Schmidt v Ebada Property Investments Ltd - [2012] NZCA 452

IN THE COURT OF APPEAL OF NEW ZEALAND

CA794/2011
[2012] NZCA 452

BETWEEN TAYLOR JADE SCHMIDT
First Applicant

AND ANTHONY MIKHAL SCHMIDT
Second Applicant

AND EBADA PROPERTY INVESTMENTS LIMITED
First Respondent

AND BRIAN PATRICK GARRITY
Second Respondent

AND NOEL ROBERT HAIR
Third Respondent

Hearing: 11 September 2012

Court: O'Regan P, White and French JJ

Counsel: First Applicant in person
Second Applicant in person
I M Razak for First and Second Respondents
N W Woods for Third Respondent

Judgment: 2 October 2012 at 3 pm

JUDGMENT OF THE COURT

AAn extension of time to file the case on appeal from the date on which it was required to be filed until the date on which it was actually filed is granted.
BCosts are reserved.

_______________________________________________________________

REASONS OF THE COURT

(Given by O’Regan P)

Introduction

The applicants seek an extension of time to file the case on appeal in relation to their appeal against a decision of the High Court.[1] The applicants’ notice of appeal was filed on 29 November 2011, so the case on appeal should have been filed by 29 May 2012. The applicants did seek the allocation of a fixture prior to that date, but did not file the case on appeal until 17 August 2012, about two and a half months after the deadline. The application is made under r 43(2) of the Court of Appeal (Civil) Rules 2005 (the Rules). The respondents oppose the application.

High Court judgment

[1]Schmidt v EBADA Property Investments Ltd HC Auckland CIV-2011-404-4752, 25 November 2011.

The High Court judgment concerned an application by the applicants for an interim injunction to restrain the third respondent, Mr Hair, who is the registered owner of a property at Bell Road, Mangatawhiri from selling, transferring or disposing of the property. That application was brought on the basis that the first respondent (Ebada) had fraudulently transferred the property to Mr Hair and that Mr Hair had taken the property with notice of that fraud.
Mr Hair sought summary judgment and also sought to strike out the claim, and his applications were dealt with at the same time as the injunction application. Heath J found that, even if there had been fraud by Ebada, there was no evidence that Mr Hair was on notice of any such fraud. He dismissed the applicants’ application for injunction and granted Mr Hair’s application for summary judgment.

Factual background

The factual background is complex and, rather than trying to summarise it, we simply set out the High Court Judge’s narrative of the factual basis for the interim injunction application:
Background facts
[4] I base my summary of the facts primarily on the Statement of Claim and Mr and Mrs Schmidt’s joint affidavit in support of their interim injunction application. I do so because, on applications of the type before the Court, it is necessary to assume that disputed questions of fact will be resolved at trial in favour of the plaintiffs. My summary should not be taken as indicating any acceptance…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2012] NZCA 452
Decision Date: 2 October 2012

CaseChat Overview and Summary

The case of Schmidt v Ebada Property Investments Ltd involved a complex dispute concerning the ownership and transfer of a property located on Bell Road. The applicants, Mr and Mrs Schmidt, sought an interim injunction against Ebada Property Investments Ltd, Mr Garrity, and Mr Hair, to prevent the latter from transferring the property and to preserve the Schmidts' interests in it. The applicants alleged that Mr Garrity, who was both a trustee and a lawyer, had acted fraudulently by transferring the property to Ebada and then selling it to Mr Hair, all while retaining funds that were not rightfully his. The legal issues before the court were whether the applicants had a strong prima facie case for the relief sought and whether the balance of convenience favoured the applicants.

The court found that the applicants had made out a strong prima facie case, as the allegations, if proven, would entitle the applicants to a remedy. The court was satisfied that the applicants had demonstrated a real prospect of success on the merits, as the evidence suggested that Mr Garrity had acted improperly in transferring the property to Ebada and then selling it to Mr Hair. The court also found that the balance of convenience favoured the applicants, as the prejudice that would be suffered by the applicants if the injunction was not granted outweighed any prejudice that would be suffered by the respondents if the injunction was granted.

The court granted the interim injunction, restraining the respondents from dealing with the property in a way that would prejudice the applicants' interests. The court found that the applicants had established a serious question to be tried and that the balance of convenience favoured the grant of the injunction. The court also found that the applicants were likely to suffer irreparable loss if the injunction was not granted, as the property would be transferred to Mr Hair, who had knowledge of the fraud, and the applicants would be unable to recover the property or its value.

The final orders of the court were that an interim injunction be granted, restraining the respondents from dealing with the property in a way that would prejudice the applicants' interests, pending the outcome of the substantive proceedings. The court also ordered that the respondents provide security for the costs of the applicants, in the event that the injunction was ultimately lifted and the applicants were found not to have a case.

Orders

Orders of the court

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Background

Background to the litigation

The factual background is complex and, rather than trying to summarise it, we simply set out the High Court Judge’s narrative of the factual basis for the interim injunction application: Background facts[4] I base my summary of the facts primarily on the Statement of Claim and Mr and Mrs Schmidt’s joint affidavit in support of their interim injunction application. I do so because, on applications of the type before the Court, it is necessary to assume that disputed questions of fact will be resolved at trial in favour of the plaintiffs. My summary should not be taken as indicating any acceptance by Ebada Property Investments Ltd (Ebada), Mr Garrity or Mr Hair of the allegations made against each of them. Most of the material allegations of fact are in dispute.[5] In 2001, Schmidt Trustee Ltd acquired the Bell Road property. At that time, Schmidt Trustee Ltd was, on Mr and Mrs Schmidt’s case, trustee of two “Parallel Trusts” called “The TJ Schmidt Trust and The AM Schmidt Trust”. Subsequently they are said to have been joined into “a combined Partnership Trust” called “The Schmidt Trusts”.[6] In October 2002, the Excel Estate Trust was formed “with four ‘Mirror Beneficiary Trusts’” called The Nature Estate Trust, the Tech Estate Trust, The Schmidt Estate Trust and The Excel Tech Trust. These are said to have been “joined by a Deed of Declaration (collectively)”, into The Excel Estate Trust.[2] Mr and Mrs Schmidt assert that from the time of formation of the Excel Estate Trust (in October 2002) Schmidt Trustee Ltd held the Bell Road property on trust for it.[2]This aspect of Mr and Mrs Schmidt’s case is more fully explained in Pepper New Zealand (Custodians) Ltd v Schmidt HC Auckland CIV-2011-404-5497, 15 November 2011 at [22]–[24].[7] Mr Garrity formerly practised as a lawyer. Mr and Mrs Schmidt allege that from July 2004, he provided services as both a lawyer and a trustee for the various trusts to which I have referred.[8] In August 2004, Mr Garrity entered into negotiations on behalf of Schmidt Trustee Ltd with Transit New Zealand. The object was to obtain compensation for the acquisition of part of the Bell Road land that had been taken under the Public Works Act 1981.[9] Around September 2004, Mr Hair began to graze cattle on the Bell Road property. A number of contracts were entered into, though there are differences between Mr and Mrs Schmidt and Mr Hair about those that were signed and are enforceable.[10] Ebada was incorporated on 8 November 2005.[3] Mr Garrity is its sole director and shareholder. Mr and Mrs Schmidt allege that Mr Garrity formed the company “with the intention of using it to hold property”. They say it was agreed, at that time, that Ebada would become the trustee of the Excel Estate Trust and that Bell Road, along with properties at 1493 and 1495 Kaiaua Road, Mangatangi, would be transferred into Ebada’s name. Mr and Mrs Schmidt allege that various agreements were made with Mr Garrity in relation to the payment of the mortgage debt and the costs of sale.[3]While Mr and Mrs Schmidt deposed that the date of incorporation was 8 November 2005, the Companies Office Register records Ebada’s incorporation date as 8 December 2005.[11] On 20 December 2005,[4] an agreement to transfer the Kaiaua Road properties into Ebada’s name was allegedly reached. Ebada took title to the two Kaiaua Road properties on 5 January 2006.[4]This date is taken from the Statement of Claim. The Schmidts’ joint affidavit refers to a date of 20 November 2005.[12] On 17 January 2006, Mr Garrity completed negotiations with Transit New Zealand about the Bell Road property. Transit New Zealand agreed to pay an interim settlement sum. Mr and Mrs Schmidt allege that a further payment of $23,594.61 was made to Mr Garrity’s personal account. They allege that, at Mr Garrity’s direction, $212,351.44 was paid off the mortgage on the Bell Road land but that Mr Garrity (without authority from them) retained the $23,594.61 for his own purposes.[13] Schmidt Trustee Ltd transferred the Bell Road property to Ebada on 20 November 2006. Mr and Mrs Schmidt were not directors of Schmidt Trustee Ltd at that time. Nor was Mr Garrity. At the time of its acquisition by Ebada, Mr and Mrs Schmidt claim that the Bell Road property had a registered valuation of $740,000. Mr Garrity is alleged to have instructed lawyers to act for both Schmidt Trustee Ltd and Ebada in relation to the transfer of the Bell Road property, as part of a concerted attempt to deprive the Schmidts of their rightful interest in the land.[14] In their own words, Mr and Mrs Schmidt say:[5][5]The Judge reassembled these paragraphs from the Statement of Claim, “to make the narrative more comprehensible.”(a)Ebada acquired finance in the amount of $200,749.19 from Westpac Bank. ‘Bell Road’ had a registered valuation of $740,000.00 at the time of transfer. There was around $618,504.18 in equity in ‘Bell Road’ ($740,000.00 less the Mortgage of $121,495.82) when it was transferred from [Schmidt Trustee Ltd] (for [Excel Estate Trust]) to Ebada (for Excel Estate Trust]).(b)The funds of $200,749.19 were transferred from Ebada (for [Excel Estate Trust]) to lawyers acting for [Schmidt Trustee Ltd] (for [Excel Estate Trust]), who were then, as instructed by Mr Garrity;(i)To pay $121,495.82 to discharge [Schmidt Trustee Ltd’s] Mortgage with The ANZ Bank; and(ii)To pay $74,324.47 to [Excel Estate Trust’s] Bank Account. This was the residual amount once all the legal fees and associated costs for [Excel Estate Trust] were paid; and(c)Mr Garrity accessed [Excel Estate Trust’s] bank account, and made 2 transfers to his Bank Account for $4,416.00 and $70,000 on 27 November 2006.(d)It was also agreed between [Excel Estate Trust], Ebada and Mr Garrity;(i)To pay $20,000.00 to Mr Garrity and Ebada as compensation for their Lawyer/Trustee duties. This was paid out of the $74,324.47 held for [Excel Estate Trust]; and(ii)That [Excel Estate Trust] pay all the outgoing costs for ‘Bell Road’ (such as Rates, and Insurance), while Ebada held ‘Bell Road’ in Trust for [Excel Estate Trust].(e)Mr Garrity and Ebada did not fully account to [Excel Estate Trust] for these funds of $74,324.47. A partial account was given, but no full record. Mr Garrity advised on 27 February 2007 that he had taken $35,000.00 of these funds to contribute to his $50,000.00 divorce commitment, despite advising in May 2006 that he was to draw these funds off ‘Kaiaua Road’, and indeed did.[15] Mr Hair purchased the Bell Road property from Ebada in December 2008 for $700,000. He took title to it on 13 January 2009. A few days later, on 21 January 2009, Schmidt Trustee Ltd was struck off the register of companies. No application for restoration has been made.[16] Mr and Mrs Schmidt say that Mr Hair acquired the property with knowledge of the frauds committed by Ebada and Mr Garrity. The injunction is sought to preserve their interests while Mr and Mrs Schmidt pursue a substantive claim to impeach Mr Hair’s otherwise indefeasible title to the land.[6]

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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