Shephard v Rabson
[2015] NZHC 3137
•9 December 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2014-485-000036 [2015] NZHC 3137
BETWEEN IAIN BRUCE SHEPHARD AND
CHRISTINE MARGARET DUNPHY Plaintiffs
AND
MALCOLM EDWARD RABSON First Defendant
MALCOLM EDWARD RABSON and
RICHARD JOHN CRESER Second Defendants
WAYNE SEYMOUR CHAPMAN Third Defendant
Hearing: 16-18 November 2015 Counsel:
H L Thompson for Plaintiffs
M E Rabson in person for First and Second Defendants
S A Barker for third Defendant abidesJudgment:
9 December 2015
JUDGMENT OF COLLINS J
Summary of judgment
[1] I am issuing judgment in favour of the plaintiffs against Mr Rabson for the sum of $782,531. I am satisfied the plaintiffs are entitled to judgment for this sum because that is the amount Mr Rabson is owed by the Malcolm Rabson Family Trust (MRFT). Judgment is issued for this sum in favour of the plaintiffs because the Official Assignee has assigned to the plaintiffs all claims and causes of action in
Mr Rabson’s bankrupt estate.
SHEPHARD v RABSON [2015] NZHC 3137 [9 December 2015]
[2] I am also issuing a declaration that the plaintiffs are entitled to payment from funds held by the third defendant in his capacity as a trustee of the Gallagher-Rabson Family Trust (GRFT) towards settling the judgment debt. However, before the third defendant pays anything to the plaintiffs he must ensure all payments due to Ms Gallagher pursuant to the Court of Appeal judgments, which I refer to in this decision, have in fact been paid. Excluded from this declaration are any reasonable fees and expenses incurred by the third defendant.
PART I BACKGROUND
The plaintiffs
[3] The plaintiffs are the liquidators of two companies, Double Zero Holding Ltd (Double Zero) and Vision Ltd (Vision). Vision was a wholly owned subsidiary of Double Zero. The plaintiffs are also the directors of Shephard Dunphy Ltd.
[4] The plaintiffs have brought this proceeding as assignees from the Official Assignee of all claims and causes of action in Mr Rabson’s bankrupt estate. That assignment was recorded in a deed dated 18 November 2013.
[5] The two shareholders of Double Zero were the MRFT and the David
Hitchens Family Trust. Those two trusts owned equal shares in Double Zero.
[6] Double Zero was placed into liquidation by order of the High Court on
5 February 2010 following an irremediable breakdown in the business relationship between Mr Rabson and Mr Hitchens.1
[7] Ms Dunphy and Mr Croad, who were at the time employees of Shephard Dunphy Ltd, were appointed as liquidators of Double Zero. They passed a resolution appointing themselves to be also the liquidators of Vision. Mr Croad resigned as a liquidator of Double Zero and Vision on 29 May 2013. Mr Shephard
was appointed in his place.
1 Hitchens v Double Zero Holdings Ltd HC Wellington CIV-2009-485-001961, 5 February 2010.
[8] Vision carried on its business from premises owed by Casino Properties Ltd (Casino). Mr Rabson was the sole director of Casino, and the MRFT was the sole shareholder of that company.
Mr Rabson
[9] Mr Rabson was a businessman engaged in a number of enterprises relating to the design and manufacture of postal sorting equipment and to commercial properties. He informed me that at one point he was very wealthy and worth several million dollars. Mr Rabson was adjudged bankrupt on 18 March 2013 on the application of the plaintiffs. That application was triggered by Mr Rabson failing to comply with a judgment of the High Court issued on 11 April 2011, in which
Mr Rabson was ordered to pay the plaintiffs money he had transferred out of Vision.2
Today, Mr Rabson is a beneficiary. He represented himself before me.
[10] In December 1999, Mr Rabson commenced a de facto relationship with Ms Gallagher. Their daughter was born in 2001. The relationship between Mr Rabson and Ms Gallagher came to an end on 16 April 2006.
[11] At the time Mr Rabson and Ms Gallagher commenced their relationship, Mr Rabson was living in a home he owned in Paramata (the Paramata property) worth at the time, approximately $370,000.
[12] In early November 2001, Mr Rabson purchased a Lotto ticket. Although he did not appreciate it at the time, the ticket Mr Rabson purchased won the first division prize drawn on 5 November 2001. The prize was $1,303,939. Mr Rabson claimed the prize on 12 February 2002 and initially deposited the prize money into a bank account in his name and then into two term deposit accounts, also in Mr Rabson’s name. The Lotto prize money was subsequently transferred to an
MRFT bank account in two transfers, which occurred on 14 March and 3 April 2002.
2 Croad v Rabson HC Wellington CIV-2010-485-793, 11 April 2011.
[13] Between April 2002 and February 2003, Mr Rabson and Ms Gallagher arranged to purchase three residential properties. The value of those properties roughly equated to the Lotto prize winnings. The three properties were:
(1) a property in Raumati (the Raumati property) purchased on
27 February 2002 for $254,000, with settlement on 4 April 2002;
(2) a property at Paraparaumu (the Paraparaumu property) purchased on
12 September 2002 for $567,500, with settlement on 8 November
2002; and
(3) a Plimmerton property (the Plimmerton property) purchased on
16 October 2002 for $530,000, with settlement on 14 February 2003.
Malcolm Rabson Family Trust
[14] The MRFT was established on 30 November 2000. Mr Rabson has been a trustee of the MRFT since it was created.
[15] Mr Rabson arranged to lease the Paramata property to himself for life and then transferred the Paramata property to the MRFT soon after that trust was created in exchange for an acknowledgement of debt of $69,000. The sum of $69,000 was the reassessed value of the Paramata property taking into account the lease for life. Mr Rabson then commenced a process of forgiving the debt at the rate of $27,000 per year.
[16] In a deed dated 4 April 2002, the trustees of the MRFT acknowledged a debt to Mr Rabson. The amount of the debt was $127,000. Although the deed is dated
4 April 2002, that deed and other documents I refer to in paragraphs [18] to [20] were all executed on 10 July 2003. The debt of $127,000 related to Mr Rabson’s half share in the Raumati property, which was purchased for $254,000. An acknowledgement of debt which mirrored the deed in favour of Mr Rabson was also issued in favour of Ms Gallagher for the same sum. That deed is also dated 4 April
2002.
[17] The deed dated 4 April 2002 and other deeds of acknowledgement of debt issued by the MRFT in favour of Mr Rabson and Ms Gallagher were prepared by Mr Brierley, a Wellington barrister and solicitor, who accepted instructions from Mr Rabson in relation to the matters relating to the MRFT.
[18] In a deed dated 8 November 2002 the trustees of the MRFT acknowledged a further debt to Mr Rabson. There is a dispute about the amount of that debt because of an error in the deed. Clause 1 of the deed states:
We are indebted to Malcolm Edward Rabson of Paramata, Company Director (“the creditor”) in the sum of one hundred and twenty seven thousand dollars ($283,750) (“the debt”).
[19] I will also explain in paragraphs [80] to [83] why I am in no doubt the deed of acknowledgement of debt dated 8 November 2002 related to a debt of $283,750 and not $127,000. The debt of $283,750 related to the Paraparaumu property, which was purchased for $567,500. An acknowledgement of debt was also issued in favour of Ms Gallagher in identical terms to the deed of acknowledgement of debt to Mr Rabson in relation to the Paraparaumu property.
[20] In a deed dated 14 February 2003, the trustees of the MRFT executed another deed of acknowledgement of debt to Mr Rabson. The debt in this deed was for
$265,000. This related to the Plimmerton property, which was purchased for
$530,000. A mirror deed of acknowledgement of debt was issued in favour of
Ms Gallagher.
[21] On 10 July 2003, Ms Gallagher was appointed trustee and primary beneficiary of the MRFT.
[22] In September 2004, the trustees of the MRFT sold the Paramata property. This sale required the lease for life over the property to be surrendered. This in turn generated a debt of $342,753.60 due from the MRFT to Mr Rabson and Ms Gallagher. This debt was reflected in deeds of acknowledgment of debt in favour of Mr Rabson and Ms Gallagher for half the value of the surrendered lease for life. Mr Rabson’s share of that debt was $171,376.80.
[23] Ms Gallagher ceased to be a trustee of the MRFT on 31 August 2006. In
2012 Mr Rabson arranged for Mr Creser to be appointed a trustee of the MRFT. Mr Creser resigned from this role on 6 August 2015.
Relationship property dispute
[24] In 2004 Mr Rabson and Ms Gallagher sought advice on an agreement to contract out of the Property (Relationships) Act 1976. The original draft of the agreement defined the relationship property as including all money owed to either Mr Rabson or Ms Gallagher by the MRFT and the legal and beneficial interest of either Mr Rabson or Ms Gallagher in the MRFT. Excluded from this proposal were the shares held by the MRFT and the companies associated with Mr Rabson.
[25] The proposed relationship agreement triggered concerns for Ms Gallagher and her legal advisor. Those concerns led to an agreement being reached that resulted in the formation of the GRFT on 2 May 2005. Mr Rabson and Ms Gallagher were the trustees and primary beneficiaries of the GRFT. Their daughter was a secondary beneficiary.
[26] The three properties which had been purchased from the Lotto prize money were sold to the GRFT, also on 2 May 2005. Contemporaneously, the trustees of the GRFT executed a deed of acknowledgement of debt recording that the GRFT owed the trustees of the MRFT $1,953,000. This sum reflected the increased value of the three properties.
[27] It was intended the MRFT and GRFT would take steps to clear the debt. This did not occur and the proposed relationship property agreement was never executed.
[28] After Mr Rabson and Ms Gallagher separated in April 2006, and after Mr Rabson removed Ms Gallagher as a trustee of the MRFT, he arranged to have his daughter made a beneficiary of that trust in place of himself.
[29] Issues concerning relationship property resulted in a decision from the Family Court3 in 2007, which was appealed to the High Court4 in 2010 and subsequently appealed to the Court of Appeal.5 I explain those judgments in paragraphs [32] to [41].
Related litigation
[30] In September 2009, Mr Rabson transferred $120,000 from Vision to the
MRFT. The same amount was also transferred by Mr Rabson to Mr Hitchens. On
11 April 2011 the plaintiffs obtained judgment against Mr Rabson.6 In that judgment French J held that some of the money which was transferred was used for the benefit of Vision and/or Double Zero but that Mr Rabson had failed to account for
$58,084.31. French J made an order under s 301 of the Companies Act 1993 requiring Mr Rabson to repay that sum to the plaintiffs. His failure to do so ultimately led to him being adjudged bankrupt on 18 March 2013.7
[31] On 26 April 2011, the plaintiffs served a statutory demand on Casino to recover $52,000 that Mr Rabson had arranged to be transferred from Vision to the MRFT and from there to Casino between 27 October 2009 and 30 November 2009. Casino applied to set aside the statutory demand. The High Court held there was an arguable dispute about some of the amount specified in the statutory demand. The High Court ruled the plaintiffs could only pursue in their statutory demand the sum
of $33,420.60.8
[32] The relationship property dispute between Mr Rabson and Ms Gallagher commenced in the Family Court, where Judge Ullrich QC held the Lotto prize was
the parties’ relationship property.9
3 G v R FC Porirua, FAM-2007-091-892, 4 September 2008.
4 LG v MER [2010] NZFLR 1001 (HC); R v G HC Wellington CIV-2008-485-2279, 19 December
2008 (application for leave to appeal out of time).
5 R v G; G v R [Lottery winnings] [2011] NZCA 459, [2011] NZFLR 1040; Rabson v Gallagher
[2011] NZCA 669.
6 Croad v Rabson, above n 2.
7 Re Rabson, ex parte Croad [2013] NZHC 472.
8 Casino Properties Ltd v Vision Ltd (in liq) HC Wellington CIV-2011-485-924, 7 September
2011.
9 G v R, above n 3.
[33] Mr Rabson appealed the Family Court judgment to the High Court, which also heard a number of interrelated relationship property disputes between Mr Rabson and Ms Gallagher. Wild J issued a judgment and three sets of consequential orders.10
[34] In his 23 July 2010 judgment, Wild J:
(1)explained why he rejected Mr Rabson’s claims the Lotto prize money was always the property of the MRFT and never relationship property. Wild J upheld the findings of the Family Court that the Lotto prize winnings was relationship property;
(2)concluded the Lotto prize winnings substantially funded the purchase of the Raumati, Paraparaumu and Plimmerton properties;
(3)concluded Ms Gallagher was the beneficiary of a constructive trust in relation to the Raumati, Paraparaumu and Plimmerton properties;
(4)concluded Ms Gallagher was entitled to a remedy that assured her of an equitable participation as a primary beneficiary of the MRFT. Wild J invited the parties to agree on an appropriate form of the orders he should make;
(5)concluded that statements of account for the MRFT prepared by Deloitte for the financial years ending 31 March 2003 and 2004, which suggested the Lotto prize money was always the property of the MRFT were wrong. Those accounts reflected a change in tact by Mr Rabson, who in 2003 erroneously instructed Deloitte that it was the MRFT that had won Lotto.
(6) concluded that:
10 LG v MER, above n 4; R v G HC Wellington CIV-2008-485-2279, 1 October 2010 (Ruling as to stay of execution of judgment; Costs); R v G HC CIV-2008-485-2279, 1 October 2010 (Minute and orders consequent upon judgment of 23 July 2010).
(i)the MRFT owed Mr Rabson $675,750 (less any debt forgiven);
(ii)the MRFT owed Ms Gallagher $675,750 (less any debt forgiven);
(iii)the GRFT owned the Raumati, Paraparaumu and Plimmerton properties; and
(iv) the GRFT owed the MRFT $1,953,000.
(7)set out recommendations concerning the sale of properties and the distribution of the proceeds of sale;
(8)made orders relating to a motor vehicle and a surrender value of the lease for life of the Paramata property;
(9)concluded the beneficiary accounts of Mr Rabson and Ms Gallagher in the MRFT had become so intermingled with other relationship property that it was not possible to regard that property as separate property. Wild J concluded Ms Gallagher’s half share of the beneficiary accounts of the MRFT was $130,000.
[35] The parties were unable to reach agreement on the matters which Wild J invited them to agree upon. On 1 October 2010, Wild J made a series of orders which included orders for the sale of the Raumati, Plimmerton and Paraparaumu properties and the allocation of the proceeds of sale. Wild J determined that the sum which the MRFT held on constructive trust for Ms Gallagher was $300,000. Wild J also ordered Mr Rabson and Ms Gallagher be removed as trustees of the GRFT and that a new trustee be appointed. He directed that if Mr Rabson and Ms Gallagher could not agree as to who was to be the new trustee then the new trustee would be appointed by the President of the Wellington Branch of the New Zealand Law Society. The parties appeared to have agreed Mr Wayne Chapman, a barrister and solicitor, of Wellington should be appointed as trustee but an issue then arose as to
whether or not Mr Rabson had personally consented to Mr Chapman being appointed. That issue came before Williams J, who confirmed Mr Chapman’s appointment as the trustee of the GRFT in place of Mr Rabson and Ms Gallagher.11
[36] Wild J granted Mr Rabson leave to appeal his decision relating to the status of the Lotto prize. Four appeals were filed in the Court of Appeal from Wild J’s judgment and consequential orders. Two appeals were filed by Mr Rabson in his personal capacity and two appeals were filed by the MRFT. Ms Gallagher filed cross-appeals. In a judgment which primarily dealt with procedural issues, the Court of Appeal observed the various appeals and cross-appeals had “got[ten] into a great
procedural muddle”.12
[37] The Court of Appeal issued two judgments arising from the appeals and cross-appeals.
[38] In its judgment of 15 September 2011 the Court of Appeal upheld all but three aspects of the judgment of Wild J and his consequential orders. The Court of Appeal:13
(1)quashed the finding that the MRFT held $300,000 on constructive trust in favour of Ms Gallagher. The Court of Appeal substituted that finding with an order under s 44C of the Property (Relationships) Act that Mr Rabson pay Ms Gallagher $300,000 from his separate property, namely the debt owed to him by the MRFT;
(2)quashed orders relating to claims of the MRFT concerning capital expenditure on the Paraparaumu property;
(3)ordered Mr Rabson be credited with $30,000 being his interest in a motor vehicle.
11 Gallagher v Rabson HC Wellington CIV-2008-485-2279, 8 March 2011.
12 Rabson v Gallagher [2011] NZCA 204 at [4].
13 R v G; G v R [Lottery winnings], above n 5.
[39] The Court of Appeal confirmed Ms Gallagher was entitled to $1,239,081, which included $675,750 which the MRFT owed Ms Gallagher in relation to the Lotto winnings. The Court of Appeal sought further submissions on what amendments would need to be made to the orders made by Wild J on 1 October 2010 to reflect the Court of Appeal’s findings.
[40] In its judgment of 20 December 2011, the Court of Appeal made a series of orders including the following:14
(1)an order requiring the GRFT sell the Raumati and Plimmerton properties with the proceeds being applied to repay the sum owed to Ms Gallagher;
(2)an order concerning the sale of the Paraparaumu property to ensure, amongst other matters, Ms Gallagher received the $1,239,081 to which she was entitled;
(3)an order directing the GRFT pay Ms Gallagher her remaining share of the relationship property, (if any);
(4)an order concerning how payments made to Ms Gallagher were to be treated as payments by the GRFT to the MRFT; and
(5)any remaining funds in the GRFT were to be paid to the MRFT to satisfy the debt owed by the GRFT to the MRFT.15
[41] On the day the Court of Appeal issued its second judgment, Casino served a statutory demand on Shephard Dunphy Ltd for rent Vision was said to have owed
Casino. That statutory demand was set aside by the High Court on 28 February
14 Rabson v Gallagher, above n 5.
15 The terms of this order provided:
“After deducting the GRFT’s trustee’s remaining costs and expenses, (including in respect of any claims by Mr Rabson for renovation costs in relation to the properties and the costs and expenses associated with winding up of the GRFT), to pay any funds still in the GRFT trust’s hands to the MRFT against the balance of the amount the GRFT still owes the MRFT, if any, and then to wind up the GRFT in accordance with the terms of the trust deed”.
2012.16 Costs were awarded to Shephard Dunphy Ltd. On 21 May 2012 Casino was placed into liquidation on the application of Shephard Dunphy Ltd. That application was based on Casino’s failure to pay the costs ordered by the High Court on
28 February 2012.
The current dispute
[42] After Mr Rabson was adjudged bankrupt the Official Assignee instructed Mr Parsons, a forensic accountant, to conduct an examination of the financial statements of the MRFT. Part of that exercise involved an assessment of whether or not the deeds of acknowledgement of debt dated 4 April 2002, 8 November 2002 and
14 February 2003 were accurately reflected in the MRFT financial statements.
[43] Mr Parsons concluded that deeds of acknowledgement of debt had not been properly reflected in the financial statements of the MRFT. Mr Parsons reconstructed the financial statements of the MRFT to include the deeds of acknowledgement of debt in a way which was consistent with the findings of Wild J, which had been confirmed in the judgments of the Court of Appeal. On the basis of that reconstruction Mr Parsons concluded the MRFT owed Mr Rabson $782,531.
[44] Mr Parsons calculated the sum of $782,531 in the following way:
(1) $675,750 as recorded in the deeds of acknowledgement of debt;
(2)$163,331 for the value of the surrender of the lease of the Paramata property; and
(3) deducting $56,550 due to the MRFT by Mr Rabson.
[45] In addition, in a letter to Mr Chapman dated 5 March 2012 Mr Rabson referred to being owed a further $250,001.16. Initially the Official Assignee and the plaintiffs thought this was an acknowledgement Mr Rabson was owed a further
$250,001.16 by the MRFT. The plaintiffs now appreciate that they and the
Official Assignee misunderstood Mr Rabson’s claims to Mr Chapman.
16 Shephard Dunphy Ltd v Casino Properties Ltd [2012] NZHC 261.
[46] Based upon her examination of Mr Parsons’ report and the information available to the Official Assignee, the Official Assignee made demands on the trustees of the MRFT for payment of the sum the Official Assignee then believed was owing to Mr Rabson, namely $1,325,000.16. Despite demand having been made the trustees declined to pay the amount claimed or any part of that sum.
[47] On 18 November 2013, the Official Assignee assigned all claims and causes
of action in Mr Rabson’s bankrupt estate to the plaintiffs.
[48] In December 2013, the plaintiffs commenced the current proceeding against Mr Rabson, the trustees of the MRFT and Mr Chapman, in his capacity as a trustee of the GRFT.
[49] As at 17 November 2014, Mr Chapman held on trust the sum of $158,990.95. By the time the hearing commenced that sum had been reduced to approximately
$139,000.
[50] On 1 April 2014, the trustees of the MRFT applied for summary judgment against the plaintiffs. That application was dismissed by the High Court on
26 September 2014.17
[51] The amended statement of claim seeks judgment against Mr Rabson for
$1,000,325.16. The plaintiffs also seek a declaration that they are entitled to payment of a distribution due to Mr Rabson by the trustee of the GRFT, and an order the third defendant pay that sum to them. The plaintiffs appreciate they are unlikely to receive anything like the amount they are owed, particularly as the third defendant is holding only approximately $139,000.
[52] Identifying the exact issues in this case has not been an easy task. This difficulty is due to the way Mr Rabson has conducted the litigation. It is clear Mr Rabson is convinced his present circumstances are due to the incompetence of
others and that he has been the victim of serious miscarriages of justice in the related
17 Shephard v Rabson [2014] NZHC 2371.
litigation. Mr Rabson is particularly critical of the way Mr Brierley discharged his professional responsibilities.
[53] At times Mr Rabson’s litigation strategy resembled that of a person playing “wheel of fortune”. He presented a spinning array of unconnected and at times conflicting points in an apparent hope that one might become the “jackpot”. For example, Mr Rabson alleges the deeds of acknowledgement of debt are wrong and that the financial statements for the MRFT are therefore unreliable. On the other hand, Mr Rabson says on behalf of the trustees of the MRFT that there is “no dispute the MRFT owed Malcolm Rabson a substantial sum of money as per the Court of
Appeal decisions …”.18 These contentions cannot be reconciled.
[54] In my assessment, the issues in this case can be conveniently distilled to two broad points. Although the two points I will focus upon reflect Mr Rabson’s arguments, I have not lost sight of the fact that ultimately the plaintiffs have the onus of proving their claim on the balance of probabilities.
[55] First, Mr Rabson says the deeds of acknowledgement of debt relied upon by Mr Parsons were “incorrectly and negligently prepared by a solicitor who agreed to rectify them and negligently failed to do so”.19 This aspect of Mr Rabson’s case is underpinned by the contention the deeds of acknowledgement of debt were always wrong because the money that was recorded as advances from Mr Rabson and Ms Gallagher to the MRFT was always an asset of the MRFT. I will deal with this aspect of Mr Rabson’s case under the heading “The deeds of acknowledgement of debt”.
[56] Second, in his capacity as a trustee of the MRFT, Mr Rabson says any money owed to him by the MRFT was repaid in full before the Official Assignee made her demands of the MRFT. Mr Rabson appears to suggest any payments made by the
MRFT or Casino either to Mr Rabson or on his behalf have discharged any debt
18 Submissions of second defendant, 29 November 2015 at [4].
19 Second defendant’s statement of defence to first amended statement of claim at [7]-[9] and [12]- [15].
owed by the MRFT to Mr Rabson.20 I will deal with this aspect of the case under the
heading “The Reconstructed Financial Statements”.
PART II ANALYSIS
The deeds of acknowledgement of debt
Previous decisions
[57] In both his personal capacity and as a trustee of the MRFT Mr Rabson has, in related litigation, challenged the validity of the deeds of acknowledgement of debt from the MRFT to himself and Ms Gallagher. It is Mr Rabson’s case that the deeds of acknowledgement of debt were an error because the Lotto prize money was won by the MRFT, not Mr Rabson and Ms Gallagher.
[58] Mr Rabson’s argument that the Lotto prize money was won by the MRFT has
been firmly rejected by the High Court and Court of Appeal.
[59] In his judgment, Wild J concluded:21
Having heard both parties’ evidence, I find that [Mr Rabson] purchased the winning Lotto ticket for the relationship, that is for himself and [Ms Gallagher]. I hold that the ticket was relationship property. Consequently, I hold that the $1,303,939 Lotto prize winnings were also relationship property.
[60] Wild J’s reasons for reaching this conclusion can be distilled to the following
five points:
(1)The money used to purchase the Lotto ticket came from Mr Rabson, not the MRFT.
(2)Mr Rabson had not consulted the other trustee of the MRFT before purchasing the Lotto ticket.
20 Second defendant’s statement of defence to first amended statement of claim at [11]-[13].
21 LG v MER, above n 4, at [57].
(3)Ms Gallagher’s evidence clearly established that she and Mr Rabson bought Lotto tickets every week either separately or together and did so in their personal capacities.
(4)Mr Rabson claimed the Lotto prize in his own name and paid the money into his personal account and then transferred the Lotto prize winnings to two separate term deposit accounts, which were also in his name.
(5)The Lotto money was used to purchase three properties. The properties were purchased in the name of the MRFT with deeds of acknowledgement of debt to Mr Rabson and Ms Gallagher for sums that in total were similar to the Lotto prize money.
[61] In relation to the point I have summarised in paragraph [60](5), Wild J heard evidence from Mr Brierley and concluded:22
Mr Brierley was firm in his understanding, certainly by the time [Mr Rabson] and [Ms Gallagher] purchased the second property (the Paraparaumu one), that they were treating the Lotto winnings as advances by them jointly to the MRFT. They put the three properties into the MRFT because that was the only trust at the time. However, contemporaneously, steps were taken to ensure that [Ms Gallagher] had a beneficial entitlement under the MRFT, and also to appoint her a trustee. The result was that both [Mr Rabson] and [Ms Gallagher] would, as beneficiaries, share in the benefit of any capital appreciation of the properties owned by the MRFT.
[62] Wild J summarised this aspect of his judgment in the following way:23
To summarise, I find that the Acknowledgments of Debt reflected the intentions of [Mr Rabson] and [Ms Gallagher] at the time, and were advisedly entered into by [Mr Rabson] and [Ms Gallagher]. In those circumstances, … I consider [Mr Rabson] and [Ms Gallagher] should be held to those Deeds of Acknowledgment of Debt.
[63] In relation to the deeds of acknowledgement of debt dated 4 April 2002,
8 November 2002 and 14 February 2003, Wild J held that:24
22 LG v MER, above n 4, at [73].
23 At [106].
24 At [107].
In legal terms, I consider estoppel by deed (strictly, three estoppels by three successive deeds) operates against each of [Mr Rabson and Ms Gallagher]. In particular, it operates against [Mr Rabson] who cannot now dispute the accuracy of the contents of the Deeds, in reliance on which he and [Ms Gallagher] advanced $1,351,500 to the MRFT and the MRFT proceeded with the purchases referred to … I am, of course, particularly concerned with the position of [Ms Gallagher]; [Mr Rabson] seems content now to disregard the Deeds.
[64] In relation to the 2004 deed of acknowledgement of debt for the Court adjusted sum of $163,331, Wild J held that:25
… Although I have held that the Memorandum of Surrender of Lease was ineffective to create a leasehold interest in favour of [Ms Gallagher], there seems no reason why the related Deed of Acknowledgment of Debt signed on the same date should not be regarded as an effective stipulation of the terms on which the Trustees of the MRFT are indebted to [Ms Gallagher] in the sum of $163,331.
[65] The Court of Appeal upheld these aspects of the judgment of Wild J. The
Court of Appeal said:26
… It is true there were some drafting errors in the deeds, but they are clear in their terms. Mr Rabson said he did not read them before signing them but whether that is so or not, they were drafted by his lawyer on his instructions and we agree with the trial Judge that they correctly reflected those instructions. In short, they meant what they said and were binding on the parties to them.
It is not clear to us that estoppel by deed adds anything to the more straightforward proposition that Mr Rabson was bound by the deeds and that his assertions that the transactions were otherwise than as provided in the deeds were not credible …
[66] The Court of Appeal also said:27
The Judge found that these acknowledgements of debt were enforceable in accordance with the terms and we confer with that finding.
The evidence
[67] Notwithstanding these comprehensive factual and legal findings by the
High Court and Court of Appeal, Mr Rabson has again challenged Mr Brierley’s
evidence and competence. Mr Brierley was subpoenaed as a witness for Mr Rabson.
25 LG v MER, above n 4, at [135].
26 R v G; G v R [Lottery winnings], above n 5, at [84]-[85].
27 At [68].
Even though Mr Brierley was called as Mr Rabson’s witness, Mr Brierley was cross- examined by Mr Rabson for almost an entire day. Mr Rabson’s cross-examined Mr Brierley about two file notes made by Mr Brierley. One file note is dated
19 September 2003. The second file note is dated 20 October 2003. The two file notes are expressed in similar terms. According to Mr Rabson those file notes contained an acknowledgement by Mr Brierley that the deeds of acknowledgement of debt were wrong and that Mr Brierley had undertaken to remedy his error so as to ensure there could be no doubt the MRFT was not indebted to Mr Rabson and Ms Gallagher for a sum that closely approximated the Lotto prize money. Mr Rabson submitted Mr Brierley’s file notes were new evidence and that if Wild J had been aware of those file notes he would not have concluded the Lotto prize money was won by Mr Rabson and Ms Gallagher. Mr Rabson believes that Wild J would have been bound to conclude the Lotto prize money was won by the MRFT if he had seen the file notes now relied upon by Mr Rabson.
[68] There are two factual reasons why this aspect of Mr Rabson’s case is
misconceived.
[69] First, it is very clear from Wild J’s judgment that he was aware of Mr Brierley’s file notes dated 19 September 2003 and 20 October 2003. Part of the file note dated 19 September 2003 is set out in paragraph [32] of Wild J’s judgment. The file note dated 20 October 2003 is set out in full in paragraph [34] of Wild J’s judgment. The file notes relied upon by Mr Rabson are not new evidence.
[70] Second, notwithstanding Mr Rabson’s strident criticisms of Mr Brierley, in my assessment Mr Brierley was clear in his evidence when he explained his file notes reflected Mr Rabson’s change of tact in September 2003 concerning the original ownership of the Lotto prize money. That change of tact involved Mr Rabson wanting to ensure the Lotto prize money was treated as having always been the property of the MRFT and not relationship property. The file notes are not an acknowledgement of error on the part of Mr Brierley when preparing the deeds of acknowledgement of debt.
[71] Mr Brieley’s evidence on this point was entirely consistent with the evidence he gave before Wild J and is a logical explanation when the surrounding circumstances are carefully evaluated. Those surrounding circumstances include the five points made by Wild J when he concluded the Lotto ticket was not purchased by the MRFT.
Issue estoppel
[72] These factual findings render it unnecessary to analyse in any depth the legal arguments advanced by the plaintiffs when they submitted Mr Rabson was prevented from challenging the accuracy of the deeds of acknowledgement of debt.
[73] The plaintiffs submitted Mr Rabson was precluded by the doctrine of issue estoppel from challenging the deeds of acknowledgement of debt. They say that Mr Rabson’s claims about the validity and binding effect of the deeds of acknowledgement of debt have been previously heard and determined by the High Court and the Court of Appeal and that both Courts have found against Mr Rabson on this issue.
[74] In Shiels v Blakeley,28 the Court of Appeal said that issue estoppel will arise where:
(1)a party seeks to re-litigate an issue that has previously been determined by a court or tribunal of competent jurisdiction; and
(2)the parties are the same as in the proceeding in which the issue was previously determined.
[75] Although not argued by Mr Rabson, there may be an issue as to whether the parties in the current proceeding are the same parties in the case determined by Wild J. I accept the plaintiffs are the successors in title to all claims and causes of action in Mr Rabson’s bankrupt estate. However, the case heard by Wild J involved at its most basic level a relationship property dispute between Mr Rabson and
Ms Gallagher. Ms Gallagher is not a party to the case which I am required to decide.
28 Shiels v Blakeley [1986] 2 NZLR 262 (CA).
[76] I put to one side, however, the question of whether or not Ms Gallagher’s absence from this proceeding affects the application of the doctrine of issue estoppel because in my assessment there would be a clearer legal pathway for the plaintiffs if it were necessary for me to determine that as a matter of law Mr Rabson was barred from challenging the validity of the deeds of acknowledgement of debt. That pathway would have involved me deciding that it is an abuse of process for Mr Rabson to attempt to collaterally challenge the findings of Wild J upheld by the Court of Appeal in which it has been determined the deeds of acknowledgement of debt are valid and binding.
Abuse of process
[77] In Hunter v Chief Constable of the West Midlands Police29 Diplock LJ explained that it was an impermissible abuse of the processes of a civil court for a plaintiff to collaterally attack findings of a court of competent criminal jurisdiction. A similar approach was taken by the Privy Council in W v W.30 As a matter of principle, the same reasoning applies when an issue in dispute has previously been considered and determined by a competent court exercising its civil jurisdiction.
[78] Had it been necessary for me to do so, I would have concluded that it was an impermissible abuse of process for Mr Rabson to attempt to collaterally challenge the findings of the High Court and Court of Appeal in which it was held that the deeds of acknowledgement of debt were valid and binding. It has not been necessary for me to take that step because the new evidence which Mr Rabson attempts to rely upon is not new evidence and falls well short of raising any basis for revisiting the conclusions reached by Wild J and the Court of Appeal, even if it were legally possible to do so.
The Reconstructed Financial Statements
[79] There are two parts to Mr Rabson’s challenge to the accuracy of the
reconstructed financial statements prepared by Mr Parsons which the
Official Assignee relied upon when issuing her demands to the MRFT.
29 Hunter v Chief Constable of the West Midlands Police [1982] AC 529 (HL).
30 W v W [1999] 2 NZLR 1 (PC).
8 November 2002: deed of acknowledgement of debt
[80] Mr Rabson drew attention to the error in the 8 November 2002 deed of acknowledgement of debt, which refers to the debt as being “one hundred and twenty-seven thousand ($283,750)”.
[81] I am in no doubt the figure in numerals in the 8 November 2002 deed is the correct figure. That deed related to the purchase of the Paraparaumu property for
$567,500. Mr Rabson’s half share loan to the MRFT for the purchase of that
property was $283,750.
[82] Mr Brierley explained that all the deeds of acknowledgement of debt referred to in this judgment were prepared at the same time and signed on 10 July 2003. He explained an error occurred in the word processing system when the deeds of acknowledgement of debt were prepared. As a consequence of that error, the
8 November 2002 deed partially reproduced the corresponding clause in the 4 April
2002 deed of acknowledgement of debt.
[83] Mr Rabson cross-examined Mr Parsons about this issue. Mr Parsons initially said he assumed the written figure in the 8 November 2002 deed was the correct level of debt. Later Mr Parsons appreciated the correct figure in the 8 November
2002 deed of acknowledgement of debt was $283,750. Mr Parsons’ alleged error, that the debt was $127,000, does not assist Mr Rabson, because if Mr Parsons made a mistake then it was to understate rather than overstate the level of debt the MRFT owed Mr Rabson in relation to the purchase of the Paraparaumu property.
Discharging of debt
[84] Mr Rabson relied on a list of payments made by Casino to Mr Rabson totalling $1.3 million. Evidence of the records of those payments was presented by Mr Creser. Mr Rabson submitted the MRFT repaid the debt owed to him via the sums which were paid to him by Casino. There are five key reasons why I am satisfied Mr Parsons’ reconstruction of the financial statements of the MRFT are correct and why Mr Rabson is wrong when he attempts to claim the debt owed to him by the MRFT has been repaid.
[85] First, Mr Rabson has consistently argued in this and related litigation that the Lotto prize money was always the property of the MRFT and that the deeds of acknowledgement of debt I have referred to in this judgment were a mistake. It is therefore highly unlikely Casino would have paid $1.3 million to Mr Rabson to settle a debt owed to him by the MRFT if Mr Rabson believed the MRFT did not owe him
$1.3 million.
[86] Second, I am very sure that Mr Rabson cleared Casino’s bank account just prior to Casino being placed into liquidation as a result of its failure to pay court costs to Shephard Dunphy. He did so to prevent Shephard Dunphy Ltd being paid.
[87] Third, if Casino had repaid a legitimate debt to the MRFT and if the MRFT had in turn legitimately repaid Mr Rabson, one would expect the total assets and total liabilities of the MRFT would be reduced accordingly. However, the financial records for the MRFT do not support Mr Rabson’s claim that substantial payments were made by the MRFT to settle its debt to Mr Rabson:
(1)The statement of financial position of the MRFT as at 31 March 2009 showed total liabilities amounting to $442,136.
(2) According to the MRFT tax return for the year ending 31 March
2010, its total liabilities were $409,803.
(3) According to the MRFT’s tax returns for the year ending 31 March
2011, its total liabilities were $437,013.
(4) According to the MRFT tax returns for the year ending 31 March
2012, its total liabilities were $344,554. That figure was unchanged in the tax return for the MRFT in the following year.
[88] Fourth, the payments of $1.3 million from Casino are described in Casino’s
general ledger as advances, not repayments of debt.
[89] Fifth, Mr Creser’s evidence did not assist me. He told me he had satisfied
himself the debt owed by the MRFT to Mr Rabson had been repaid. However,
Mr Creser was not involved in authorising Casino to pay money directly to Mr Rabson. Mr Creser’s role as a trustee appeared to be confined to getting financial information up to date so that returns could be filed with the Inland Revenue Department. The information in the tax returns to which I have referred is not consistent with the proposition that Casino made substantial payments to Mr Rabson on behalf of the MRFT.
[90] I am satisfied Mr Rabson has endeavoured to construct an explanation for helping himself to substantial sums of money held by Casino in an effort to avoid Casino’s creditors being paid. I am also very satisfied that the payments which Mr Rabson received from Casino had nothing to do with the debt owed to him by the MRFT and that Mr Parsons has painstakingly and accurately reconstructed the financial statements for the MRFT and properly concluded that the MRFT owed Mr Rabson $782,531.
Relief
[91] In their amended statement of claim the plaintiffs sought judgment against
Mr Rabson in the sum of $1,032,582.16. This sum comprised the $782,531
Mr Parsons concluded was owed to Mr Rabson by the MRFT as at 31 March 2009 plus the $250,001.16 Mr Rabson referred to in his letter to Mr Chapman.
[92] The plaintiffs now properly accept the sum of $250,001.16 could not have been owed by the MRFT to Mr Rabson and if that sum was due to Mr Rabson, then it was owing to him from the GRFT not the MRFT.
[93] I am satisfied Mr Parsons has properly concluded the MRFT owed Mr Rabson $782,531. Mr Rabson was unable to impeach Mr Parsons’ conclusions. I therefore issue judgment in favour of the plaintiffs against Mr Rabson for the sum of $782,531.
[94] I am also issuing the declaration sought by the plaintiffs to the effect they are entitled to receive payment from any funds held by the GRFT towards settling the judgment debt.
[95] My declaration concerning the GRFT is premised on my understanding the GRFT has made all payments required of it by the Court of Appeal to Ms Gallagher. If that has not occurred then those payments must be made before the third defendant pays any sum to the plaintiffs. In addition, the third defendant is entitled to deduct any reasonable fees and expenses he has incurred before making any payment to the plaintiffs.
[96] The plaintiffs are entitled to costs on a scale 2B basis against the first and second defendants.
D B Collins J
Solicitors:
McMahon Butterworth Thompson, Auckland for Plaintiffs
Buddle Findlay, Wellington for Third Defendant
5
4
0