Upland Business Management Limited v Ghee

[2023] NZHC 3469

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV2023-404-000591

[2023] NZHC 3469

BETWEEN

UPLAND BUSINESS MANAGEMENT LIMITED

Applicant

AND

TEIK HUAT GHEE

First Respondent

AND

WR TRUSTEES No. 3 LIMITED AS TRUSTEE OF THE AARON AND JOCELYN GHEE FAMILY TRUST

Second Respondent

Hearing:	30 November 2023
Counsel:	N A Farrands for the Applicant J G Donkin for the Respondents
Judgment	30 November 2023

ORAL JUDGMENT OF WHATA J

This judgment was delivered by me pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date: ………………………….

Solicitors / Counsel:

Morrison Kent, Auckland

Quay Chambers, Auckland

UPLAND BUSINESS MANAGEMENT LIMITED v GHEE [2023] NZHC 3469 [30 November 2023]

Introduction

[1]    Upland Business Management Limited (UBML) and Upland Holdings Limited (UHL) entered into an agreement (the Agreement) for the development of a property at 28 Upland Road, Remuera (the Property). The first respondent Mr Ghee is the director of UHL. Among other things, UBML and UHL agreed that UBML should receive 35 per cent of the profits from this development. The development was successfully completed, netting about $4–5 million in profits. UBML has not been paid its profit share. Instead, UHL applied those profits, it says, to pay pre-existing debt over the property, including debt owing to Mr Ghee’s family trust, The Aaron and Jocelyn Ghee Family Trust (GFT). UBML claims that UHL owed a fiduciary duty to retain UBML’s profit share and in breach of that duty, paid out its profit share to Mr Ghee’s benefit.

[2]    UBML seeks freezing and ancillary orders it says are necessary to preserve its position and interests pending the full hearing of its claim. A copy of the specific orders sought are attached as Appendix A.

Process

[3]    Without notice freezing orders were made on 22 September 2023 in relation to the bank accounts of WR Trustees No 3 Limited (WRT) then thought to be the trustee of GFT.1 That order was followed by a further order on 28 September 2023 requiring WRT to provide details of GFT’s bank accounts that received funds from UHL.2 It was then revealed by Mr Ghee that WRT does not have any bank accounts and that WRT had been replaced by AJ Trustees No 1 Limited (AJT). The interim order was then varied to include AJT. UHL now seeks amended orders seeking and including orders in respect of the bank statements for Mr Ghee and AJT.

Background

[4]    The background to the dispute is largely undisputed. The Agreement was entered into on or about 10 March 2020. It records an arrangement to develop the

1      Upland Business Management Ltd v Ghee HC Auckland CIV 2023-404-000591, 22 September 2023 (Minute of Walker J).

2      Upland Business Management Ltd v Ghee, 28 September 2023 (Minute of Tahana J).

Property into four lots with dwellings (the Project). UBML was to contribute $1.2 million in finance and manage the Project, which it did. The Agreement provided that following completion of the development, sale of the four lots and payment of various costs of sale, the balance of sale proceeds would be divided between UHL and UBML. UBML was to receive 35 per cent of those profits. The profits were to be calculated on the same basis as a feasibility model attached to the Agreement.

[5]More specifically clause 5 of the Agreement states:

5Profit Share

5.1Upon sale of all four Resulting Lots, the balance of sale proceeds will be divided between the parties as follows:

(a)65% to the Owner;

(b)35% to the Manager.

5.2If the Project makes a loss, then the Manager will reimburse the Owner for 35% of such loss.

5.3The profit referred to in 5.1 or the reimbursement referred to in clause

5.2 above shall become payable by the Owner within 5 Working Days after settlement of the sale of the final lot or per 2.2(d)(iii).

5.4The profit referred to in 5.1 or the reimbursement referred to in clause

5.2 shall be calculated on the same basis as the Feasibility model attached at Appendix 3 and shared by email between the parties on 30 January 2020.

5.5It is noted that any adverse material differences in numbers in the Feasibility Model must be formally agreed by the Manager and Owner prior to such amounts being committed to or paid. This will also be specified in the construction contract between the Owner and Impress Concepts Limited Partnership.

[6]    The development was completed and settlement of the last four lots took place on 16 June 2022. The sale price for each of the four lots sold was as follows:

(a)Lot 1, $5,007,000 including GST;

(b)Lot 2, $3,475,000 including GST;

(c)Lot 3, $4,120,000 including GST; and

(d)Lot 4, $4,300,000 including GST.

[7]Based on these sales, UBML calculates the profit from the project as

$5,236,213.04 and UBML’s 35 per cent share  of  those  monies  is  $1,832,675.  This profit calculation is explained as follows:

(i)Gross sales proceeds excluding GST $14,697,391.

(ii)Net sale proceeds (less agents fees and costs) $14,247,336.

(iii)Total project costs $9,011,123.

(iv)Project profit $5,236,213.04.

(v)Plaintiff’s profit share $1,832,675.

[8]While quantum of the profit share is disputed — this is addressed below at [11]

— UHL’s contractual liability to UBML is not.3 In short, UBML was not paid any of the profit share. Instead, available banking records show that UHL received the full profits of sale and then over 32 transactions, paid those monies to the GFT. UBML contends that this clearly breached the Agreement in bad faith and that UHL, Mr Ghee and GFT must account for these profits.

[9]    UHL, Mr Ghee and GFT (collectively called Mr Ghee’s interests for ease of reference) respond that any obligation of payment out of the proceeds of sale was always subject to the repayment of secured and unsecured financiers (including UBML, who has also been repaid). In this regard, they emphasise that at the time of the execution of the Agreement, there were three registered mortgages held over the property:

(a)to Upland Trust Limited (UTL) registered on 31 August 2015;

3      Refer cl 5.3 of the Agreement.

(b)to First Mortgage Custodians Ltd (FMCL) also registered on 31 August 2015; and

(c)to Martin Wellesley and Jeffrey Ecclestone (The Wellesley Trust) registered on 22 December 2017.

[10]   Once these secured debts were paid, alongside the unsecured debt to UBML, the remaining profit monies were paid to GFT because it was also a financier of the Project with the benefit of a registered security over the Property. Mr Ghee elaborates:

(a)On 28 August 2015:

(i)GFT via WRT, provided Archaus Trustees Limited (ATL) a loan facility for the purposes of investing in and developing the Property. This was to be secured by registered mortgage over the Property and subject to interest and fees as documented in a corresponding loan agreement. According to Mr Ghee it also entitled GFT a profit share of 20 per cent of the net profit of any development and sale of the Property.

(ii)Per a security sharing deed, ATL then made the loan facility available to UHL for the purposes of development of the Property and UTL agreed to hold the benefit of a general security agreement and mortgage over the Property on trust for ATL.

(b)On 5 May 2018, ATL assigned its interest in the loan and associated security interests to WRT, which meant that UHL was required to make repayment of the loan to WRT instead (as trustee of GFT); and

(c)On 1 July 2020, WRT retired as trustee of GFT and was replaced by AJT instead. On that basis the loan had to be repaid to AJT, as trustee of GFT.

Dispute as to quantum of profit

[11]   As to quantum, UBML calculates the profit from the project as $5,236,213.04 and that UBML’s share of those monies was 35 per cent or $1,832,675. The profit calculation is explained at [7] of this judgment.

[12]   This calculation of profit share is disputed. UHL says that, with the value of the Property updated to reflect market value, the adjusted net profit is $4,389,926.57. From this net profit WRT was entitled to receive a profit share of 20 per cent as a condition of advancing its loan to UHL or $877,935.31. The balance of the profit was therefore $3,511,941.26 of which 35 per cent share is $1,229,179.44. The company tax rate is 28 per cent or tax of $344,270.24 or 39 per cent, being tax in the order of

$479,799.46.  On that basis any profit share is likely to be about $750,000–$885,000.

The claim

[13]   UBML claims that UHL was in a fiduciary relationship with UBML because it was in sole control of the Project profits and UBML was reliant on UHL to receive and protect UBML’s profit share. As such UHL was a constructive trustee of UBML’s profit share and could not in good conscious transfer the funds to AJT without accounting to UBML for its share of the profits.4  In response to  UHL’s  claim  that cl 7.3 (discussed below) precludes a fiduciary relationship, it is said that the mechanism for retention of the sale proceeds was not expressly addressed in the Agreement, and this left open the potential for a fiduciary obligation in relation to those monies. UBML also seeks orders in relation to Mr Ghee for knowing assistance and against AJT for knowing receipt.5

The defence

[14]Mr Ghee’s interests submit that:

4      Referring especially to Woodroffe v Coleman (2011) 13 NZCPR 163 (HC) at [30] citing Paragon Finance v D B Thakrar & Co Ltd [1999] 1 All ER 400 (EWCA) 409.

5      Citing Sandman v McKay [2019] NZSC 41 at [78] (re knowing assistance); Scott v ANZ Bank

[2020] NZHC 906 at [101] and [109] (re knowing receipt).

(a)UBML cannot establish that there was a relationship of trust between UBML and UHL because cl 7.3 of the Agreement states:

This agreement does not constitute, and nothing contained in this agreement will be deemed or construed to constitute, any party a partner (except as specifically contemplated by this agreement), agent, or representative or any other party or to create any trust, and this agreement will not give, and will not be construed as giving, to any party any of the liabilities arising from a partnership, agency, or representative relationship.

(b)UHL paid the proceeds to its registered secured and unsecured lenders including FMCL ($5,800,750), The Wellesley Trust ($2,326,006), and UBML ($1,200,000).

(c)Only after it paid the secured lending, AJT was then entitled to be repaid from the balance of the funds available after GST was deducted of

$4,846,614. This sum reflected a pre-existing debt owed by UHL to GFT.

(d)UBML was on constructive notice of the secured lending, as it was required to undertake its own due diligence prior to contracting and therefore cannot now complain about these payments.

(e)That as currently pleaded, while there may be a claim in contract against UHL, there is no good arguable case in respect of Mr Ghee, WRT or AJT.

Threshold for orders

[15]   Freezing orders and ancillary orders must be sought under Part 32 of High Court Rules 2016. In seeking such orders, an applicant must show:6

(a)a good arguable case — the allegation must be capable of tenable argument and supported by sufficient evidence;7

6      Kasuya v Walton 18 Limited [2021] NZHC 2158 at [7]–[12].

7      Hannay v Mount [2011] NZCA 530 at [22], see also Les Ambassadeurs Club Ltd v Yu [2021] EWCA Civ 1310.

(b)there are assets to which the order can apply; and

(c)there is a real risk of dissipation of those assets where such dissipation has the effect or object of denying the claimant or judgment creditor satisfaction of their debt.8

[16]   Ancillary orders may include discovery or disclosure. As stated in the Monasterio v Bujak, generally speaking, “an ancillary disclosure order is designed to ensure the freezing order can be properly policed and is effective.”9

Good arguable case

[17]   It is common ground that UHL was obliged to pay UBML 35 per cent of the profit share within five working days; that the sale proceeds were never retained by UHL for UBML’s benefit and that they were instead paid to Mr Ghee’s interests largely as soon as they were received. On these facts, there is a strong case that UHL breached the profit share terms of the Agreement. Indeed, the contractual breach appears egregious. There is no reference whatsoever to the alleged debt owed to GFT in the Agreement and it was not referred to in feasibility model attached to the Agreement. The claim for contractual breach would appear therefore to be irrefutable.

[18]   However, UHL has no assets and the claim advanced by UBML is presently based on the existence of a fiduciary relationship and constructive trust — UHL is said to have held the profits of the Project on trust for UBML having assumed both sole responsibility for the receipt of the sale proceeds and for payment out of the profit share. Prima facie, such a claim accords with principle. As stated in Avondale Printers & Stationers v Haggie, “a constructive trust arises by operation of law where it would be a fraud for the legal owner to assert a beneficial interest.”10

[19]   However, as Mr Donkin contends for Mr Ghee’s interests, cl 7.3 of the Agreement expressly eschews the creation of “any trust” or liability arising from a “representative relationship”. As Mr Donkin also submitted, this brings into frame the

8      Hannay v Mount, above n 7 at [20].

9      Monasterio v Bujak HC Christchurch CIV 2008-409-1901, 21 August 2009.

10     Avondale Printers & Stationers v Haggie [1979] 2 NZLR 124 (SC) at 145.

rule stated by Mason J in the High Court of Australia in Hospital Products Ltd v United States Surgical Corp:11

The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.

[20]   But there are at least two available responses for the purposes of this interlocutory stage inquiry. First, equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity.12 As Lord Mansfield put it in Moses v Macferlan:13

In one word, the gist of this kind of action is, that the defendant, up on the circumstance of the case, is obliged by the ties of natural justice and equity to refund the money.

[21]   In such cases equity does not hinge on the express intentions of the parties or the assumption by a party of a partnership, agency or trusteeship.14 Rather equity’s goal is remedial.15

[22]   Second, it is necessary to be mindful that principles or rules of general application may yield to the specific facts of a claim. The following observation of the Supreme Court in Maruha Corporation v Amatal Corporation Limited exemplifies this point:16

It is well settled that, even in a commercial relationship of a generally non- fiduciary kind, there may be aspects which engage fiduciary obligations of loyalty. That is because in the nature of that particular aspect of the relationship one party is entitled to rely upon the other, not just for adherence to contractual arrangements between them, but also for loyal performance of some function which the latter has either agreed to perform for the other or for both or has, perhaps less formally, even by conduct, assumed.

11 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97, cited with approval by the Supreme Court in Maruha Corporation v Amatal Corporation Limited [2007] NZSC 40 at [21].

12 See discussion in Woodroffe v Coleman, above n 4 at [29] and [30]; and Fortex Group Ltd (In Receivership) v McIntosh [1998] 3 NZLR 171 (CA) at 172.

13     Moses v Macferlan (1760) 2 Burr 1005, 1012.

14     Woodroffe v Coleman, above n 4 at [30] and cases cited therein.

15     Fortex Group Ltd (In Receivership) v McIntosh, above n 13 at 172 and 175.

16     Maruha Corporation v Amatal Corporation Limited, above n 12 at [21].

[23]   Notably, in another case helpfully cited by Mr Donkin, Counties Manukau Pacific Trust, Cooper J (as he then was) found that the following clause did not preclude the imposition of an obligation of trust on a contracting party:17

11.1 Nothing expressed or implied in this Agreement shall constitute either party as a partner, agent, employee or officer of, or as a joint venturer with, the other party and neither party shall make any contrary representation to any other person.

[24]Indeed, the Judge said: 18

[88]       To determine that a fiduciary duty arises to comply with the evident common objectives of the parties is not to reach a conclusion contrary to the terms of the contract, in fact the reverse is true.

[89]       I do not consider  that that  conclusion is  rendered unavailable by  cl 11.1 of the umbrella agreement. That provision has been quoted earlier. It seems to focus on the label that should be put on the relationship between the parties. As the Supreme Court observed in Amaltal Corporation at para [20] (echoing Paper Reclaim Ltd at para [31]), the label of “joint venture” can be unhelpful as a guide to whether the parties owe fiduciary obligations to each other and however the overall relationship is described, some of the obligations assumed by the parties may attract fiduciary obligations.

[25]Returning then to the present facts, the following is reasonably arguable:

(a)35 per cent of the profit share was, at all times, profit belonging to UBML and Mr Ghee knew this.

(b)The transfer of UBML’s profit share to Mr Ghee’s own interests amounted to a misappropriation by UHL and Mr Ghee.

(c)The common objective of UHL and UMBL under the Agreement was to develop and sell four lots, culminating in a profit share.

(d)The Agreement does not specifically address the mechanism for retaining and distributing the proceeds of sale, leaving open the potential for a fiduciary obligation in respect of the profit share.

17     Counties Manukau Pacific Trust v Manukau City Council [2009] 2 NZLR 260 at [88].

18 At [88].

(e)The imposition of an institutional or remedial trust to recoup UBML’s profit share is consistent with this common objective of the Agreement.

(f)While at it appears cl 7.3 of the Agreement may preclude the creation of a relationship of partnership, agency or trust, Mr Ghee’s interests should nevertheless account, in equity (or restitution), for UBML’s profit share.

[26]   Overall, while I accept there is some merit to Mr Donkin’s formal assessment of the pleadings, and they may need to be amended to capture the more nuanced position discussed herein, there is a tenable basis for a remedy against Mr Ghee’s interests for an alleged misappropriation of UBML’s profit share by him and UHL.

Assets

[27]   Mr Ghee accepts that AJT’s bank account is an asset to which the freezing order may attach.

Risk of dissipation

[28]   UBML submits that UHL had already dissipated assets to AJT in breach of its fiduciary duties. It says there is evidence to show the funds had been used to meet liabilities of other entities controlled by Mr Ghee and that he misled UBML about the reasons why the profit share had not been paid and what had happened to the money. UBML also highlights that Mr Ghee has a history of moving assets between his companies to avoid liabilities and to defeat creditors, referring to Kasuya v Walton 18 Limited.19 It is also noted that Mr Ghee has not made clear whether or not AJT continues to retain the funds and such counts against him.

[29]   Mr Donkin submits that given the “nuclear effect” of freezing orders, a real risk of dissipation must be shown on the evidence; and that there is no evidence that there is a real risk that Mr Ghee’s interests will dispose of assets to avoid judgment. He notes in particular:

19     Referring to observations in Kasuya v Walton 18 Limited, above n 6.

(a)While UHL transferred funds out, this was for a legitimate purpose.

(b)Mr Ghee did not mislead UBML as to where the funds were paid — he told them he used the funds to pay financiers which was correct.

(c)Kasuya did not find that Mr Ghee moved assets between companies to defeat creditors.

(d)While initially not as co-operative as he could have been, Mr Ghee has since provided helpful information.

(e)Overall, there is insufficient evidence from which a prudent, sensible commercial person would infer danger of default.

Analysis

[30]   The threshold test for risk is not an exacting one: “[t]he plaintiff must point to circumstances from which a “prudent sensible commercial person could properly infer a danger of default.”20 But, given the nuclear effect of a freezing order, it must be clearly shown by UBML that there is a real risk of dissipation. To borrow the language of Andrews LJ in Les Ambassadeurs Club Ltd: 21

The focus should be on whether on the facts and circumstances of the particular case, the evidence adduced before the court objectively demonstrates a risk of unjustified dissipation which is sufficient in all the circumstances to make it just and convenient to grant a freezing injunction.

[31]   On the evidence available to me, a rather confused picture emerges as to whether there was a legitimate basis for the transfer of the profits, whether Mr Ghee was intentionally misleading about why the profit share was not distributed or and whether he was intentionally lacking in transparency. But the incontrovertible fact is that he transferred the profit share to pay down a family trust debt in the face of a clear commercial obligation to pay UBML a portion of that profit share. There is also

20     Murren v Schaeffer [2018] NZCA 318 at [16] citing Raukura Moana Fisheries Ltd v Ship “Irina Zharkikh” [2001] 2 NZLR 801 (HC).

21     Les Ambassadeurs Club Ltd, above n 7 at [36].

evidence, albeit in contained in a judgment, that Mr Ghee has in another case transferred property to minimise liability to creditors. This Court said in Kasuya:22

[13] Before Mr Hsu filed his proceedings, Walton 18 was the registered proprietor of four additional properties – two in Graceville Lane and two in Towai Street. After the claims were filed and after settlement negotiations were unsuccessful, Walton 18 transferred the properties to Allum. The sole director of Walton 18 is a Mr Ghee. Mr Ghee is also the sole proprietor of Allum. It appears from Mr Hsu’s affidavit filed in support of the application that Mr Ghee is a director of 65 New Zealand registered companies. He has previously been a director of a number of failed construction companies which have been placed into liquidation. I accept that there is a reasonable inference to be drawn from these circumstances and from the transfer of the properties to Allum, that Walton 18 may be seeking to minimise its liabilities to prospective creditors. The timeline which counsel have referred to also supports this inference.

[32]    An available inference therefore is that Mr Ghee is prepared to prioritise his own interests, without any recourse to those with clear and legitimate claims against him or his interests. To my mind, therefore, Mr Ghee presents a real risk of dissipating the monies held by the respondents in order to prioritise his interests irrespective of UBML’s legitimate claims. Therefore, a proper basis for the freezing and ancillary orders has been made out.

Scope of Orders

[33]UBML presently seeks (in summary):

(a)to sustain the interim freezing order restraining AJT from dissipating funds received from UHL; and

(b)ancillary orders together requiring disclosure of banks accounts held by Mr Ghee and AJT.

[34]UBML says this will enable:

(a)the calculation of the funds retained by ATJ as received from UHL so that a certain and specific freezing order can be made pursuant to order

22     Kasuya v Walton 18 Limited, above n 6 at [13].

(iv) in the application and served on the relevant bank which is understood to be the ANZ bank; and

(b)the tracing of funds that the third respondent may have dissipated to other entities likely associated with UHL.

[35]    Mr Ghee’s interests oppose ancillary orders that require Mr Ghee to disclose all of his bank accounts on the grounds they are excessive and well beyond what is needed to understand where the profits have been transferred to.

[36]   I accept that the interim order should continue pending the hearing of the claim. I am not however satisfied that Order 1(i) is presently justified. It is too far reaching and it is speculative at this stage to suggest funds have been distributed beyond AJT’s accounts. However, Order 1(ii) dealing only with AJT’s bank accounts is appropriate in the circumstances.

Result

[37]    I am satisfied that UBML has a good arguable case for a remedy against Mr Ghee’s interests for misappropriation of UMBL’s profit share. It is not disputed that there is an asset against which the freezing may attach. I am also satisfied that there is a real risk that Mr Ghee could dissipate further the profit share. In the result, the interim order shall continue, and I make the ancillary Order 1(ii) as sought by UBML.

[38]   UBML is entitled to its costs on a 2B basis together with disbursements to be fixed by the registrar. Certified for one counsel only.

Whata J

Appendix A: Orders sought

1.The    applicant,    Upland   Business    Management    Limited,    Management Company, applies for orders:

i.That within 7 days the first defendant, Teik Huat Ghee, is required to serve on the plaintiff an affidavit which provides:

a.Disclosure of all bank account statements and any other documents in his control showing the receipt of and any subsequent use of funds from Upland Holdings Limited from 1 December 2021 to the present date;

ii.That within 7 days the third defendant, AJ Trustees No. 1 Limited, as trustee of the Aaron and Joycelyn Ghee Family Trust, is required to serve on the plaintiff an affidavit which provides:

a.Disclosure of all bank account statements and any other documents in its control showing the receipt of and any subsequent use of funds from Upland Holdings Limited from 1 December 2021 to the present date;

iii.An interim order that the third defendant, AJ Trustees No. 1 Limited, as trustee of the Aaron and Joycelyn Ghee Family Trust, shall be restrained from accessing, withdrawing, transferring or otherwise dealing with any funds retained in its bank accounts received from Upland Holdings Limited from 1 December 2021 to the present date (although limited to the amount of $1,832,675.00) pending further order of Court;

iv.Subject to the provision of bank statements of the third defendant as sought above, an order that funds (of a specific amount to be determined by the Court) in the bank account of AJ Trustees No. 1 Limited, as trustee of the Aaron and Joycelyn Ghee Family Trust as held with the ANZ Bank shall be frozen by the ANZ Bank and not

accessed, withdrawn, transferred, disposed of, or applied in any way by AJ Trustees No. 1 Limited, as trustee of the Aaron and Joycelyn Ghee Family Trust pending further order of Court;

v.That the defendants pay the costs of and incidental to this application.