Unka v Dodd

[2018] NZHC 1665

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2018-485-170

[2018] NZHC 1665

IN THE MATTER OF

Ownership of the shares of Copperfield Village Limited

BETWEEN

LESLEY CHRISTINE UNKA as trustee of the PRATIMA BHABNISHA PATEL

TRUST
Applicant

OPERATIONAL SERVICES LIMITED
Applicant

LESLEY CHRISTINE UNKA
Applicant

EVAN DESMOND BOURKE
Applicant

AND

ARTHUR WATSON DODD

Respondent

COPPERFIELD VILLAGE LIMITED

Respondent

Hearing:

13 March 2018

Counsel:

Q S Haines for Applicants

J A Langford for Respondents

Judgment:

14 March 2018

Reasons:

6 July 2018

JUDGMENT OF CLARK J

UNKA v DODD [2018] NZHC 1665 [6 July 2018]

Introduction

[1]    On 13 March 2018 I heard the applicants’ application for an interim injunction. I declined to make the orders sought. In this judgment I provide my reasons for declining the application.

Background

[2]    The background facts, which are not disputed, involve Mr Dodd being approached in early 2016 by Ron Schlatter, a mortgage broker and friend of several years. Mr Schlatter had a proposition for Mr Dodd. If Mr Dodd were to allow a person to use his name he would be paid $50,000. Mr Dodd deposed to “this sound[ing] too good to be true, which it has proven to be”.

[3]    As Mr Dodd’s several properties were owned by his trust he did not feel exposed and agreed to be involved. The point of Mr Dodd’s involvement was to lend credibility to a loan application to be made by one Keran Unka, a bankrupt. The loan was apparently to fund the purchase of a commercial property at Kapiti, known as Copperfields.   Mr Dodd understood from a lawyer and an accountant acting for    Mr Unka at a meeting on 2 May  2016 that  although he  was driving  the  matter,  Mr Unka was to be kept at a distance from the transaction because he was a bankrupt. There was no mention of Mr Unka’s wife and she was not present at the meeting.

[4]    Mr Dodd had been told that after approximately six months from May 2016 Mr Unka would refinance the complex and Mr Dodd’s role would end.

[5]    Mr Bourke, a friend and business associate of Mr Unka’s, signed the sale and purchase agreement for Copperfields in his name. Mr Bourke nominated the newly formed Copperfield Village Limited (Copperfield Village) to be the nominated purchaser of the property. Nomination of Copperfield Village was conditional upon shares in the company being held by Mr Dodd as trustee. Mr Bourke’s company, Operational Services Limited, was to have the management contract for the property. A “deed of trust for shares” was signed by Mr Dodd and emailed to Mr Unka’s lawyer, Mr Soper, on 5 May 2016.

[6]    Over the following months, Mr Dodd was required to make various cash injections to keep the company solvent. In December 2016, Mr Unka offered Mr Dodd a loan agreement recording Mr Dodd’s  total payments at $135,000 plus interest at  15 per cent, amounting to approximately $150,000. Mr Dodd says he is out of pocket by approximately $270,000.

[7]    By October 2017 Mr Dodd “was sick of the whole matter” and sought to take control of Copperfields with the intention of carrying out maintenance and improvements to make the complex more saleable and limit his exposure. With no prospect of Mr Unka, or any beneficiary of the trust for shares, being in a position to refinance the company, Mr Dodd gave notice pursuant to cl 11(f) of the trust deed that he considered the deed had been breached, that the breaches could not be remedied and that he intended to sell the property.

[8]    A loan offer of $100,000 was made by the applicants to Mr Dodd. The purpose of the advance was to repay Mr Dodd. He would also be released from his personal guarantees. The loan offer expired on 16 March 2018, three days after the injunction hearing.

The application

[9]The application sought a broad range of orders:

1.1That shares in Copperfield Village Limited vest with Lesley Christine Unka as Trustee of the Pratima Bhabnisha Patel Family Trust;

1.2That Arthur Watson Dodd be removed as director of Copperfield Village Limited and that Lesley Christine Unka, Evan Desmond Bourke and William Louis Slater be appointed as directors instead;

1.3That the operational services agreement between Copperfield Village Limited and Operational Services Limited be reinstated and that Arthur Watson Dodd provide access to all bank accounts, so staff wages, taxes and expenses can be paid;

1.4That the loan offer made by Citywide Capital Limited be accepted and funds drawn down with Arthur Watson Dodd receiving $100,000 as set out in the loan document. With all parties reserving their respective rights to claim against each other for any losses they wish to subsequently claim;

1.5That the property at 7-13 Seaview Road, Paraparaumu, owned by Copperfield Village Limited to be listed for sale with Dean Anderson of Colliers Real Estate;

1.6That any net sale proceeds after all expenses be held on trust pending the outcome of the substantial proceedings in this matter;

1.7An order that the applicants be bound by the undertaking of Lesley Christine Unka, Evan Desmond Bourke, Operational Services Limited and Lesley Christine Unka as trustee of the Pratima Bhabnisha Patel Family Trust in the event of a costs order in these proceedings.

[10]   An equally broad range of grounds was advanced as the basis for the orders. I do not propose to set those out. The application is made in reliance in ss 131 and 174 of the Companies Act 1993, the Trustee Act 1956 and on the basis of the evidence of four deponents.

Reasons for dismissing the application

[11]   The approach to be taken to applications for interim injunctions is settled. In order to succeed, a plaintiff must show:1

(a)there is a serious issue to be tried;

(b)the balance of convenience weighs in favour of making the orders sought; and

(c)the overall justice favours the making of the orders sought.

[12]   The statement of claim pleads three causes of action: breach of trust, breach of contract and breach of fiduciary obligation. Mr Haines, for the applicants, submitted the purpose of the injunction was to allow settlement of funds and further injection of capital into Copperfield Village.

[13]   The respondents oppose the application on the grounds the applicants seek to uphold a sham arrangement designed by Keran Unka to conceal his involvement as the architect and effective director of the arrangement, and to defeat the insolvency laws. Mr Langford for the respondents said it is a matter of record that Mr Unka

1      American Cyanamid Co v Ethicon Ltd [1975] AC 395 (HL).

became bankrupt on 14 December 2014. An undischarged bankrupt must not, without the consent of the Assignee or the court, either directly or indirectly enter into, carry on, or take part in the management or control of any business; or be employed by a company, trust or trustee that is owned, managed or controlled by a relative of the bankrupt.2

[14]   The applicants essentially seek the Court’s enforcement of agreements which I cannot be confident, in the context of an urgent interim injunction, are lawful. I am therefore not satisfied the applicants have met the threshold of a serious question to be tried.

[15]   Mr Unka was bankrupt at the time the arrangements were put in place and they were deliberately structured to keep Mr Unka at a distance. Mr Unka’s accountant, Mr Smith, deposed to the fact:

Mr Unka was to be kept at a distance from the transaction and was only to be legally involved as an employee of a management company which would hold the management contract for the property.

[16]Mr Unka’s lawyer, Mr Soper, stated in his affidavit:

It was very clear that Mr Dodd was holding the shares on trust for the Unka interests.

[17]   From the information and evidence available to the Court it seems clear     Mr Dodd was “fronting” for Mr Unka.

[18]   Compounding my concern as to whether the documents are intended to disguise the real intention of the parties is that Mr Soper’s evidence (that Mr Dodd held shares for “Unka interests”) is at odds with the terms of the initial trust deed naming Pratima Bhabnisha Patel as the sole beneficiary. The trust’s beneficiary has been variously described in the trust documents:

(a)The first version of the “deed of trust for shares” is undated. The named beneficiary is “Pratima Bhabnisha Patel”. It is signed by Mr Dodd and witnessed by Mr Schlatter. Mr Dodd has initialled every page except

2      Insolvency Act 2006, s 149.

for  the  final  page, page five.    The beneficiary has not signed the document.

(b)Another version of the deed of trust for shares is dated 6 May 2016. It names the beneficiary as “Pratima Bhabnisha Patel Trust”. The word “Trust” has been added in handwriting. Ms Unka has signed the document as trustee of the Pratima Bhabnisha Patel Trust and her signature is witnessed by Mr Bourke. The addition of the word “Trust” has been initialled by Ms Unka but not by Mr Dodd.

[19]   The next document is the trust deed apparently establishing the Pratima Family Trust. It is dated 1 April 2016. Under the trust deed Ms Unka is the sole trustee. The trust deed is signed by Ms Unka as settlor and trustee. Mr Bourke witnessed her two signatures. Clause 21 of the trust deed states the trust “shall be known as the Pratima Family Trust”. None of the pages are initialled. There is no certainty, therefore, that they form part of the same document that is signed on page 10.

[20]   A further document is a single page headed “Resolution of Trustees”. It is dated 22 April 2016. Although the document has made provision for the names and signatures of three trustees, two of the spaces are blank.   The only signature is     Ms Unka. She has added “sole” before the word “trustee”. The resolution permits an additional name to be used for the Pratima Family Trust, the additional name being the “Pratima Bhabnisha Patel Trust”.

[21]   There is conflicting evidence as to the identity of the beneficiary for whom the trust assets were to be held:

(a)Mr Soper deposed to emailing Mr Langford on 21 April 2016 and informing him, on instructions from the Unka family, the beneficiary would be a trust and Mr Unka would not be a beneficiary or trustee.

(b)As at 11 October 2017 email correspondence with Mr Langford has Mr Soper referring to “P Patel” as a person, noting that he “never had any contact with her”.

(c)Mr Unka describes Pratima Patel as his niece, an accountant who lives in Auckland. Mr Unka annexed to his affidavit a document containing a text message said to be from his niece explaining why she could not “enter the trust relationship”. The purported screen shot does not identify the author of the text or contain any other identifier (such as the sender’s phone number) although of course Mr Unka’s evidence is that the text is from Ms Patel.

(d)There is no evidence from Ms Patel personally although at the hearing Mr Haines said an affidavit could be expected from Ms Patel.

[22]   Mr Haines submitted the Pratima Family Trust is not trying to hide or disguise the involvement of anyone from the Unka family. The fact Mr Unka identified a property he commended to others as being of potential interest and introduced others does not make the trust a sham.

[23]    New Zealand case law suggests the courts approach with caution invitations to regard trusts as a shams. But where a document does not evidence the true intention of the parties it will be regarded as a “sham” because it is a pretence.3 The evidence before me strongly suggests Mr Unka was involved in the arrangement to a greater extent than simply commending a property of potential interest.

[24]   Mr Haines submitted a “holistic approach” was required to be taken to the construction of the trust but he accepted there was a potential lack of certainty. Even if an express trust was not created, a constructive trust arose where Mr Bourke nominated the company to settle the contract.

[25]   Serious questions are raised on the evidence as to the real intention of the parties and certainty of beneficiary. The issues were not, and are not expected to be, fully investigated in the context of an urgent hearing for an interim injunction.

3      Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289 cited in Clayton v Clayton [2016] NZSC 29, [2016] 1 NZLR 551 at [113].

[26]   Mr Haines submitted the urgency of the application arose from the pending expiry of the loan agreement and Mr Dodd’s expressed intention to cancel Operational Services Limited’s management contract. I found that difficult to accept in the absence of any evidence of a request being made to extend the loan agreement.

[27]   The overall justice and the balance of convenience favoured declining the application for a mandatory injunction. The applicants failed to establish that there is a serious question to be tried.

[28]   In addition, and fatally in this case, no undertaking as to damages was provided. An “undertaking as to costs” was filed with the application. Mr Haines submitted the intention was to comply with r 7.54 of the High Court Rules 2016. An intention to comply is clearly inadequate. Rule 7.54 requires a signed undertaking that the applicant will comply with any order for payment of damages to compensate the other party for any damage sustained through the injunction.

[29]For these reasons the application was declined.

Karen Clark J

Solicitors:

QH Law, Levin, for Applicants

Langford Law, Wellington for Respondents