Syas Limited v Soundararajan
[2022] NZHC 1872
•1 August 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-2462
[2022] NZHC 1872
UNDER Section 143 of the Land Transfer Act 2021 and Rule 19.2 of the High Court Rules 2016 IN THE MATTER
of an application under s 143 of the Land Transfer Act 2017
BETWEEN
SYAS LIMITED
Applicant
AND
SHEBA SOUNDARARAJAN
Respondent
Hearing: 9 May 2022 Appearances:
BP Molloy and CPdS Tatley for the Applicant DA Campbell for the Respondent
Judgment:
1 August 2022
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 1 August 2022 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Haigh Lyan & Co, Auckland Dentons Kensington Swan, Auckland
SYAS LTD v SOUNDARARAJAN [2022] NZHC 1872 [1 August 2022]
Introduction
[1] The applicant, SYAS Limited, seeks to maintain a caveat registered against the title to 50 Lillington Road, Remuera, Auckland (Property). The interest described on the caveat is a beneficial interest in the land under an express trust, created by the deed of declaration of bare trust dated 15 September 2020 (Deed).
[2] There is no dispute between the parties that they were involved in a joint venture and that the Deed referred to in the caveat was one of the documents entered into as part of that joint venture. The question is whether any interest the applicant had in the property was extinguished by agreement on 30 May 2021. On that date the director of the applicant sent an email to the respondent following a meeting the previous day, including the following:
Having heard [Ms Soundararajan’s] concerns yesterday and slept on it, I have come to the decision today to release [Ms Soundararajan] from the current joint venture contract with immediate effect.
[3] The applicant says that this was only a release of the joint venture contract itself and not the Deed on which the caveat relies. The respondent, in contrast, says that by this email any interest that the applicant had in the Property was unequivocally extinguished, with the release bringing the joint venture between the parties to an end and leaving the parties free to negotiate a further joint venture on a “fresh start” basis.
Issue
[4] The issue is whether the 30 May 2021 email extinguished the applicant’s interest in the property.
Factual background
[5] As set out above, there is no dispute that there was a joint venture to develop the Property.
[6] The contractual arrangements for the joint venture were entered into over nearly seven months. The documents included the following:
(a)a joint venture contract dated 4 August 2020;
(b)a deed of declaration of bare trust dated 15 September 2020 (Deed);
(c)an agreement to exchange interests dated 3 February 2021;
(d)a variation of the contract agreement dated 19 February 2021;
(e)a shareholder loan agreement dated 25 February 2021; and
(f)a sale and purchase agreement dated 25 February 2021.
[7] The Deed was entered into between the respondent, Sheba Soundararajan, as bare trustee, and the applicant, SYAS Limited, as beneficiary. Clause 2.1 recorded that the bare trustee agreed to hold the Property in her name at the instructions of the beneficiary, and that the bare trustee declares the Property will be held on trust (and continue to be held) for the beneficiary. Clause 7 further provided:
The Bare Trustee [Ms Soundararajan] shall accept and follow any instruction or direction from the Beneficiary [SYAS].
[8] The variation of the joint venture agreement was entered into between Mr McIntyre and Ms Soundararajan and followed the parting of ways between the applicant’s director, Stephen McIntyre, and Anthony Corin, his former business partner. The variation recorded that the ownership structure of the joint venture would change to the following:
(a)The company through which the project was to be owned and developed would be a company called Urban Residential Limited (to be incorporated):
(i)Mr McIntyre’s share in Urban Residential would be owned by Jacinth Properties Limited; and
(ii)Ms Soundararajan’s share in Urban Residential would be held in Mr McIntyre’s name with a bare trustee agreement to be entered into between Mr McIntyre, as trustee, and
Ms Soundararajan as beneficiary (with rights to transfer the shares to herself or to any of her family).
(b)Mr McIntyre would be the director of Urban Residential.
(c)A shareholder agreement would be entered into between Mr McIntyre and Ms Soundararajan providing for Ms Soundararajan to have access to the company records, bank accounts, costs of construction, quotes and any other relevant information relating to Urban Residential’s activities.
(d)Redfox Consulting would be the project manager.
(e)A project management fee of $4,583.83 plus GST would be payable to Mr McIntyre commencing from 20th February 2021 for a duration of 15 months.
(f)Each party would bear interest (and the fee) for their portion of the finance up to $1,200,000 with interest on construction funding beyond
$1,200,000 to be a shared expense of the joint venture company, Urban Residential.
[9] Urban Residential was incorporated on 22 February 2021 consistent with the variation of the joint venture agreement. The shareholdings in this company were held 50 per cent by Jacinth Properties Limited as agreed and 50 per cent directly by Ms Soundararajan, rather than pursuant to a bare trust as agreed in the variation agreement.
[10] On 25 February 2021 an agreement for sale and purchase was entered into between Ms Soundararajan as the vendor and Urban Residential as the purchaser in respect of the Property. The further terms of sale in the agreement for sale and purchase provided as follows (including initialled, handwritten amendments):
20. It is acknowledged and agreed by the parties that:
(a)The Vendor is providing the Property as part of the Joint Venture Agreement made between the Vendor and Stephen McIntyre dated 4 August 2020 (signed 7 August 2020, and later updated by variation dated 3 February 2021) (JV Agreement).
(b)Settlement of this Agreement will be effected as soon as possible and, in any event, no later than 1 March 2021.
(c)The Vendor shall provide Vendor Loan Finance to the Purchaser pursuant to the Shareholder Loan Agreement executed by the Vendor and Purchaser on or around the date of this Agreement (Loan). The Loan is for the sum of $1,200,000 (including GST), being the Purchase Price.
(d)The Loan will be advanced by way of transfer of ownership in the Property from the Vendor to the Purchaser on Settlement.
(e)Subject to the requirements of the Purchaser’s lender, the Vendor may register a second mortgage over the Property to secure the Loan (Mortgage). The Loan will rank second in priority to the Purchaser’s lender’s first mortgage.
(f)The priority sum of the Mortgage shall be limited to the amount of the Loan.
(g)The Purchaser shall repay the Loan to the Vendor after the first mortgage has been paid off. Any distribution to shareholders to be made only after all mortgages are fully paid and settled.
[11] On the same date, 25 February 2021, Ms Soundararajan and Urban Residential entered into a shareholder loan agreement with Ms Soundararajan as lender and Urban Residential as borrower. Clause 2.1 of the loan agreement recorded: “Promptly following execution of this Agreement, and subject to its terms, the Lender shall transfer ownership of the Property to the Borrower”. Successful completion of this transfer was to be accepted by Urban Residential as a full advance of the loan. The loan agreement includes a definition of “joint venture agreement” and refers to it in the background but not in the operative terms.
[12] Sadly, almost immediately after the variation of the joint venture was executed, Ms Soundararajan’s husband had a car accident that ultimately led to his death. During this time and in the aftermath of his passing, Ms Soundararajan says she was unable to pay close attention to the details of the joint venture and entrusted its administration to Mr McIntyre.
[13] Ms Soundararajan’s evidence is that she first became uncomfortable with the terms of the joint venture when she received a document stating that her investment would only be repaid once the sale of the final townhouse built as part of the property development had been sold. Ms Soundararajan’s evidence is that when she queried
Mr McIntyre on these terms, he said they were a mistake and she should not worry about them. This dealing made Ms Soundararajan uncomfortable and caused her to reconsider her dealings with Mr McIntyre.
[14] Various other issues arose including in relation to the rental of the property and Mr McIntyre’s management of that. This led to a meeting on 29 May 2021 between Mr McIntyre, Daran Nair, Arvind Nair and Ms Soundararajan. Daran Nair is Ms Soundararajan’s accountant and Arvind Nair is her solicitor. The evidence of the parties as to what happened at this meeting is set out below.
[15]Mr McIntyre’s further affidavit sworn on 21 January 2022 says:
69.At this meeting, the respondent expressed her discontent with current form of the JV Agreement, that was unfair to her. The respondent said:
“We’re going to send a letter to say it [The JV] is off.”
70.I responded to the respondent saying that:
“Don’t send a letter like that because then I’ll be forced to act in a certain way.”
…
73.At the end of the meeting, I asked the respondent:
“Do you still want to work with me?”
74.The respondent replied:
“Yes. I’m not trying to get you out of your share. I just want a fair shareholders agreement.”
[16]Ms Soundararajan says in her affidavit:
35.I told Mr McIntyre that I wanted to bring the relationship to an end and that if we could agree that I would consider a further agreement on fair terms.
36.Between us (me, Daran, and Arvind) we made it clear that I was unhappy as:
a Mr McIntyre had control of the funds to be borrowed. b I had no decision making power.
cI was bearing all the risk.
dthe latest feasibility plan showed much lower returns.
eMr McIntyre’s fees (through a company called Redfox Consulting Limited) were very high.
37.Mr McIntyre accepted at the meeting that there might have been some unfairness in the contractual terms. He also accepted that we would need fairer term if we were to have joint venture that would work.
[17]Daran Nair describes the meeting as follows:
12.At the meeting Sheba, Arvind, and I made her issues with the joint venture clear, most importantly, that she wanted to have more control over the decision making of the venture and that she was dissatisfied with Mr McIntyre’s management of the Property site and of the development. …
13.Ultimately, we came to an agreement that the current arrangements of the joint venture were unfair, could not continue, and that there should be a renegotiation. There was a general agreement that the original agreement ... [was] not fit for purpose, and that there was a need to have a proper agreement drafted to clearly set out the obligations of the parties.
[18] Arvind Nair has also provided evidence that records that “Mr McIntyre was surprised that the meeting became about the respondent’s unhappiness with the arrangements of the joint venture” and that Ms Soundararajan made her issues with the terms of the joint venture clear at the meeting.
[19] Arvind Nair says that Mr McIntyre initially disagreed with the respondent. However, as the meeting progressed, he conceded that the terms of the joint venture were unfair and that they were a legacy of arrangements with his original business partner, Mr Corrin. Arvind Nair then says that once Mr McIntyre accepted the terms were unfair, the parties discussed the new terms that would be required for a joint venture to move forward. Arvind Nair records:
11. The meeting concluded on the understanding that the existing terms of the joint venture were unacceptable and that a substantive renegotiation would follow and a new agreement would be drawn up.
[20] In his reply affidavit dated 1 March 2022 Mr McIntyre says in response to Ms Soundararajan’s recollection:
59.On the basis of the respondent agreeing to continue to work with me (continuation of the JV, not setting up a new one), I was open to recording fairer control in a shareholder agreement.
[21] Mr McIntyre says that Daran Nair’s account of what was agreed at the meeting on 29 May 2021 is incorrect. Mr McIntyre’s affidavit continues:
79. …
(a)We agreed I had more control than the respondent (by design);
(b)We did not agree it could not continue;
(c)We did not agree there should be a renegotiation;
(d)We did not agree that the original JV Agreement and Variation were not fit for purpose – they were carefully prepared and the respondent had time to consider and the opportunity to take independent advice; and
(e)We did agree that we should write up a shareholder agreement that gave equal control.
[22] Mr McIntyre also disputes Arvind Nair’s account of what was agreed, saying that the parties agreed that he had more control than Ms Soundararajan but did not agree the joint venture could not continue.
[23] On the way home from the meeting, Mr McIntyre emailed Ms Soundararajan, copying in the Nairs, saying:
I was thinking on the way home that a simple solution using the current agreement might be as follows:
*Allow you to be or appoint a director (which I have always made available to you) - which will give you full shared control of Urban Residential.
*Agree that it would be “both to sign” for drawdowns of the construction finance. This gives you peace of mind, security and control around that.
*Make a variation to remove the ‘you not be involved in the management of the company’ as now circumstances have changed.
*This will save us time and expense.
*However, I’m still happy to negotiate a replacement agreement if that is still your preference.
[24] On 30 May 2021, the following day, Mr McIntyre sent an email to Ms Soundararajan, Yoges Thamby and the Nairs. I set out this email in full as it is critical for determining whether a caveat ought to be sustained. The subject line of the email said “Fresh start” and it stated:
Dear all,
Having heard Sheba’s [Ms Soundararajan’s] concerns yesterday and slept on it, I have come to the decision today to release Sheba from the current joint venture contract with immediate effect.
I agree with Sheba that the contract wasn’t good and this is a left-over from the Anthony era. We should throw that contract out and start fresh.
I have 100% trust in Sheba and the way we go about getting to the end is just as important as getting there. I don’t want her, or you Yoges, to have anxiety about the contract terms.
So with that change, we now have Urban Residential Ltd which we have 50% shares in each and absolutely equal rights. We can create further assurance by creating a new shareholder agreement written up by an independent person.
This feels like the right thing to do, and I know I will sleep better tonight knowing that our minds will be more at ease.
Kind regards,
Stephen McIntyre
[25]On 1 June 2021 Mr Thamby replied to Mr McIntyre saying:
I am glad that you [realised] our concerns over a biased and nil security (for Sheba) joint venture agreement that was previously presented …
A new shareholder’s/joint venture should be established by an independent legal adviser which is fair to all parties.
I will be talking with Sheba on my concerns and how we should proceed with this project.
[26] On 4 June 2021 Mr McIntyre emailed Ms Soundararajan and Mr Thamby seeking their agreement to engage an accountant to obtain independent GST advice, including an email with the accountant.
[27] Ms Soundararajan replied on the same day saying, “… I think it’s best we hold off on consultations and meetings with other specialists until our shareholding loan agreement is finalised. As mentioned, the most important thing is to come to an agreement before we decide on consulting and other matters”.
[28] There was then a further email from Mr Thamby to Mr McIntyre on 5 June 2021 saying:
… the most vital thing right now is to establish the sharing loan holding (sic) agreement which is fair and reasonable to anyone involved.
We are in the process of consulting on how best to protect our security and investments. Once this is done successfully, a proposal on fair terms and conditions will be considered.
Until then, kindly don’t engage in any activity that will incur a cost.
All bills that you have paid including labor charges have been paid and settled. Please note the project will only start subject to the shareholding loan agreement being finalized. Until then the project should not incur any cost.
I hope you understand our situation. We are the ones concerned as the security is ours. (Sheba and myself)
[29] On 6 July 2021 the law firm, Dentons Kensington Swan (Dentons), sent a letter to Mr McIntyre recording that they acted for Ms Soundararajan and that she had shared various documents concerning the joint venture with them. In the letter, David Campbell for Dentons records in reference to the documents:
Put bluntly, they are a mess. They are convoluted, incoherent, irregular, and plainly not fit for purpose. Had the Venture proceeded, they would have been wholly unsuitable.
[30]Mr Campbell continues:
In any event, by your email dated 30 May 2021, Ms Soundararajan and all related entities have been released and the Venture is at an end with no party having any obligations to any other. That was prudent.
[31] The letter then asserts that Mr McIntyre’s 30 May 2021 email expressed a desire for a fresh joint venture that was to be documented and a shareholder agreement for Urban Residential. The letter confirms that this desire is consistent with their instructions from Ms Soundararajan and that if suitable terms can be negotiated to the parties’ satisfaction and properly documented, Ms Soundararajan “will agree a new venture”. The letter then sets out the fundamental terms, from (a) to (l), that Ms Soundararajan requires to be included.
[32] On 23 September 2021 SYAS registered a caveat against the title to the Property.
[33] On 7 December 2021 Land Information New Zealand (LINZ) issued a notice advising that Ms Soundararajan had filed an application that the caveat lapse.
[34] On 23 December 2021 this application to sustain the caveat was filed and Haigh Lyon, the lawyers for Mr McIntyre, responded on an open basis to Dentons letter of 6 July 2021.
Caveat principles
[35] In an application for a caveat not to lapse under s 143 of the Land Transfer Act 2017, the onus is on the caveator to show a reasonably arguable case for the interest claimed.1
[36] The principles governing an application that a caveat not lapse are settled, with the Court of Appeal providing a helpful summary in Philpott v Noble Investments Ltd:2
[26]The applicable legal principles which governed the application to sustain the caveats, and which now govern this appeal, are as follows:
(a)The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;
(b)It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;
(c)The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained — either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists; and
(d)When an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.
Application of principles to present case
[37] The respondent submits that this is a case where it is patently clear that the caveat cannot be maintained because the caveat depends on a joint venture that has been terminated and not replaced and which is not bound to be replaced. Any grounds for a caveat that may have existed, have now gone.
[38] As set out above, the interest described in the caveat is a beneficial interest under the Deed. I now consider whether that interest has been terminated.
1 Sims v Low [1988] 1 NZLR 656 (CA) at 660.
2 Philpott v Noble Investments Ltd [2015] NZCA 342 (footnotes omitted). Recently approved in Melco Property Holdings (NZ) 2012 Ltd v Hall [2021] NZCA 184 at [19] and [36]; and Wallace v Studio New Zealand Ltd [2021] NZCA 392 at [40].
[39] Ms Soundararajan says in her affidavit that the reason for the Deed was she did not wish to be considered a “developer”. Ms Soundararajan’s evidence is that, following entry into that agreement, she and Mr McIntyre received tax advice that, regardless of the bare trust arrangement, Ms Soundararajan would be considered an associated party to the development for tax purposes. This meant there was no functional benefit to the bare trust arrangement. Ms Soundararajan’s evidence is that after receiving that advice, they proceeded on the basis that the Deed was no longer in operation.
[40] Mr McIntyre disputes this evidence saying that he was unaware that the respondent considered the Deed was of no effect. His understanding was that the Deed was in effect at all relevant times.
[41] The parties’ evidence on the background to the purchase of the property is also disputed. Ms Soundararajan deposes that her purchase of the property was not contingent on agreeing to enter into a joint venture to develop the Property with Mr Corin and Mr McIntyre. Instead, Ms Soundararajan says that Mr Corrin had made it known that development was a possibility, especially if she could purchase without a mortgage. Mr McIntyre disputes this, deposing that the Property was offered to Ms Soundararajan for the sole purpose of development as a joint venture. Mr McIntyre attaches a copy of an email from Mr Corin to the planner being used at the time recording that a sale and purchase agreement for the Property had been signed with “the JV Partner”.
[42] The notice of opposition does not rely on the tax advice leading to the parties proceeding on the basis that the Deed was no longer in operation. Instead, the notice of opposition relies on the fact that the applicant’s shareholders resolved to remove the applicant from the Companies Register and that the joint venture had been brought to an end by agreement on 30 May 2021 and no substitute joint venture had been agreed.
[43] The shareholders’ resolution to remove SYAS from the Companies Register is dated 3 February 2021 and is signed by Mr McIntyre and Ms Soundararajan as they are each 50 per cent shareholders in SYAS. Mr McIntyre’s evidence is that the
shareholders’ resolution to remove the applicant from the Companies Register was made on the basis that the transfer from Ms Soundararajan to Urban Residential was to take place imminently. As that has not taken place, SYAS has not been removed.
[44] From all of the above, I consider that it is reasonably arguable that the Deed was still operating between the parties at least until the 30 May 2021 email. I now consider whether that email alters the position.
30 May 2021 email
[45] Mr McIntyre submits that the 30 May 2021 email does not terminate all of the joint venture arrangements but only the joint venture contract itself, and that the remaining contracts do not rely on the joint venture contract for their existence.
[46] I do not agree with the submission from Ms Soundararajan that the 30 May 2021 email clearly terminates all of the joint venture arrangements. The email refers to the “current joint venture contract” rather than “joint venture” or “joint venture arrangements”.
[47] In addition, the email continues “[w]e now have Urban Residential Ltd in which we have 50 % shares in each and absolutely equal rights”. It further records that the parties “can create further assurance by creating a new shareholder agreement written up by an independent person”.
[48] If the joint venture contract as varied was at an end, this does not appear to automatically bring the Deed to an end. The Deed does not refer to the joint venture contract or rely on the joint venture contract for effect.
[49] Ms Soundararajan’s and the Nairs’ evidence of what happened at the meeting on 29 May 2021, the day before the email, does not clearly show any agreement for all of the joint venture arrangements to come to an end.
[50] Furthermore, the correspondence from Ms Soundararajan and Mr Thamby (on 4 and 5 June 2022 respectively) refers to “holding off” and “the project only starting once” the loan agreement is finalised. This further supports the view that the joint
venture arrangements were still in place with the focus apparently on finalising a shareholder loan agreement.
[51] An interest under an express trust is a caveatable interest. In my view, the applicant has shown a reasonably arguable case for the interest under the express trust created by the Deed as claimed in the caveat.
Result
[52]I order:
(a)the application that Caveat 12248624.1 registered against the title to 50 Lillington Road, Remuera, Auckland (Certificate of Title NA 52D/1338) is not to lapse until further order of the Court is granted;
(b)if the substantive proceedings have not yet been filed, they are to be filed within 20 working days of this judgment;
(c)leave is reserved to the respondent to apply by memorandum if the substantive proceedings are not prosecuted with due diligence.
Costs
[53] The applicant has succeeded, and my preliminary view is that it is entitled to costs on a 2B basis. I expect that costs ought to be able to be agreed between the parties. If that is not the case, memoranda may be filed of no more than three pages (excluding costs schedules) on behalf of the applicant within 25 working days of this judgment and on behalf of the respondent within a further 10 working days after being served.
Associate Judge Sussock
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