.

[80]   OP Homes did not pay BLH according to the progress payments agreed in the construction contracts as it did not have the funds. BLH undertook substantial work for OP Homes without payment. By May 2021, when the new builds on Lots 1 and 3 were nearing completion and the Lot 2 renovation was well advanced, OP Homes was indebted to BLH in the amount of $208,000.

[81]   Furthermore, Bhupinder’s evidence is that BLH charged OP Homes for many items at reduced rates. BLH did not charge OP Homes for the well-publicised escalation of building costs that occurred through 2021. Heather Crilly, a building surveyor expert for Mr Sareen, confirmed that there was high inflation of building materials through the COVID-19 period. Mr Sareen was fully aware of these external factors, acknowledging “[e]veryone is hoarding” building supplies and even placing a personal order for 4000 m of weatherboard due to shortages.

[82]   The WhatsApp chat shows that costs from third parties to OP Homes were dealt in an ad hoc way, with the three shareholders discussing each advancing a third of the amount due:

Saminder: Guys we need to pay this please put 1/3 by [tomorrow]”

…

Dheeraj Sareen: The day you will call me and ask for $15K I will make sure I will pay it.

Dheeraj Sareen: I do have $20K sitting in my emergency fund, if you want I can transfer $15K into BLH account.

[83]   Saminder said that he asked Mr Sareen to fund the company many times. On 11 May 2021, Mr Sareen advanced $100,000 to OP Homes.

[84]   There is a change in the tone of the communications from around July 2021. Mr Sareen began communicating with Saminder and Bhupinder more formally, through email, and asking for information about the development and the financial status of OP Homes.

[85]   A few months later, in October 2021, Mr Sareen is alleged to have assaulted Bhupinder. Bhupinder made a complaint to the Police.

[86]   Lawyers became involved in shortly thereafter. Saminder and Bhupinder instructed K3 Legal while Mr Sareen engaged Connell & Connell, and all communications were conducted through their respective solicitors. On 5 October 2021, K3 Legal issued Mr Sareen a notice advising him that his operational involvement in the development had been terminated. This meant that Mr Sareen was prohibited from entering the site or having any involvement with 59 Russell Road.

[87]   The relationship did not improve.   As it came time to settle the sales, on     27 February 2022, K3 Legal issued Mr Sareen a default notice pursuant to the shareholders’ agreement. It was Saminder and Bhupinder’s position that Mr Sareen was acting to frustrate the sale of Lot 1 by refusing to provide his ID verification

details for AML purposes, in breach of his obligations under the agreement. The sale of Lots 2 and 3 settled on 8 and 4 March 2022 respectively.32

[88]   On 24 March 2022, Mr Sareen was given notice of a special meeting of shareholders to be held on 13 April 2022. The purpose of the meeting was to formally approve previous and future actions taken by OP Homes in the development, as well as resolve any outstanding issues. The date for the meeting was amended to 22 April and Mr Sareen was advised by letter from K3 Legal on 5 April. Mr Sareen did not attend.

[89]   The meeting proceeded in Mr Sareen’s absence, with Saminder, Bhupinder and Ms Kaur in attendance. All resolutions were passed unanimously by the shareholders present. A key resolution was that after settlement of all three sales, payment of all creditors and the division of profit amongst shareholders, a liquidator would be appointed, and OP Homes would be wound up.

[90]   The sale for the final property, Lot 1, occurred on 4 April 2022 and settled on 23 May 2022. OP Homes repaid BS Development the $200,000 loan (interest free). OP Homes paid Bhupinder $75,000 for the share of the deposit  he had  paid  and  Mr Sareen the $30,000 he paid. Bhupinder was also repaid the mortgage repayments he had made. He was not paid any interest. BLH was paid $97,455.00 for unpaid costs including the 11 invoices issued in December 2021. These payments are discussed further below. A net dividend of $455,851.56 was paid out equally to Mr Sareen, Saminder and Bhupinder.33

[91]   In August 2022, Saminder passed a series of director’s resolutions. This confirmed the solvency of the company and retrospectively declared the dividends to shareholders. The next day, pursuant to the resolution passed in the April 2022 shareholders’ meeting, Saminder contacted PKF Corporate Recovery & Insolvency (Auckland) Ltd to begin the liquidation process.

32     These two lots had been sold much earlier than Lot 1, on 20 and 29 January 2021 respectively. Lot 3 was sold for $795,000. Lot 2 was sold for $680,000.

33     The dividends to Saminder and Bhupinder were paid out in July 2022, while Mr Sareen’s dividends were paid out after the director’s resolution in August 2022.

Mr Sareen’s claimed losses

[92]   I now turn to Mr Sareen’s specific complaints, with reference to the heads of loss he claims to have suffered. With one exception, I do not analyse complaints that do not relate to any of these heads of loss as they are not relevant to an issue that I must decide. The exception concerns Mr Sareen’s claim about the shareholders’ resolution placing OP Homes in liquidation. I deal with that allegation last.

Lost profit on sale of Lot 3 ($60,000)

[93]   Mr Sareen claims that, in breach of the shareholders’ agreement and contrary to his wishes, OP Homes sold Lot 3 earlier than it should have, forgoing profit it would have made had it waited for the market to rise.

[94]   On 20 January 2021, OP Homes entered into an agreement for sale and purchase of Lot 3 for a price of $795,000. Renexus was the sales agent. Mr Sareen says that Lot 3 was the most valuable unit: the “golden nugget” of the development. He says that the plan was always to sell Lot 2 first, and then Lots 1 and 3. As the property market was rising, OP Homes should have waited to sell Lot 3 at a later point in time. Further, there was no financial benefit to OP Homes from selling early because the deposit could not be released until the contract became unconditional once a certificate under s 224(c) of the Resource Management Act 1991 was issued.

[95]Mr Sareen relies on a valuation from registered valuers Marsh & Irwin dated

22 November 2021, which assessed the market value of Lot 3 at that date as

$955,000.34 Mr Sareen said in evidence that he obtained this valuation when he was considering having OP Homes placed into receivership. He said that he made enquiries with BNZ about finance and provided the bank with this valuation.

[96]   Mr Sareen claims $60,000, a one-third share of the forgone profit of $180,000, being the difference between the sale price and this valuation.

34 I note that the defendants objected to the admissibility of this valuation on the grounds that it was irrelevant and hearsay. I admit the document and take its hearsay nature into account in terms of weight.

[97]   Mr Sareen maintains that cl 14(b) of the shareholders’ agreement required that no sale of a developed unit could take place without a special shareholder resolution authorising the sale. Alternatively, that s 129 of the Companies Act applies, which requires a special shareholder resolution for major transactions.

[98]   Mr Sareen says that he did not approve the sale and he communicated his disapproval to Saminder and Bhupinder. Mr Sareen says that OP Homes had two opportunities to cancel the agreement for sale and purchase when the buyer failed to meet the finance condition. However, Saminder and/or Bhupinder chose not to cancel, allowing the purchaser to later confirm finance and declare the agreement unconditional.

[99]   Bhupinder and Saminder maintain that there was unanimous agreement on the sale at the time. Bhupinder says it is a basic rule of property development to get properties under contract to “feel safe” to assist with any further financing required. Bhupinder also says that COVID had a significant impact on the shareholders’ decision-making. The two lockdowns had scared the industry, and they had no confidence that the market was going to rise soon. Therefore, it was sensible to accept the offer for $795,000 and avoid the risk of the project making a loss. This is supported by Mr Sareen’s messages where, in an exchange in February 2021, he references Wolf of Wall Street “trying to off load stock before market crashes”, evidently sharing a fear of a market crash that would impact profit from the development.

[100]   Saminder similarly says that it was the joint position at the time that they wanted to sell the units as they did not know what would happen with the market. Further, Mr Sareen was considering an offer of $780,000 for Lot 1 so there should have been no issues with a higher offer for Lot 3. As Bhupinder said, it was always the plan among the shareholders to sell two units and cover the costs for the final unit, with the sale of that final unit being the profit.

Discussion

[101]   In my view, Mr Sareen’s claim on this issue is without merit. I do not accept that the shareholders’ agreement, properly construed, required a formal special

resolution of shareholders before the company agreed to sell the developed properties. Furthermore, I find that Mr Sareen agreed to Lot 3 being sold.

[102]   Clause 14 of the shareholders’ agreement sets out significant decisions or actions outside the company’s ordinary course of business that require the approval of shareholders by a special resolution. The clause provides:

14.      APPROVAL OF SHAREHOLDERS

The Company must not engage in any of the following activities or determine any of the following matters without the prior passing of a special resolution of shareholders holding not less than 75% of the shares in the Company:

(a)any material changes in the Purpose of the Company.

(b)the sale, transfer, conveyance, lease, charging, mortgaging, encumbering, issuing, licensing, exchanging, alienating or other disposition of any immovable property of the Company or other property other than in the ordinary course of business on arm’s length commercial terms;

(c)the issue of shares to an Additional Party;

(d)the making of any loan, or agreeing to the indebtedness of any person whatsoever, otherwise than in the ordinary course of the business on arm’s length commercial terms, save as agreed herein;

(e)making any resolution or filing any petition or resolution to liquidate the Company;

(f)entry into a joint venture arrangement;

(g)guaranteeing or endorsing any obligation incurred by, or loan made, to any person;

(h)the giving of security by the Company other than in the ordinary course of business;

(i)the entering into  of  any  new  undertaking  by  the  Company  of  the Company outside the Purpose;

(j)the merger, amalgamation or consolidation of the Company;

(k)the entry into any loan by the Company from any person or institution whatsoever, otherwise than in the ordinary course of the business on arm’s length commercial terms, save a specifically mentioned in this agreement; and

(l)any other “major transaction” as defined in the Companies Act 1993.

(m)For the avoidance of doubt, management (as authorised by the Directors) may incur expenditure of a capital nature or for operating

expenses provided such expenditure is within the levels determined by the Board as detailed in the current Business Plan for the current financial year of the Company.

(emphasis added)

[103]The proper approach to contractual interpretation is an objective one:35

… the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.

[104]   On its face, cl 14(b) was not concerned with the sale of the new units because this was an activity in the ordinary course of OP Homes’s business. The very purpose of OP Homes was to subdivide 59 Russell Road into three individual units and to sell them on the open market. That involved steps such as obtaining a resource consent for the subdivision and a building consent, contracting with a construction company to build the new houses and renovate the existing house, putting in place necessary services to the new sites such as power and water, obtaining individual certificates of title, and selling the properties. I consider these steps to have been in the ordinary course of business of OP Homes.

[105]   The subsequent conduct of parties in a contract can assist with interpretation.36 Tellingly, the shareholders did not consider that they were required to approve the property sales by special shareholder resolution. On 29 January 2021, shortly after the company entered into the agreement to sell Lot 3, it entered into an agreement to sell Lot 2. In neither case did the shareholders pass a formal resolution to agree to the sales. They reached a consensus position informally via WhatsApp.

[106]   At the time, Mr Sareen did not suggest that a special shareholder resolution was required for these sales or indeed any other action of OP Homes. In fact, there is no record of anyone referring to the shareholders’ agreement until lawyers became involved in October 2021, when attempts were made to introduce a degree of formality in the relationship which, until this point, had been absent.

35  Firm  Pi  1  Ltd  v  Zurich  [2014] NZSC 147, [2015] 1 NZLR 432 at [60], quoting Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912 per Lord Hoffman.

36 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [89].

[107]   Mr Sareen gave evidence that Mr Nair advised him at the November 2020 meeting that a special shareholder resolution would be required to approve the property sales. Mr Nair said that he did not give this advice. I prefer Mr Nair’s evidence on this issue, because Mr Sareen’s evidence is contradicted by the fact that he did not require or even enquire about a shareholders’ resolution for the sales of Lots 2 and 3 at the time. He was content for the sale of these units to be decided informally.

[108]   Mr Sareen’s reliance on s 129 of the Companies Act is similarly misconceived. A major transaction is defined in the Act as involving the disposition of assets which is more than half the value of the company’s assets.37 I reject that the sale of the properties could be classified a major transaction by that definition. The houses were still in the early stages of being built/renovated, but as an indication of value, Lot 3 was sold off the plans for $795,000, Lot 2 at around the same time for $680,000, and the shareholders discussed selling Lot 1 for $800,000. The sale price for Lot 3 plainly cannot be regarded as half the value of the company’s assets.

[109]   Furthermore, Mr Sareen’s claim that he did not agree to the sale of Lot 3 is belied by the WhatsApp record. As noted, on 20 January 2021, Renexus negotiated the sale of Lot 3. On 23 January 2021, Mr Sareen messaged Saminder and Bhupinder requesting that a copy of the Lot 3 contract and the listing form be sent to the OP Homes’ email address. The next day, at 9.45 am, Bhupinder confirmed that this was done.

[110]   On 26 January 2021, the salesperson from Renexus emailed Mr Sareen and BLH the sale and purchase agreement for Lot 3 and other relevant documents.

[111]   That same day, Mr Sareen said in the WhatsApp chat, “can you please email me the Master Build contract for lot 2 as that will help in getting the price with this joker”. Saminder said “maybe you can let him know that the reno which he is calculating at $50,000 but we spending more than $100,000”. Mr Sareen responded, “that’s why I am asking for the Master Build contract”.

37     Companies Act, s 129(3)(b).

[112]   On 27 January 2021, Mr Sareen said “Can you please request ReNexus to quote lot 3 as low  $800s to  mid $800s or over $800s.   Thank you”.   In  his evidence,   Mr Sareen explained that he made this request because the sale was still conditional, subjecting to the purchaser securing finance. He says Saminder (through Renexus) had the opportunity to cancel and obtain a higher price, which he did not take.

[113]   On 26 January 2021, Saminder asked Mr Sareen for an  update  on  Lot 2.  Mr Sareen then forwarded a message from a prospective buyer in which he referenced the vendors countersigning at $685,000 and increasing his offer to $650,000.

[114]On 15 February 2021, Mr Sareen asked “any news on lot 3 59 Russell Road?”.

[115]   On 19 February 2021, Mr Sareen said “Saminder, got a call from ReNexus re extension can I please leave this with you. I am happy with whatever you decide. Thank you”. At around 6 pm and 7 pm, there were communications between the lawyers and Lot 3 was confirmed as unconditional. This was relayed to Mr Sareen at

8.38 pm on the WhatsApp chat.

[116]   On 22 February 2021, Mr Sareen informed Bhupinder and Saminder that he had an offer on Lot 1 for $780,000:

I was not wanting lot 1 if lot 3 had gone unconditional and will only sell at or over $800,000. So, this was the enjoyment I wanted – to sell lot 1 for $780,000 more like $800,000 and lot 3 for more than $825,000. Rest I leave with you.

[117]Bhupinder responded that, in his opinion, Mr Sareen should counteroffer for

$810,000. Mr Sareen said “you don’t have rights Bhups”. He says “I was thinking

$820,000 or $815,000”, saying that it is worth it. Saminder responded “whatever it’s all good”. Bhupinder said “let’s do $800,000 and get it under contract”. Mr Sareen asks “with the extra heat pump and HRV?”, to which Bhupinder said “yep”.

[118]   These communications show that the shareholders agreed informally between themselves to sell the units. There was never any suggestion of them executing formal shareholder resolutions. Mr Sareen was aware that Lot 3 was on the market; indeed, his case is that he had an exclusive agency from 20 August 2020 to 20 February 2021 to sell all the lots. This is the basis for his claim for commission in relation to Lot 3.

Nowhere in the Whatsapp conversation does Mr Sareen objecting to the sale of Lot 3. And indeed, on 19 February 2021, when Renexus contacted him about extending the finance condition, he told Saminder he was happy with whatever Saminder decided. In evidence, Mr Sareen said that he did not see himself as the decision-maker and that it was Saminder’s decision whether to give another extension.

[119]   There are other problems with Mr Sareen’s claim to this head of loss, including that the valuation that he relies on is hearsay evidence; and that it is pure speculation that the property would have sold in November 2021 (the date of the valuation) had it not been sold in January 2021. This date has no significance other than that it is the date of a valuation Mr Sareen commissioned for an unrelated purpose. It is unnecessary to address these issues because the claim fails for the reasons I have outlined.

Forgone commission for Lots 1 and 3 ($38,200.00)

[120]   Mr Sareen claims a forgone real estate commission on Lots 1 and 3. This claim is not pleaded and was raised in Mr Sareen’s brief of evidence.

[121]   Mr Sareen alleges that Saminder and Bhupinder agreed at the beginning of the arrangement that he would be given authority to sell each of the three developed properties and that he would receive the usual agent’s commissions.

[122]   Ray White Manurewa was given an exclusive agency agreement for six months between 20 August 2020 and 20 February 2021 to market and sell the units off the plans. Mr Sareen was appointed as the licensed salesperson.

[123]   There is a factual dispute between Saminder and Mr Sareen about whether the agency agreement was for the sale of any or all the units (as Mr Sareen maintains) or only Lot 1 (as Saminder maintains). In support of Mr Sareen’s version of events is that fact that the agreement lists all three lots in the “additional information” section. However, against that is the fact that an appraised value of $719,000 is given, which is more consistent with the price range the shareholders wanted for Lots 1 or 3, rather than all the lots, including Lot 2.

[124]Mr Sareen as agent negotiated the sale of Lot 2 on 29 January 2021 for

$680,000. Mr Sareen received the commission for this sale.

[125]   Mr Sareen negotiated an agreement for the sale of Lot 1 at a price of $719,000. However, this agreement fell through around November 2020 and Lot 1 was later sold on 4 April 2022 by Ray White Manukau.

[126]As described, on 20 January 2021, OP Homes accepted an offer for Lot 3 for

$795,000, presented by Renexus. They signed an agency agreement with Renexus the same day.

[127]   Mr Sareen says that, by agreeing a listing arrangement with another real estate agency, OP Homes breached the exclusive  agency  agreement  with  Ray  White.  His evidence was that, when this came to light, he persuaded Ray White Manurewa not to take legal action against OP Homes for this breach.

[128]   Mr Sareen claims the forgone discounted commission on the Lot 1 and 3 sales at the rate of $750 plus two per cent of the sale price for each lot, amounting to

$38,200.

[129]   Mr Sareen’s claim for this  forgone  commission  is  misconceived.  First, Ray White Manurewa’s exclusive agency agreement expired on 20 February 2021. The sale of Lot 1 was agreed well after that date.

[130]   In relation to Lot 3, any legal right of action resided with Ray White Manurewa, who was the party to the exclusive agency agreement, not Mr Sareen. Ray White’s claim would be against Bhupinder and Ms Kaur for breach of contract.

[131]   Mr Sareen appeared to accept under cross-examination that Ray White, not he, held any right of action arising out of a breach of the exclusive agency agreement. However, he maintained that he was entitled to claim the forgone commission from Saminder and Bhupinder as a shareholder of OP Homes. Mr Sareen said in evidence that they agreed at the outset that he would receive this ‘collateral benefit’.

[132]   There is no evidence of an oral or written agreement between the shareholders to that effect. The shareholders’ agreement makes no mention of Mr Sareen being entitled to an exclusive right to market the properties and receive the commission on their sale. Such an arrangement would contravene the shareholders’ agreement which prohibits any shareholder from receiving a collateral benefit.

[133]   Mr Sareen’s claim is a bare assertion without any supporting evidence. He has not said when, with whom or by what terms it was agreed that he would receive this benefit. Mr Sareen has not proven on the balance of probabilities that such an agreement existed.

[134]   Further, Mr Sareen’s conduct at the time is inconsistent with there being such a binding agreement. It is evident from the WhatsApp conversation that he was aware that Renexus had negotiated a sale of Lot 3. There is no record of him protesting their involvement referring to an agreement between the shareholders that he had the exclusive right to sell the property.

Vector payments ($9,142.50)

[135]   Mr Sareen claims for two Vector invoices he paid for OP Homes that he says were wrongly credited to Bhupinder’s shareholder current account rather than his.38

[136]   Alice Bao, a chartered accountant employed by Greenlane Chartered Accountants, addresses these issues in her evidence. Ms Bao is a senior accountant and was the primary accountant responsible for OP Homes during the relevant period. Ms Bao accepts that these payments were incorrectly credited to Bhupinder’s shareholder current account rather than Mr Sareen’s. She explains that this was an error as she thought that Bhupinder had paid the invoices. She confirms that the shareholder current account will be corrected.

[137]   Mr Sareen has made a creditor’s claim in the liquidation of OP Homes for this sum. Iain McLennan, one of OP Homes’s liquidators, gave evidence for Mr Sareen.

38     Invoice dated 13 February 2020 for $2,012.50; and invoice dated 16 March 2020 for $7,130.00.

When it was put to him that OP Homes’s accountant had confirmed this error, he indicated that Mr Sareen’s claim for this payment should be accepted.

[138]   Mr Sareen has no claim against Saminder or Bhupinder in relation to these invoices. There is no evidence to suggest that Bhupinder’s shareholder current account was wrongly credited because Saminder breached his obligations under the shareholders’ agreement or any fiduciary obligations. There is no evidence that the error occurred because of misleading or deceptive conduct by Saminder or Bhupinder. Mr Sareen has a simple claim to a debt owed to him by OP Homes. This claim is properly pursued through the liquidation of OP Homes.

Overpayments to Bhupinder ($20,474.73)

[139]Mr Sareen claims that Bhupinder has been overpaid a further amount of

$20,474.73. This sum has two parts.

[140]   First, OP Homes company expenses which Mr Sareen claims his company, Sareen  Properties  Ltd  paid,  rather  than  Bhupinder.  Sareen  Properties  issued  OP Homes with an invoice for these expenses on 11 July 2022 in the amount of

$7,988.10. Mr Sareen confirmed at the hearing that the first liquidator of OP Homes reimbursed Sareen Properties for this payment. Despite that, Mr Sareen claims that Bhupinder’s shareholder account is overstated by this amount and that this overstatement represents a financial loss to him.

[141]   Second, a payment of $12,486.63 made from the OP Homes bank account to Bhupinder on 5 May 2022. The narration for this payment in the bank statement is “Bhupinder siRagu lwrlns Brk fee”.

[142]   Mr Sareen’s wife, Ekta Sareen, who is an accountant, gave evidence of her review of OP Homes’ financial records. While clearly not an independent expert I allowed her evidence as it was largely uncontentious, and the defendants supported that approach. Mrs Sareen addresses this $12,486.63 payment in her evidence, acknowledging with reference to the shareholders current account ledger that this payment was comprised of the following amounts:

(a)$6,793.36 for “loan break fees”. Mrs Sareen states that no supporting documentation or invoice has been provided for this transaction.

(b)$841.57 described as a reimbursement for “exclusive insurance over-recorded”. Mrs Sareen states that no supporting documentation has been provided.

(c)$3,751.70 described as a reimbursement for an  EMACS  invoice.  Mrs Sareen acknowledges that this reimbursement is supported by documentation and is accepted as legitimate.

(d)$1,100  for  legal  fees  associated   with   the   initial   purchase   of 59 Russell Road in 2019. Mrs Sareen acknowledges that this reimbursement is supported by documentation and is accepted.

[143]   It follows that there are only two payments at issue: the payment of $6,793.36 for loan break fees and the $841.57 reimbursement for insurance. Mrs Sareen conceded at the hearing that, to the extent these payments are supported by evidence, Bhupinder’s shareholder current account is correct.

[144]   Ms Bao explained that she treated all shareholder withdrawals on bank statements as drawings on their shareholder current account for accounting purposes. She explains that the $841.57 credit for insurance is not a payment to Bhupinder, but rather a correction of an amount that was reimbursed to Bhupinder previously and subsequently determined to be an over-reimbursement. Therefore, Ms Bao states that this amount was recorded as a drawing against his account.

[145]   Bhupinder addressed the payment of $6,793.36 for loan break fees in his evidence. Bhupinder explained that he was required to break a family loan with ANZ which he had with his brother over their extended family home, so that he and his wife could borrow from SBS to purchase 59 Russell Road on trust for OP Homes. His evidence is that ANZ charged them a loan break fee. Bhupinder further explained that Saminder and Mr Sareen had agreed that he would be reimbursed any expenses he incurred to take out the SBS loan. Saminder confirmed that it was agreed that

Bhupinder would be compensated in this way. Mr Sareen did not address this issue in his evidence.

[146]   Bhupinder provided a copy of a screenshot of the ANZ account recording “loan fees” which he says he provided to Greenlane Chartered Accountants. Ms Bao says that she made the debit to Bhupinder’s current account for the loan break fee based on Bhupinder’s explanation and after being shown the screenshot.

[147]   Ms Sareen points out there was no invoice supporting the break fee. Self-evidently, break fees or bank fees will never have an invoice supporting them.

[148]   Based on Bhupinder’s evidence, there is a credible explanation for this payment. I note that Bhupinder was reimbursed over two and a half years after incurring the break fee without any compensation for the time value of money which was to OP Homes’s benefit.

[149]   Mr Sareen has not proved that this payment to Bhupinder was anything other than a legitimate reimbursement for a cost he sustained for OP Homes’s benefit. Furthermore, Mr Sareen has not established that he has sustained a financial loss from this reimbursement to Bhupinder, even if it should not have been made.   At best,    he might suffer a loss if the liquidator comes to the view that Bhupinder should not have been reimbursed this amount and Bhupinder refuses to repay it. That is a matter for the liquidator. Mr McLennan confirmed when asked that if any shareholders are found to have a negative shareholder current account balance, the liquidators will pursue them for the funds to settle their accounts, in the usual way. The same applies to the $7,988.10 payment allegedly attributed to Bhupinder which was in fact paid by Sareen Properties.

Contract price for Lot 2 ($5,000)

[150]   As part of his claim under the Fair Trading Act, Mr Sareen claims the defendants were misleading in signing the Lot 2 contract with BLH for $135,000 when the agreed price was $130,000. Mr Sareen notes that, if the contract price was

$135,000, the correct deposit would have been $13,500, rather than $13,000.

[151]Mr Sareen relies on Saminder’s WhatsApp message on 4 December 2020:

For 59 we doing lot 1&3 @ 2000sqm and middle I am making contract for 130k Will have to check when we do it how much it costs exactly.

[152]   In response, Saminder says this was an early indication of price, with a final price to follow Bhupinder’s confirmation. Bhupinder’s evidence was that the contract price was quoted off the plans completed by the engineers. Bhupinder worked off the plans as well his own survey of the site.

[153]   I reject this claim. The message Mr Sareen relies on was self-evidently an early approximate indication of contract price from Saminder. Subsequently, on 6 January 2021, the construction contract was signed for $135,000. There is no evidence to suggest that Saminder and Bhupinder deliberately misled Mr Sareen about the contract price. The mismatch between the amount of the deposit and the contract price appears to merely have been an administrative error. The staged payments taken together total $135,000.

Overpayment to BLH ($100,483.48)39

[154]   Mr Sareen claims that OP Homes overpaid BLH for the construction and alteration works. Specifically, he alleges that 11  invoices  BLH  issued  in  December 2021 and March 2022 were backdated, fictitious or were unapproved variations. He points to the implausibility of the 10 December invoices being issued on the same day for round figures.

[155]   Mr Sareen has made a claim in the liquidation of OP Homes in relation to these payments. This claim has not been accepted or rejected by the liquidator at this stage.

[156]   Before reviewing the specific invoices complained of, it is necessary to consider the terms of the construction contracts.

39     This is the total of the challenged invoices with each amount being GST exclusive.

The construction contracts

[157]   The new build contract for Lots 1 and 3 and the additions and alterations contract for Lot 2 were both standard Master Builders contracts. They are contracts for use by Registered Master Builders (RMB) who are affiliated with the Registered Master Builders Association of New Zealand Inc.

[158]   In each case, the option of a fixed contract price was selected. That means that the contract price is a fixed price based on the builder’s estimate of the likely cost to complete the works, rather than a cost-plus arrangement where the builder passes through the actual costs together with an agreed margin.

[159]   The contract for the new builds at Lots 1 and 3 specified that the contract price at the date of the building contract was $410,700 including GST. An initial deposit of

$40,000 including GST was payable and staged lump sum payable once various stages were completed: the foundations, framing, windows, roof and weathertightness, electrical, plumbing and painting, interior fit out and issuance of CCC. The contract was signed on 13 December 2020. The expected start date for works was 20 December 2020 and the expected completion date was 20 May 2021. Works actually began in late 2020. The contracts stated that the person carrying out the works and supervising the works would be Bhupinder.

[160]   The alternation and addition contract for Lot 2 was signed on 6 January 2021. The contract price was $135,000. The initial deposit payable was $13,000. Again, the balance was payable in lump sums at the completion of four stages: replacement of the roof and window, plumbing, electrical and interior lining, interior and exterior painting and flooring, and final fit out and inspection. The expected start date was  31 January 2021, and the expected completion date was 30 April 2021.

[161]   The contracts allow for adjustments to the contract price in certain circumstances. Clause 46 (cl 49 in the alteration and additions contract) provides for adjustments due to cost fluctuations:

Cost fluctuations

46.The Contract Price is deemed to have due regard for the prices of all materials and services and plant/equipment hire costs at the date of the Building Contract. Any subsequent increases in prices or additions to costs resulting in the RMB incurring additional expense shall be an Adjustment with the RMB entitled to additional payment.

47.Any subsequent decreases in prices shall  be  an Adjustment  with the Owner entitled to an appropriate credit.

[162]   The contracts also provide for variations to the works which might result in an adjustment to the contract price:40

The Works are subject to variation

78.A variation is any change to the Works including but not limited to:

aan increase or decrease in the quantity of any work, including services ancillary to any building work; or

bomission of any work; or

c           change in the character or quality of any material or work; or d     requiring additional work to be done; or

echanges to the level, line position, or dimensions of any work; or

fchanges to the timing or sequencing of any work.

79.Unless expressly agreed to in writing by the RMB, the Owner shall not be entitled to vary the Works in order to have any omitted work carried out by a third party or by the Owner.

80.A variation may result in an Adjustment and the RMB may claim additional payment or provide credit for each variation as appropriate in accordance with the Claim procedure under this Building Contract (unless agreed otherwise). The RMB may invoice for variations separately.

40     Clauses 83–90 and 94–95 in the Lot 2 contract.

Variations requested by the Owner

81.The RMB must consider the Owner’s written request that a variation be agreed and undertaken and may not arbitrarily withhold agreement to undertaking that variation.

82.Where the RMB and the Owner agree to a variation, there shall be an Adjustment valued in accordance with clauses 22, 23, or 24 as appropriate.

83.The Owner must not negotiate variations directly with the RMB’s Subcontractors or merchants without the RMB’s written consent.

Variations for additional works or items reasonably required to complete the Works

84.Where RMB considers that work or materials not included in the Building Contract are reasonably required to complete the Works then the RMB and the Owner must consult concerning the requirement for a variation. The Owner must advise the RMB whether they wish the variation to be carried out; or whether an alternative arrangement can be made that will avoid the need for the variation.

85.Where the RMB and the Owner agree to a variation, there shall be an Adjustment valued in accordance with clauses 22, 23, or 24 as appropriate.

Variations required by a territorial authority

86.If a variation is required:

aby the territorial authority (e.g. as a condition of the granting or retaining a building consent); or

bfor any part of the Works to comply with the Building Code, then the RMB and the Owner must consult concerning the requirement for the variation. The Owner must advise the RMB whether they wish the variation to be carried out; or whether an alternative arrangement can be made that will avoid the need for the variation.

[163]Clause 22 dealt with the valuation of adjustments:41

Valuation of Adjustments

22.Except as expressly provided to the contrary in the Building Contract, Adjustments which result in an increase to the Contract Price shall be valued as follows:

aThe Owner and the RMB shall attempt to agree a price for the Adjustment; or

41     Clause 25 in the Lot 2 contract.

bIf there is no agreed price for the Adjustment, the RMB shall be entitled to be paid the actual and reasonable cost of the Adjustment, plus margin where applicable, determined at the time the Adjustment arose.

[164]The contracts also dealt with the time for completion:42

Time for completion

96.Subject to the provisions of this Building Contract, the RMB must commence the Works on or about the Expected Start Date shown in this Building Contract.

97.Subject to the provisions of this Building Contract, the RMB must exercise reasonable diligence in seeking to achieve Practical Completion of the Works on or about or before the Expected Completion Date recorded in this Building Contract.

98.Where the Building Contract does not record an Expected Completion Date, the Works shall be completed within a reasonable time.

Extension of time

99.Without limiting the RMB’s other rights and remedies, the RMB is not liable for any delay caused by:

avariations or additional work;

ba failure or delay on the part of the Owner in complying with their obligations under this Building Contract, including but not limited to a delay in:

…

cany other delays (or problems resulting in delays) in matters that the Owner is responsible for (including problems or delays caused by other persons contracted by the Owner);

dsuspensions of the works under clause 34;

e           delays on the part of a consenting or territorial authority; f inclement weather;

gunforeseen health and safety requirements;

hwhere, despite the RMB’s reasonable endeavours, Subcontractors are unavailable;

iwhere, despite the RMB’s reasonable endeavours, materials are unavailable;

42     Clauses 105–109 in the Lot 2 contract.

junforeseen physical conditions;

kunexpected conditions of any existing structure being built into;

…

p        any other matter outside the RMB’s reasonable control.

100.Where a delay under clause 99 has occurred the RMB shall be entitled to an extension of time to complete the Works and, acting reasonably, to amend the Expected Completion Date. The RMB shall, within a reasonable time after the delay becomes apparent, issue a notice to the Owner setting out the amended Expected Completion Date.

Payment claims and payments

[165]   BLH’s invoices (payment claims) are listed by Mr McLennan at schedule B to his brief of evidence. On 21 October 2020, BLH issued its first invoice to OP Homes for the $40,000 deposit payable under the new build contract for Lots 1 and 3.     This invoice was not paid within five working days.

[166]   On 11 and 30 December 2020, OP Homes paid to BLH $100,000 and $45,000 respectively, using funds advanced by BS Development (through Saminder and Bhupinder) in two tranches on 28 August 2020 and 1 September 2020.

[167]   On 21 December 2020, BLH issued an invoice to OP Homes for $30,000 for the foundations for Lots 1 and 3. This amount accorded with the stage payments prescribed by the contract.

[168]   On 19 January 2021, BLH issued an invoice for $13,000 for the initial deposit for the Lot 2 renovation works.

[169]   On 4 February 2021, BLH issued an invoice for $40,000, which was  for    the agreed staged following completion of the framing for Lots 1 and 3. OP Homes did not pay this invoice.

[170]On 26 March 2021, BLH issued an invoiced for the agreed staged payment of

$60,000 after completion of Lots 1 and 3 for windows, roof and weathertightness. This invoice was not paid.

[171]   On 27 April 2021, at the conclusion of electrical, plumbing and painting for Lots 1 and 3, BLH issued an invoice for the agreed staged payment of $140,000. This invoice was not paid.

[172]   On 7 May 2021, BLH issued an invoice for the staged payment of $30,000 due after replacement of the windows and roof on the Lot 2 house. This invoice was not paid.

[173]At this point, OP Homes was behind in paying BLH in the amount of $208,000.

[174]   On 11  May 2021, Mr Sareen made a shareholder advance of $100,000 to   OP Homes. This sum was immediately paid out to BLH, reducing the balance owing to $108,000.

[175]   On 25 September 2021, BLH issued an invoice for the agreed $90,000 for the interior fit out for Lots 1 and 3. This invoice was not paid.

[176]   On 11 October 2021, BLH issued the invoice for the plumbing, electrical and interior lining for Lot 2 of $30,000. This invoice was not paid, meaning OP Homes owed BLH $228,000.

[177]   On 19 November 2021, BLH issued an invoice for $30,000 for the agreed stage payment for Lot 2 interior painting and floor.

[178]   On 10 December 2021, BLH issued 10 further invoices, which appear to relate to Lots 1 and 3.43 A further invoice was issued on 10 March 2022 for $15,470. It is these invoices which Mr Sareen disputes.

[179]   On 10 December 2021, BLH issued the final stage payment invoice for the final fit out and inspection of Lot 2 consistent with the contract. This invoice is not disputed by Mr Sareen.

43 BR-Russ59-07 (invoice 7); BR-Russ59-08 (invoice 8); BR-Russ59-09 (invoice 9); BR-Russ59-11 (invoice 11); BR-Russ59-12 (invoice 12); BR-Russ59-13  (invoice  13);  BR-Russ59-14  (invoice 14); BR-Russ59-15 (invoice 15); BR-Russ59-16 (invoice 16); and BR-59RUSSELL-17 (invoice 17).

Bhupinder’s explanation

[180]   Bhupinder explained at trial that all the disputed invoices concerned variations to the works under the contracts or were for work outside the contracts.

[181]   Invoice 7 is for $850 with the narration “silt fence”. Bhupinder’s evidence is that the installation of the silt fence was outside the scope of the construction contract. He says that the silt fence is part of the resource consent conditions and is usually organised by the owner before the builder comes on site. In this case, because of the relationship between OP Homes and BLH, BLH arranged for the silt fence. Bhupinder’s evidence is that normally a silt fence would cost around $3,000 to $4,000 but, because of the relationship and because it was a joint project, BLH charged for the materials only.

[182]   Invoice 8 is for $12,000 for permeable paving. Again, Bhupinder’s evidence is that the permeable paving was required by the resource consent and was not part of the building contracts, therefore, it was appropriate that BLH charged OP Homes separately.   He says that BLH used its own digger for the preparatory work and      a subcontractor paver.

[183]   Invoice 9 is for $36,500 for Lot 2 cladding and cavities. Bhupinder’s evidence is that when the original contract price was agreed for Lot 2, it was not anticipated that the cavity and cladding would need to be replaced. His evidence is that, after the Auckland Council inspected the house, it required BLH to remove the cavity and cladding and put in place a cavity system according to modern requirements and new cladding. That necessitated unforeseen scaffolding costs, which explains the next invoice 10 for $7,500. He says that Mr Sareen and Saminder agreed to this variation.

[184]   Invoice 11 is for $6,500 for footing and bracing for the walls. Bhupinder’s evidence was that the engineer (Ragu from EMACS) said that extra steel work was required for the Lots 1 and 3 houses. Bhupinder says this was a modest variation for this additional work, again dealt with informally.

[185]   Invoice 12 is for $7,350 for the Lot 1 garage carpet, landscaping, and painting of the fence and deck. Bhupinder’s evidence is that this work was outside the scope of work of the build contract for Lot 1 and was extra work that the buyer wanted.

[186]   Invoice 13 is for $4,500 for the cost of repairing damage done to the neighbour’s driveway. This was obviously outside the building contract.

[187]   Invoice 14 was for $2,500 is for “renders”. Bhupinder’s evidence is that renders is shorthand for a 3D-rendered image of the property for marketing purposes. OP Homes should have paid this amount but BLH instead paid for the images and was seeking reimbursement.

[188]   Invoice 15 in the amount of $3,043.48 is for two loan repayments. Bhupinder’s evidence was that this invoice was to  repay  BLH for  some payments  made  for  OP Homes where the three parties did not put funds in. Bhupinder’s evidence is that usually Bhupinder himself made the loan repayments but, in this case, BLH made the manual payment, and this was the reimbursement to the company.

[189]   Invoice 16 is for $4,000 for the power, water and rates bill. Bhupinder’s evidence is that this was to reimburse BLH for the cost of having a generator for power during construction, obtaining water during construction and paying some rates for OP Homes.

[190]   The final invoice 17 issued on 10 March 2022 in the amount of $15,740 is for Lot 1 landscaping, Lot 2 kitchen alterations and the Lot 3 automatic gate. Bhupinder’s evidence is again that these were items that were required by the buyers and were outside the construction contracts.

[191]   Bhupinder was cross-examined at some length about why these costs, aside from the loan repayments and the final invoice, are in round numbers. It was put to him the costs were fabricated. His explanation was that BLH would always round down the cost to the lowest round number to give OP Homes a discount and/or would negotiate with subcontractors for a discounted figure (“mates rates”).

[192]   As to why 10 invoices were issued on the same day, his explanation was that at the end of the project, there was a “catch up” of costs BLH had incurred that fell outside the contracts or were variations.

Discussion

[193]   Mr Sareen’s principal grounds for challenging these invoices are that they exceed the contract staged payment amounts and most of them were issued on a single day and are for rounded sums. He maintained that there was no ability for the contract price to be adjusted due to variations or cost fluctuations. As the above provisions make clear, that is incorrect. Heather Crilly, an expert chartered registered building surveyor who gave evidence for Mr Sareen, confirmed that the Master Builders contracts allow for adjustments to the contract price due to variations and other matters including cost escalations.

[194]   Bhupinder has explained the challenged invoices. His evidence is not seriously disputed. Ms Crilly, Mr Sareen’s expert building surveyor, offered no opinion on whether the variations in this case were properly incurred and charged to OP Homes.

[195]   Based on Bhupinder’s undisputed evidence, there were two informal variations: for the unexpected new cavities and cladding for Lot 2 (required by the Council) and for the footing and bracing on Lots 1 and 3 (required by EMACS). Admittedly, the parties do not appear to have followed the procedure in the contract for agreeing a price adjustment for this variation. But that is consistent with the informality with which the contracts were administered.

[196]   Mr Sareen says that these variations should have gone through the prescribed process in the shareholders’ agreement where, under cl 14(d), the making of any loan or agreeing to indebtedness must be approved by shareholders with the passing of a special resolution. I do not agree that accepting a variation under a construction contract amounts to taking out a loan or agreeing to incur debt such that a special resolution of shareholders is required.

[197]   There can be no serious contest that the Council requirement for new cavities and cladding for Lot 2 justified a variation and a comparable adjustment to the contract

price. In April 2021, the Council completed a cladding inspection for all three lots which identified a range of issues that needed to be resolved. Accordingly, EMACS sent BLH a revised design and report for Lot 2 which aligned with the Council requirements.   The report, dated 22 July 2021, addressed the concerns raised by    the Council regarding the use of existing timber and requirements for treatment of retained timber. The subsequent reports demonstrate the Council’s active monitoring of the implementation of the consented plan and further reinforce that these variations were Council requirements.44

[198]   The remainder of the invoices were for work that, according to Bhupinder, was outside the scope of the construction contracts. While the contract does not expressly define the scope of works,45 many of the items of work are self-evidently outside the scope of the building contracts as they concern unrelated matters (rendered images, loan repayments, repairs to the neighbour’s driveway and rates and services). Others are for exterior works (permeable paving and landscaping), when the contracts only describe interior works for which staged payments will be made. In this regard, the 59 Russell Road contracts can be contrasted with the contract agreed between BLH and another company associated with Mr Sareen, SMRK Investments Ltd, for a new build on 167 Russell Road. This contract specified that permeable paving at a cost of

$12,500, together with $6,000 for branded tapware, would be the subject of a specific lump sum payment.

[199]   As to the second concern, in other circumstances, 10 invoices being issued on one day and for rounded figures, might indicate something untoward. But this is explained by the informality of the arrangements and the fact that Bhupinder knew that OP Homes did not have the funds to pay BLH (OP Homes already being substantially in arrears) until settlement of the sales.  If anything, BLH subsidised  OP Homes by not charging for these costs when they were incurred. Saminder’s evidence was that BLH made many payments for OP Homes because OP Homes had no money. OP Homes did not pay BLH for these invoices until March 2022 when funds came in following settlement of the sales.

44     The 31 July 2021 report confirmed that the framing issues had been resolved. The cavity and cladding issues were resolved by August 2021.

45     The contract merely provides that the works are those in the building consent drawings and specifications.

[200]   If the concern is that the rounded figures show that OP Homes has not been charged the actual costs, there is nothing to prove that OP Homes has been overcharged. Bhupinder’s evidence is that OP Homes has been undercharged.

Roof trusses ($7,500)

[201]   One of the challenged invoices, dated 10 March 2022, included the item “Lot 2 kitchen alterations” for $7,500. Mr Sareen links this to his complaint regarding the Lot 2 roof trusses.

[202]   Mr Sareen says that, pursuant to the building consent plan, the roof trusses were required to be removed. The purpose of this requirement was to make the house open plan. BLH found a way to circumvent the need for removing the roof trusses by placing a beam in the roof, which Mr Sareen says resulted in BLH saving substantial costs for the removal.   However, despite saving on this cost, BLH still charged     OP Homes for the kitchen variation. This variation was required due to the failure to remove the roof trusses — the trusses impacted the load bearing wall located in the kitchen. The owner was unhappy with the kitchen that was then built and requested it be rebuilt. The cost of that was then charged to OP Homes, despite (as Mr Sareen alleges) this resulting from BLH’s construction errors.

[203]   Bhupinder denies that the removal of the roof trusses was ever a requirement in the plans. The requirement was that the house be open plan, which BLH achieved by placing a beam. BLH did not save on costs as the beam which was used as an alternative to achieve the open plan home still put the company to a substantial cost. Further, as explained above, the additional $7,500 of kitchen design costs are attributable to the owner wanting a more modern look. It is not apparent that this was request relating to the roof trusses as the owner found the kitchen impractical, as alleged by Mr Sareen.

[204]   I prefer Bhupinder’s explanation for this variation — this was an additional cost properly incurred and which BLH is entitled to recover.

Forgone damages for late completion ($17,200)

[205]   Here, Mr Sareen claims for the liquidated damages he says BLH would have been liable to pay OP Homes for late completion had the construction contracts included penalty clauses. Mr Sareen alleges that, in breach of his obligations, Saminder failed  to  negotiate  a  construction  contract  with  BLH  that  protected OP Homes’s interests.

[206]   Mr Sareen has calculated this claim on the basis that the code compliance certificate for the three lots was not issued until 25 February 2022, 40 weeks after the estimated completion date for Lots 1 and 3 (on 20 May 2021) and 38 weeks after the estimated completion date for the renovation on Lot 2 (on 30 April 2021). He has used a weekly rate of $500 per unit.

[207]   Mr Sareen relies on the expert evidence of Ms Crilly who offered the opinion that the Master Builders contracts used by OP Homes and BLH are more favourable to the builder than some other standard forms of contract, including allowing for variations and there not being a default liquidated damages provision.

[208]   It may be true that the Master Builders form of contract is more favourable to the builder compared to other standard form contracts. But the Master Builders contract was used with the encouragement  of  Mr  Sareen  because  it  meant  that OP Homes could apply for a 10-year Master Builders warranty for the works which made the properties more attractive to buyers.

[209]This can plainly be seen in the communications between the parties:

(a)On 4 December 2020, Mr Sareen said to Saminder, “Please apply for Master Build as that would really help us for lot 2”.

(b)On 12 December 2020, Mr Sareen asked “For 59 Russell Road – we using Parmco appliances? Updating specification sheet so please let me know. Thank you”. A short time later, he said, “Also Master Build please”.

(c)On 26 January 2021, Mr Sareen said, “Can you please email me the Master Build contract for lot 2 as that will help in getting the price of this joker”.

(d)On 11 February 2021, Mr Sareen asked again about the Master Builders contract for Lot 2.

[210]   It is therefore disingenuous of Mr Sareen to now allege that the choice of Master Builders contract was the result of some ulterior motive or neglect on Saminder’s part; or misleading or deceptive conduct by Bhupinder or Saminder. The contracts are standardised contracts commonly used in the industry. Mr Sareen expressly encouraged Saminder and Bhupinder to use the Master Builders form of contract.

[211]   Furthermore, Saminder and Bhupinder say that Mr Sareen never asked for penalty provisions in the construction contracts for 59 Russell Road. Saminder says that they did  not  have penalty clauses in  the contracts  for 44A Blanes Road or   167 Christmas Road. Saminder’s evidence is that he and Mr Sareen discussed the possibility of a penalty clause in the 167 Russell Road contract, but Saminder was reluctant. Mr Sareen deferred to Saminder, saying, “… put whatever you are happy with”. Ultimately, no penalty clause was added.

[212]On 24 January 2021, the parties had the following exchange:

Saminder: Hi Sunny, have thought long n hard about it. I am not willing to take any penalty for late delivery of hoses. It’s ur sweet will if you want to sign up with us.

Dheeraj Sareen: All good bro.

…

Dheeraj Sareen: All good bro. Don’t have to explain.  It’s not my decision. So it’s okay.

…

Saminder: Hope u understand. Dheeraj Sareen: I do bro.

…

Dheeraj Sareen: It’s business so yeah I get it.

[213]   Mr Sareen’s evidence is that this was in relation to the 167 Russell Road development, rather than 59 Russell Road. That would be consistent with Saminder and Bhupinder’s evidence that Mr Sareen did  not  ask for a penalty clause in  the   59 Russell Road contracts. In any event, Mr Sareen was aware that they were using the Master Builders contracts which did not have a default penalty clause; and there is no record of Mr Sareen asking that one be inserted in the 59 Russell Road contracts.

[214]   It is not surprising that such a provision was not included, recalling that when the project commenced the parties were on friendly terms and saw themselves as entering into a joint venture for their mutual benefit.

Liquidation

[215]   Mr Sareen questions the legality of the resolution which placed OP Homes into liquidation. Clause 14 of the shareholders’ agreement requires that any resolution to liquidate the company requires that passing of a special resolution of the shareholders. This is defined as a resolution passed by “shareholders holding not less than 75% of the shares in the company”. This definition differs from that which is provided in the Companies Act, requiring a special resolution be approved “by a majority of 75%... of the votes of those shareholders entitled to vote and voting on the question”.46 This is material because, in the present case, the Companies Act definition is met.

[216]   Where Mr Sareen’s complaint  falters  is  that  cl  14  purports  to  prohibit  the company from engaging in certain activities or determining certain matters without the prior passing of a special resolution of the shareholders. Per the authorities, any provision in a shareholders’ agreement which seeks to bind the company in a way which is inconsistent with the Companies Act is not enforceable.47 The inconsistency here, as noted above, is the shareholding percentage required to pass a special resolution.

46     Companies Act, s 2 (emphasis added).

47     Russell v Northern Bank Corp Ltd, above n 10.

[217]   Therefore, this cannot be  enforced  upon  OP  Homes  as  an  obligation.  The definition in the Companies Act must prevail. By this definition, the special resolution was validly passed as Mr Sareen did not vote on the question, having been notified of the meeting.

[218]   Nor was there any irregularity in the process by which Mr Sareen was notified of the meeting. Clause 34 of the shareholders’ agreement provides for how notice is to be given. In the case of an email, notice is deemed to have been duly given or made two days after dispatch, provided the sending party does not receive any indication of failure, or delay of delivery, within these two days. The updated notice for the 22 April meeting was sent by K3 Legal to Mr Sareen’s lawyers and there was no apparent indication of failure or delay of delivery. Mr Sareen also instructed Connell & Connell to inform K3 Legal that he would not attend the meeting or instruct a proxy. Further, under cross-examination, Mr Sareen admitted he received, read and understood the notice.

[219]   Mr Sareen further contends the requirement of quorum was not met. Quorum is not defined in the agreement. It is defined in the Companies Act as:48

… if shareholders or their proxies are present… who are between them able to exercise a majority of the votes to be cast on the business to be transacted by the meeting.

[220]   Thus, quorum is calculated not by the number of shareholders present at the meeting but according to the number of votes able to be cast. Quorum was met in these circumstances as this is calculated by an ordinary majority.

[221]   In any event, Mr Sareen has again been unable to point to a loss resulting from the liquidation. The objective of OP Homes was to complete the development and sell the properties — this was done, and at a profit. All creditors have been paid and the shareholders each received an equal share of this profit. Mr Sareen’s conviction that a court-appointed receiver would have been better placed to investigate the alleged irregularities is misplaced. A liquidator has broader powers than a receiver, including the power to investigate the financial affairs of the company and the conduct of

48     Schedule 1, cl 4(2).

directors by requiring the production of documents and summoning witnesses. The resolution to wind up the company cannot be seriously faulted.

Conclusions

Breach of contract of engagement and fiduciary duty

[222]   Saminder owed the shareholders certain duties as provided in the shareholders’ agreement: namely, to be engaged in the day-to-day management of the company’s business; provide regular updates of the development to the shareholders; and manage the company’s tax obligations.

[223]   Saminder also owed Mr Sareen fiduciary duties concerning his oversight and control over the contractual and financial arrangements between OP Homes and BLH.

[224]   Bhupinder cannot be regarded as a de facto director. His role was to manage the construction element of the development, aligning with his technical building experience. It is evident from the WhatsApp communications between the three shareholders that Bhupinder did not take a decision-making role.

[225]   Where Mr Sareen’s claim against Saminder fails is proving he has breached his duties causing Mr Sareen loss.

[226]   It cannot be denied that Saminder was engaged in fulfilling his duties, as can be seen from the contemporaneous record of communications. Ultimately, the venture was profitable, suggesting that generally Saminder discharged his managerial responsibilities effectively.

[227]   It is plain for the contemporaneous communications that Mr Sareen was kept up to date on the development by Saminder. Additionally, it is common ground that the two would meet every day, sometimes for hours, to discuss business and other matters.

[228]None of the specific issues raised by Mr Sareen have any merit:

(a)The shareholders agreed unanimously, if informally, to sell Lot 3 when they did; there is no requirement for a formal special resolution of shareholders; and it is unproven that they would have obtained a better price had they waited.

(b)Mr Sareen’s claim that he was entitled to the commission for Lot 3 is an unpleaded allegation seemingly based on an oral agreement for which there is no evidence.

(c)The alleged overpayments to Bhupinder or incorrect credits to his shareholder account have been explained by OP Homes’s accountant and/or Bhupinder. If there is any residual question about these payments/credits, they are matters for the liquidator to investigate and take up with Bhupinder. They do not amount to a present financial loss to Mr Sareen.

(d)The alleged overpayments to BLH were for variations permitted by the building contracts, work clearly outside the contractual scope of work or reimbursements for non-building work costs. Bhupinder provided credible explanations for each, and his evidence was not seriously challenged. The timing of the invoices and the rounded figures are explained by the informality of the arrangements between OP Homes and BLH, an informality which Mr Sareen encouraged at the time. There was no requirement for formal shareholder approval for these payments.

(e)Mr Sareen was content to proceed with a Master Build contract that did not provide for liquidated damages for late completion.

[229]   Mr Sareen has not established that Saminder breached the contract of engagement or his fiduciary duty of loyalty in the above respects; and/or that he has suffered any financial loss as a result.

Breach of Fair Trading Act

[230]   Mr Sareen’s claim fails at the first stage of the Red Eagle test, in that he has not proven a breach of s 9 by the defendants.49

[231]   The FTA claims largely revolve around the invoices. As explained above, credible explanations have been provided to rebut Mr Sareen’s claim. I do not accept that Saminder and Bhupinder deceived or misled Mr Sareen about the invoices.

[232]   Mr Sareen has also failed to prove how BLH’s decision not to remove the roof trusses could be misleading or deceptive, when Bhupinder has explained this was not part of the original plans nor was it necessary to achieve the open plan home. The loss which he claims in relation to the roof trusses is the cost for the kitchen variation requested by the owner.

[233]   Mr Sareen has not established that Saminder and Bhupinder misled him about the lack of provision for liquidated damages in the event of late completion. As above, Mr Sareen agreed to proceed with the Master Builders contracts without default penalty clauses. He and Saminder had an explicit discussion about the possible inclusion of a penalty clause for another project, and Mr Sareen was content to proceed without one.

[234]   I am also not persuaded that Saminder and Bhupinder misled or deceived   Mr Sareen in relation to the contract price for Lot 2. A preliminary discussion referred to $130,000, but this evolved upon Bhupinder’s survey of the works required on the lot, and they arrived at a final price of $135,000. The difference in contract price (between $130,000 as reflected in the deposit and the $135,000 noted in the Lot 2 contract) can clearly be regarded as a mistake.

Unfair, discriminatory, and prejudicial conduct

[235]   Mr Sareen has not proven that Saminder and/or Bhupinder conducted the affairs of OP Homes in a way that amounts to a visible departure from the standards

49     There is therefore no need to address the issue of leave to proceed against BLH.

of fair dealing, or that this  course  of  conduct  has  been  unjustly  detrimental  to Mr Sareen.

[236]   The venture was highly profitable for Mr Sareen. Mr Sareen made an initial contribution to the purchase price, but then did not make any further financial contribution to fund the development until well after Bhupinder and Saminder advanced $200,000 from BS Developments. Mr Sareen received the same dividend as Saminder and Bhupinder: a net dividend of $150,431. Bhupinder and Saminder received their dividend less than a month before Mr Sareen. Bhupinder and Saminder (or BS Developments) received no interest in relation to committing funds far in advance of Mr Sareen.

[237]   Furthermore, Saminder, Bhupinder and his wife assumed the most risk in the project. Bhupinder and his wife assumed responsibility for the SBS mortgage and made monthly payments towards that mortgage. At the end of the development, once all the properties had settled, they were repaid the mortgage payments from OP Homes but not interest. Saminder assumed responsibility by fulfilling the director role with the attendant liabilities that can involve. Saminder was not paid a director’s salary.

[238]   Mr Sareen did not assume the same degree of risk. Most of his financial contribution was only put in once construction was well advanced and Lots 2 and 3 had been sold. If the development had turned sour, Mr Sareen could have chosen not to contribute his funds, leaving Bhupinder and BLH exposed. BLH did the work largely on credit for OP Homes, allowing for payments to be made after the work was completed and not in alignment with the contractual stages.

[239]   Mr Sareen’s allegation that he has been dealt with unfairly by Saminder and Bhupinder, to his unjust detriment, does not withstand scrutiny.

Breach of shareholders agreement — no collateral benefit

[240]   Mr Sareen claims that Saminder and Bhupinder acted in breach of the provision in the shareholders’ agreement which provided no party would seek or gain collateral benefit out of the company. He has not pointed to any loss flowing from this alleged breach.

[241]   The very nature of the venture was that each party would obtain a collateral benefit: Saminder and Bhupinder, through the award of the development contract to BLH and Mr Sareen, through the agency arrangements to sell the developed lots. It is disingenuous now for Mr Sareen to claim that BLH’s role as the contractor should form the basis for a finding of breach, and a subsequent award of damages, when this was always the agreed arrangement. Further, he himself has obtained collateral benefit, and even sought further collateral benefit, in the forgone commission for Lots 1 and 3.

[242]   It is also unclear whether the development was profitable for BLH, and by extension Saminder and Bhupinder as shareholders of BLH. As discussed, BLH did the work largely on credit for OP Homes and at discounted rates, without charging for cost escalations. In contrast, Mr Sareen clearly benefitted as the sales agent for Lot 2, for which he received a commission of $15,750 (plus GST).

[243]This claim cannot stand.

Negligence

[244]   As noted, I did not receive any specific submissions on this cause of action. The claim is pleaded on a very similar basis as the others more fulsomely considered in this judgment. I assume that it duplicates the allegations made in relation to the other causes of action. For that reason, this claim also fails.

Liquidation

[245]   There was no irregularity with the appointment of the liquidator. In any event, Mr Sareen has again been unable to point to a loss resulting from the liquidation.  The development  was  completed,  creditors  paid,  and  the   profit   distributed.  The liquidator has the power to investigate any concerns about irregular payments to shareholders or incorrect shareholder current account balances. These types of investigations are standard in any liquidation.

Counterclaim

[246]   In their counterclaim, the defendants rely on cl 28(e) of the shareholders’ agreement,  by  which  they  say  Mr  Sareen  is  obliged  to  act  in  good  faith.    The defendants plead various actions or omissions which they say amount to a breach of this obligation.

[247]   The statement of counterclaim noted that the losses were to be quantified at trial. However, I did not have the benefit of the counterclaim being addressed in argument. I will consider the claims on the evidence available to me.

[248]   The first omission pleaded is that Mr Sareen acted to frustrate the sale of Lot 1 by refusing to provide identity documents for AML/CT purposes during the sale process. As mentioned, the statement of counterclaim did not quantify the loss nor was I assisted further by the defendants’ counsel at trial. I cannot take this matter further.

[249]   The second matter is the damage to the adjoining driveway. On the face of it, again without the benefit of any argument, the issues regarding the driveway cannot constitute a breach of Mr Sareen’s obligation to act in good faith in his capacity as a shareholder. At most, Mr Sareen could be regarded as having been negligent. Further, the loss is pleaded against him personally, with any due sum to be returned to OP Homes which paid the $5,000 required to remediate the damage. This claim is misconceived and cannot stand.

[250]   Finally, there is the matter of asbestos found in the Lot 2 property. Mr Sareen failed to disclose the presence of asbestos to the purchaser resulting in a $10,000 reduction to the sale price. Certainly, there would be an obligation on Mr Sareen as the sales agent to disclose the presence of asbestos to any prospective buyers. However, it cannot be said this is an obligation imposed upon him in his capacity as a shareholder, nor that it would be caught under any obligation to act in good faith.

Result

[251]I find against Mr Sareen on all his causes of action.

[252]The counterclaims are dismissed.

[253]   I award the defendants costs, as the successful parties. They would ordinarily be entitled to an award of costs on a Category 2B basis together with disbursements as fixed by the Registrar. I encourage the parties to agree the amount of costs. If agreement is not possible, they have leave to file and  serve memoranda of up  to  five pages in length on that issue.

Gardiner J

Solicitors:

Connell & Connell, Auckland

S Lukey, Barrister, Christchurch

Nair & Associates, Barristers and Solicitors, Auckland