Station Properties Limited v Lever Action Limited HC Auckland CIV 2009-404-354
[2009] NZHC 2598
•17 December 2009
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2009-404-000354
CIV 2009-404-356
CIV 2009-404-658
CIV 2009-404-665
CIV 2009-404-660
CIV 2009-404-662
CIV 2009-404-666
BETWEEN STATION PROPERTIES LIMITED Plaintiff
ANDLEVER ACTION LIMITED AND WILLIAM NEIL MCGARVEY First Defendants
ANDACE HIGH PROPERTY RENTALS LIMITED AND ALAN CHARLES HANSON
Second Defendants
ANDCHARLES OTWAY Third Defendants
ANDVIKRAM KUMAR AND NIRUPAMA KUMA
Fourth Defendants
Hearing: 28 July 2009
Appearances: J S Cooper and N J Christiansen for the Plaintiff
R Kelly and K Phillips for the Defendants
Judgment: 17 December 2009 at 9.30 am
JUDGMENT OF ASSOCIATE JUDGE ROBINSON
This judgment was delivered by me on 18 December 2009 at 9.30 am, Pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date…….
Solicitors: Carter Atmore Law, PO Box 68656, Auckland M Colthart, Barrister, PO Box 535, Auckland Bell Gully, PO Box 4199, Auckland
Wilkinson Adams, PO Box 803, Dunedin
STATION PROPERTIES LIMITED V LEVER ACTION LIMITED AND WILLIAM NEIL MCGARVEY AND ORS HC AK CIV 2009-404-000354 17 December 2009
AND
BETWEEN STATION PROPERTIES LIMITED
Plaintiff
AND ROBERT JAMES SELWYN
Defendant
CIV 2009-404-658
AND
BETWEEN STATION PROPERTIES LIMITED
Plaintiff
AND ALAN CHARLES HANSON
First Defendant
ANDACE HIGH PROPERTY RENTALS LIMITED
Second Defendant
CIV 2009-404-660
AND
BETWEEN STATION PROPERTIES LIMITED
Plaintiff
ANDMICHAEL DONALDSON and PATRICIA BRONWYN DONALDSON
Defendants
AND
BETWEEN STATION PROPERTIES LIMITED
Plaintiff
AND ANDREW ALLAN-JOHNS and
CHRISTINE ALLAN-JOHNS
Defendants
CIV 2009-404-666
AND
BETWEEN STATION PROPERTIES LIMITED
Plaintiff
AND VIKRAM KUMAR and
NIRUPAMA KUMAR
Defendants
CIV 2009-404-665
AND
BETWEEN STATION PROPERTIES LIMITED
Plaintiff
AND CHARLES OTWAY
Defendant
[1] The plaintiff Station Properties Ltd now in receivership developed a block of apartments known as the Bowen View Apartments at Queenstown. Each of the seven defendants have entered into agreements with Station Properties Ltd to purchase one of the apartments in the development. None of the defendants settled the purchase and Station Properties Limited in October 2008 has issued notices requiring them to settle. As the defendants have failed to settle their respective purchases following the service of the settlement notices Station Properties Limited brings proceedings against each defendant for summary judgment and in respect of six defendants orders for specific performance. In respect of the proceedings against Mr Otway, Station Properties Ltd claims damages as the agreement was cancelled following Mr Otway’s failure to settle the purchase.
[2] The agreements for sale and purchase of the apartments to each defendant are substantially the same. The defendants each have the same defence to the claim by Station Properties Limited. Consequently, by consent all proceedings for summary judgment against each defendant have been consolidated and dealt with at the same time at the hearing before me.
[3] Station Properties Limited is one of a number of companies established by Mr Robert McEwen. Other companies include Investors Forum Limited, a company undertaking investment education, professional service referrals and residential investment property sourcing services, Forum Select Bowen View Limited (Forum Select) a company established to raise money by way of an offer of redeemable preference shares for investment in Station Properties Limited, Edgar Developments Limited being the vendor of the land on which the Bowen View Development was built, McEwan Group Limited an umbrella company. Station Properties Limited was established by Mr Robert McEwan and his son Daniel McEwan to purchase the property on which the Bowen View apartments were built, arrange for the construction and the eventual sale of the apartments. Daniel McEwan or his nominee holds all the B shares in Station Properties Limited and is its sole director.
[4] Each of the defendants came to know Mr McEwan through their attendance at property investment seminars he ran on behalf of Investors Forum Limited. Those seminars included a two hour introductory meeting in which Mr McEwan:
a) Emphasised the risks of trying to invest without solid experienced professional support.
b)Emphasise the benefits of guidance and mentoring by persons who had proven strategies and a record of success.
c) Asserted that recommended investments were better propositions for property investment than suburban rental properties.
d)Claimed that the key to investment success was sourcing the right properties, giving examples of various people who had previously had up to twenty suburban rental properties but now were better off through the investors forum with five to six good quality investments.
e) Explained that he had developed a strategic formula for investment containing rules of investment and that the great benefit of being part of an investment network was access to that formula and his expert guidance.
They each say they were encouraged to trust Mr McEwan because of his practical knowledge of finance and property development.
[5] To join the Investors Forum each defendant payed a $5,000 membership fee. That membership fee entitled the defendant to be mentored and advised by Mr McEwan. The $5,000 membership fee was also a sourcing fee for Investors Forum to find, analyse and recommend developments suitable for investment. The fee was to be deducted from the cost of the first Investors Forum property each defendant invested in. There was a learning programme of one or two days together with seminars Each of the defendants was impressed by the presentation as is
evidenced by the fact that they joined Investors Forum by paying $5,000. Each trusted Mr McEwen to look after their interests.
[6] One of the mail outs received by the defendants from Investors Forum presented Forum’s Select Bowen View Limited as “Investors Forum Recommended Development” and proposed that it represented a good vehicle for investment. All but the third defendant, Charles Otway were offered redeemable preference shares in Forum Select Bowen View Limited. This was recommended as a sound investment because ownership of the redeemable preference shares carried with it entitlement to share in the profit of the development in Queenstown. The owner of the redeemable preference shares was also given a preferential right to purchase an apartment in the development. Acting on the recommendations of Mr McEwen all defendants other than Mr Otway purchased redeemable preference shares by investing $72,000 in Forum Select Bowen View Limited.
[7] Each of the defendants entered into an agreement in writing to purchase an apartment from Station Properties Limited in the Bowen View Development. Each agreement contained the following provision.
Notwithstanding anything to the contrary herein, the vendor shall have the right to cancel this contract without notice at any time. In the event of such cancellation the purchaser shall not have any right to compensation of any sort whatsoever.
[8] Under the heading “Purchasing” they were advised as follows:
Purchasing
As a shareholder in the project, you are not required to pay a deposit and are encouraged purchase a unit, provided it is done in the priority you invested (This is in place until 10th October, as delays in this process cost money. It is in everyone’s interest to move on with the project).
As an incentive to purchase, the project will pay a 1% purchasers fee (of the unit price only), pre settlement.
You can purchase in one of two ways;
1) Buy outright (you must delete the last special condition, clause 37.1 (cancel at anytime clause). This will allow all future gains to be yours with this investment unit which can’t be sold until after completion.
E.G.* Value
Unit say $700,000
Furniture + Aircon 30,000
Growth (assume 10%) $ 70,000
Value upon completion $800,000
Profit (pre Tax)
Development $ 85,000 - *estimation only for a $72,000 Share)
Purchasers Fee $ 7,000
Growth $ 70,000 - *historical evidence shows this
Total $162,000
2) Buy as an underwrite with the intention of the company selling. A “Gazump clause, Clause 37.1” has been inserted into the contract. This clause allows the development company to cancel your contract at any time. The purpose of this is if we can sell the unit for the same or more value this will benefit the project (this is at the companies discretion). The project will split the difference 50/50 with the original purchaser. This secures the project funding and as future sales occur increases the values. Contracts with a gazump clause are not unconditional we pay no sales commission – this commission is only paid to the final purchase sales person. When an offer is made you may either go unconditional on your purchase or agree for us to cancel the agreement and sell sharing the profit.
[9] Charles Otaway, the third defendant in or about 2004 which was a year after becoming a member of Investors Forum became a business development coordinator for Investors Forum. He received a business development coordinators training manual and attended business development co-ordinators sessions with Mr Dan McEwan every three months. During the course of those sessions Mr Dan McEwan gave him instructions about underwrite agreements. According to Mr Otway he was informed by Mr McEwan underwrite agreements were arranged to get the project off the ground. Once enough people had purchased or underwritten apartments construction finance would be obtained and the project could be marketed. A member entering into an underwrite agreement received a discount of up to 20% which included an underwrite fee of 10%. Mr Otway goes on to say:
Dan did not talk about the underwrite agreements having to be settled because he explained that people only had to underwrite agreements to get the project off the ground.
[10] Mr Otway’s agreement was signed on 17 May 2006 and provided for a deposit by issue of a deposit bond.
[11] Before he entered into the agreement Mr Otway received the following letter from Robert McEwan the director of Station Properties Limited:
We confirm that in consideration of you entering into a sale agreement with us on the terms contained therein in respect of the above unit and paying the deposit as set out therein either in cash or via a deposit bond acceptable to us, we will pay you an underwrite fee of $53,750 incl GST less deposit bond fee (if required) forthwith upon us receiving the first construction funding draw down for the Bowen View project from our financiers.
[12] Mr Otway also received a letter from Robert McEwan of the same date advising that on entering into the sale and purchase agreement with Station Properties Limited and settling the purchase in full Bowen View Construction Limited agrees to pay Mr Otway $107,500 including GST within one month after the date of settlement. That letter also provides:
We note that the vendor has a right to cancel, and if the vendor does so and settles the unit whilst in construction phase for higher than net (of commission etc) $1,075,000 the vendor will split the margin 50/50 with you.
[13] In terms of the agreement Mr Otway arranged for a deposit bond of $60,000 to qualify for the underwrite fee of which he received $15,000 on 27 March 2007.
[14] The agreement for sale and purchase executed by Lever Action Limited, one of the first defendants, is dated 13 September 2005. That agreement is executed by Mr McGarvey, the other first defendant, who is the director of Lever Action Limited.
[15] The following additional clause has been inserted in the agreement with the first defendants:
38 Purchaser to confirm by email that this contract is unconditional by
15 October 2005.
Before entering into the agreement he received an email from Natasha Addis on behalf of the McEwan Group advising of two methods which could be adopted to the purchasing of units in the Bowen View development. The first option was to purchase outright, the second was to buy as an underwrite. In respect of that option Miss Addis included the following explanation:
2. Buy as an underwrite with the intention of the company selling, “gazump clause 37.1.” has been inserted into the contract. This clause allows
the development company to cancel your contract at any time. The purpose of this is if we can sell the unit with the same or more value this will benefit the project (this is at the company’s discretion). The project will split the difference 50/50 with the original purchaser. This secures the project funding and as future sales occur increases the value. Contracts with a gazump clause are not unconditional we pay no sales commission – this commission is only paid to the final purchase sales person. When an offer is made you may either go unconditional on your purchase or agree to us to cancel the agreement and sell sharing the profit.
[16] In reply Mr McGarvey advised Miss Addis as follows:
My intention remains to buy as an underwrite (option 2) as my financial status will be uncertain over the next couple of years and although I would like to own the apartment outright myself, I need to retain the flexibility of selling it before completion due to doubt over obtaining finance. If Kelly has any comment on this or an alternate option then please let me know.
[17] By email dated 11 October 2005 to Miss Addis, Mr McGarvey advised that the agreement for sale and purchase had become unconditional as per clause 38. In that respect he advised Miss Addis as follows:
Having sought legal advice, I can now confirm that I do wish the sale and purchase agreement for unit PU3 Bowen View to become unconditional as per clause 38. Davenports will contact your solicitor to officially inform them, and to obtain a duplicate signed copy of the agreement. Looking forward to the continued success of the project.
[18] When one of the second defendants, Ace High Property Rentals Limited entered into the agreement on 26 May 2005 the following was added to paragraph
37.1:
Purchase under the gazump clause buy as an underwrite as per letter covering shareholders options.
That provision appears to relate to the email he received from Miss Addis which was in fact sent to all defendants other than Mr Otway. The email concerned is the same as the email received by Mr McGarvey and referred to earlier in this judgment and concludes with the comment that:
When an offer is made you may either go unconditional on your purchase or agree for us to cancel the agreement and sell sharing the profit.
[19] This email confirms the evidence of the defendants to the effect that it was planned to sell the whole development en mass to a third party and consequently the
defendants would not have to complete their respective purchases. That was the reason for clause 37 which was explained as being a gazump clause. It was explained that this meant the contract could be cancelled to permit a sale to a third party. A consequence would be that each defendant would share in the profit from that sale. Each defendant claims to have been assured that they would not have to settle the purchase as they would be protected by clause 37. It was explained to them that buying as an “underwrite purchaser” just entitled them to a right to share in the profit attributable to the apartment referred to in the agreement in return for helping to get finance approval.
[20] Paragraph 2 of the email of 20 September 2005 clearly misrepresents the effect of clause 37 by suggesting that the purchasers under that clause could when Station Properties Limited receives an offer on the unit from a third party “either go unconditional on your purchase or agree to us to cancel the agreement and sell share in the profit”. The wording of paragraph 2 of the email of 20 September suggests that the contracts entered into by the defendants are conditional by stating that “contracts with gazump clause are not unconditional”.
[21] It can hardly be said having regard to the contents of the email of 20
September 2005 that the defendants have no basis for their belief that they were not entering into an agreement that would bind them to purchase the units. The issue I have to decide is whether such belief in these circumstances affords a defence having regard to the wording of the contract each defendant signed.
[22] The agreements for sale to the fourth defendants, fifth defendants, sixth defendants and seventh defendants are in all relevant respects the same as the agreement for sale to the second defendants and include clause 37.1.
Case for the Plaintiff in support of application for summary judgment
[23] In support of the application for summary judgment the plaintiff relies upon the provisions of the agreement for sale and purchase entered into by each defendant. In particular the plaintiff points out that clause 37.1 entitles the vendor but not the purchaser to cancel the contract.
[24] It is emphasised that pursuant to clause 33.1 of the agreements for sale and purchase:
The purchaser enters into this agreement entirely on reliance on the purchasers own judgment and not in reliance upon any statement, representation, advertising, brochures or warranty made by the vendor or the vendor’s agent….the purchaser acknowledges that this agreement constitutes the entire agreement between the parties.
[25] Each of the defendants was encouraged to obtain independent advice. Immediately above the place for signature on the agreements is the following notice:
Notice to All Purchasers
This is an important document. You should seek independent professional advice before signing.
[26] It is also pointed out that the email from Miss Addis of 20 September 2005 includes the following:
We make no warranties or representations, express or implied, concerning the accurateness or completeness of this information. This document is subject to errors, omissions, incorrect assumptions, changing markets and other conditions.
[27] It is further submitted that the defence based on Mr McEwan’s misleading and deceptive conduct cannot succeed. Such misconduct was not engaged by Mr McEwan on behalf of the plaintiff but on behalf of himself and Investors Forum in response to the defence that Mr McEwan used language and strategy designed to obscure to the defendants the true nature of the commitments he was advising them to make, it is pointed out that the terms of clause 37 of the agreement for sale and purchase are very clear and plain. Furthermore, it is submitted to be clearly inconsistent with the fact that the defendants were entitled to a fee if the agreements placed no binding obligations on them.
[28] It is also submitted that having regard to the circumstances including clause
33.1 of the agreements for sale and purchase there can be no misrepresentation by the plaintiff. That can provide a remedy under the Contractual Remedies Act 1979.
[29] With regard to the claim against the first defendants it is pointed out that the first defendants added a further clause to the agreement making the agreement
conditional upon the first defendants confirming the agreement by email by
15 October 2005. Furthermore, such confirmation was given after the defendants had received independent legal advice.
[30] It is further pointed out that with regard to the sale to the third defendant, Charles Otway there was what could be described as a side deal for Mr Otway to receive a further underwrite fee of $53,700 and payment from Bowen View of
$107,500 if the purchase settled. Reference is made to Mr Otway being advised that Dan was “almost 100% certain” that the whole development would be sold prior to settlement.
[31] In reply to the claim by the defendants that the application for summary judgment should be struck out because Mr McEwan who swore the affidavit in support of the application is no longer a director of the company it is pointed out that at the time the affidavit was sworn Mr McEwan was a director of the company. The affidavit sworn by Mr McEwan in respect of each application for summary judgment complies with the rules and consequently the defendants application to strike out the application for summary judgment cannot succeed on that ground.
Case for defendants
[32] The defendants point out that following Mr McEwan’s bankruptcy on 26
February 2009 he could no longer qualify as being entitled to swear the application in support of the application for summary judgment. Reliance is placed on s 84(2) Evidence Act 2006 which provides:
If a witness gives evidence in an affidavit or by reading a written statement in a Court room, it is treated for the purpose of this Act as evidence given in chief.
[33] It is submitted that evidence in Chief can only be given at the hearing and that by reason of s 84(2) the evidence given by way of affidavit must be current as at the date of hearing when it becomes accepted as evidence in chief. Furthermore, it is submitted that because Mr McEwan has in the past been found to be an unreliable
witness the Court should not accept his evidence and in particular his claim that the defendants have no defence.
[34] It is further submitted that a fiduciary relationship has arisen between Mr McEwan acting on behalf of the plaintiff on the one part and the defendants. That relationship is based on evidence that Mr McEwan has conducted seminars and for a substantial consideration has been advising the defendants on financial investments. It is also submitted that Station Properties Limited and its agents has been guilty of misleading and deceptive conduct and in particular has mislead the defendants as to the terms of their underwrite agreements. It is claimed that Station Properties Limited and its agents represented the underwrite agreement to each defendant on the basis that the defendant concerned would not be required to purchase the property in the event of the plaintiff being unable to sell the property to a third person. Consequently, the defendants have a valid defence to the claim.
Decision
[35] Rule 12.4(5) contains the following provision relating to the affidavit to be sworn and filed in support of an application for summary judgment:
(5) The Affidavit
(a) must be by or on behalf of the person making the application:
(b) if given by or on behalf of the plaintiff, must verify the allegations in the statement of claim to which it is alleged that the defendant has no defence, and must depose to the belief of the person making the affidavit that the defendant has no defence to the allegations and set out the grounds of that belief:
(c) if given by or on behalf of the defendant, must show why none of the causes of action in the plaintiff’s statement of claim can succeed.
[36] It is not suggested that Mr McEwan did not have personal knowledge of the facts in issue. Indeed all defendants confirm that Mr McEwan was very closely involved in this transaction. Nor is it contended that at the time he swore the affidavits Mr McEwan was not a director of Station Properties Limited. Consequently, at the time the affidavits were sworn Mr McEwan was qualified as a
director to give evidence in support of the plaintiff’s applications for summary judgment.
[37] I am satisfied that a change in Mr McEwan’s status as director since the filing of his affidavit does not prevent the Court from using the evidence contained in that affidavit in support of the application for summary judgment.
[38] The flaw in the defendants argument is that Mr McEwan’s change in status arising from his bankruptcy on 26 February 2009 which resulted in him being disqualified to be a director of a company does not and cannot affect his belief that the defendants have no defence to the plaintiff’s claim or his personal knowledge of the dealings between the plaintiffs and each defendant. His bankruptcy does not disqualify him from being a witness.
[39] If the defendants establish by their evidence that they have a potential defence then the application for summary judgment must be dismissed. Failing such evidence the Court can enter summary judgment, the fact that Mr McEwan’s evidence has not been accepted in other proceedings being completely irrelevant.
[40] Consequently, I conclude that the applications for summary judgment should not be dismissed because of any change of Mr McEwan’s status since he filed the affidavits.
[41] Although these proceedings against all defendants have been consolidated for reasons which will become apparent I am satisfied that different considerations must apply to the applications for summary judgment against the first and third defendants.
[42] The applications for summary judgment against the remaining defendants namely the second, fourth, fifth, sixth and seventh defendants all have the following common facts:
a) The agreements were all signed on 6 May 2006, provided for a deposit of $1 and contained paragraph 37.1, details of which are set
forth earlier in this judgment. In addition, the second defendant had referred to clause 37.1 as being purchase under the gazump clause and referred to a letter covering shareholders options.
b)In each case the defendants had received the email from Miss Addis on behalf of the plaintiff which inter alia pointed out:
When an offer is made you may either go unconditional on your purchase or agree for us to cancel the agreement and sell sharing the profit.
c) Each defendant deposes to being assured by Mr McEwan on behalf of [43]
Thus
the plaintiff that they would not be called upon to settle the purchase.
there is evidence of a misrepresentation by Miss Addis and
Mr McEwan on behalf of the plaintiff that the agreement entered into by the defendants would not compel the defendants to settle the purchase. However, such misrepresentation being a misrepresentation as to law cannot found in action merely because it is wrong. However, such a restriction does not apply to a defence based on s 9 Fair Trading Act 1986. That section provides as follows:
Misleading and deceptive conduct generally
No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
[44] Evidence of misleading conduct in the case of the five defendants includes the email from Miss Addis of 20 September 2005. Reference to the intended purchaser having the right to elect to go unconditional when an offer is made by a third party to purchase the unit carries with it the inference that until that time the agreement is conditional and the purchaser is not bound to complete. This is emphasised by the statement that “contracts with a gazump clause are not unconditional”. There is clear evidence that the defendants concerned were influenced by this misrepresentation. Consequently, pursuant to s 43(2)(a) the Court could declare the agreement entered into by these defendants to be void abinitio.
[45] It follows therefore that the defendants may have a defence to the plaintiffs claim based on the provisions of the Fair Trading Act to which I have referred.
Consequently, the applications for summary judgment against those defendants must be dismissed.
[46] In contrast with the position concerning the five defendants referred to above the defence in respect of the Fair Trading Act cannot apply to the proceedings against Lever Action Limited and Mr McGarvey, the first defendants. Mr McGarvey obtained independent legal advice before he elected to make the contract unconditional. If he believed he would not be required to settle until the contract had become unconditional on the plaintiff arranging a sale to a third party then it is surprising that his solicitor did not advise him to cancel the contract. In the circumstances as the first defendant did have independent legal advice and elected to proceed after receiving such advice, the first defendant can have no defence to the claim for summary judgment. Consequently, there will be an order requiring the first defendant to specifically perform the contract. Such order however must be confined to Lever Action Limited as the purchaser. Mr McGarvey may be liable as guarantor although I note that he did not execute the contract in this capacity. However, application for summary judgment against Mr McGarvey will be adjourned pending the outcome of the order for specific performance made against Lever Action Limited.
[47] With regard to the application for summary judgment against Charles Otway the evidence establishes that Mr Otway received special treatment in that he received a significant fee for entering into the underwrite agreement and did not receive the email of 20 September 2005 from Miss Addis. There were substantial financial inducements offered and accepted by Mr Otway to enter into the contract. Whilst I accept that Mr McEwan was extremely confident of achieving a sale of these units to third parties in the case of Mr Otway I am satisfied that there was no guarantee of such sale with the resulting risk that Mr Otway would be required to purchase. He was receiving a substantial fee for underwriting the agreement together with a substantial discount on settling.
[48] His claim that he did not believe he would have to settle the purchase is inconsistent with his acceptance of an underwrite fee of $53,750 including GST. Consequently, I find his evidence so lacking in precision and inconsistent with
undisputed contemporary documents as to fall within the type of evidence that should not be accepted by the Court in connection with applications of this sort referred to in Eng Mee Young v Letchumanan [1980] AC 331 at 341. In the circumstances therefore there will be summary judgment entered against Mr Otway as to liability. There is no evidence of the loss sustained by the plaintiff and the proceedings will need to be adjourned for that purpose.
Costs
[49] The defendants all sought orders for costs against the plaintiff. In respect of those defendants whose defence has been successful I am satisfied that there are no good grounds to depart from the normal rule set forth in NZI Bank Limited v Philpott [1990] 2 NZLR 403. Consequently, costs will be reserved in respect of those defendants.
[50] The plaintiff is entitled to costs against the first and third defendants as the plaintiffs claim has been successful. Accordingly there will be an order that those defendants pay the plaintiff’s costs on a 2B basis with disbursements as fixed by the
registrar.
Associate Judge Robinson
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