Viaduct Waterfront Investment Limited v Patel
[2012] NZHC 2316
•10 September 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-1500 [2012] NZHC 2316
UNDER Section 143 of the Land Transfer Act 1965
BETWEEN VIADUCT WATERFRONT INVESTMENT LIMITED Applicant
ANDRENUKA PATEL Respondent
CIV-2012-404-2316
AND UNDER Section 145A of the Land Transfer Act
1965
BETWEEN RENUKA PATEL Applicant
ANDVIADUCT WATERFRONT INVESTMENT LIMITED First Respondent
ANDCHANCERY PROPERTY INVESTMENT NO. 1 LIMITED
Second Respondent
ANDCHANCERY PROPERTY INVESTMENT NO. 2 LIMITED
Third Respondent
ANDCHANCERY PROPERTY INVESTMENT NO.3 LIMITED
Fourth Respondent
ANDCHANCERY PROPERTY INVESTMENT NO. 4 LIMITED
Fifth Respondent
ANDCHANCERY PROPERTY INVESTMENT NO. 5 LIMITED
VIADUCT WATERFRONT INVESTMENT LIMITED V PATEL HC AK CIV-2012-404-1500 [10 September
2012]
Sixth Respondent
ANDCITYMED HEALTH CARE LIMITED Seventh Respondent
CIV-2012-404-2593
AND BETWEEN RENUKA PATEL Plaintiff
ANDNARENDRA HIRABHAI LALABHAI PATEL
First Defendant
ANDPRAFUL PATEL Second Defendant
ANDRENUKA NARENDRA PATEL Third Defendant
Hearing: 6 August 2012
Further Submissions filed: 10 and 14 August 2012
Counsel: DM Hollings QC and E Eggleston for Renuka Patel
A Hinton QC for Narendra Patel
DM Salmon, M Heard and K Simcock for Praful Patel, Viaduct
Waterfront Investment Limited and other companies in CIV-2012-
404-1500 and CIV-2012-404-2316
J Wilkinson for the Bank of New Zealand (abiding the decision of the
Court)
Judgment: 10 September 2012
JUDGMENT OF TOOGOOD J
This judgment was delivered by me on 10 September 2012 at 11:00 am
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors
D Salmon/M Heard/K Simcock, LeeSalmonLong, Auckland: [email protected]
E Eggleston/C Allen, Holland Beckett, Tauranga: [email protected]
[email protected]
Copy:D Hollings QC, Auckland: [email protected]
B White, Buddle Findlay, Auckland: [email protected]
K Wakelin, Meredith Connell: [email protected]
R Patel: [email protected]
Introduction and background
[1] This Judgment records the outcome of a one-day hearing on 6 August 2012 in respect of which a number of interlocutory issues arising in four separate but related proceedings in this Court were scheduled for argument. It also contains substantive orders and the reasons for them.
[2] Renuka Patel and her estranged husband, Narendra Patel, live separately in Sydney, Australia and are in dispute over the division of their property. Mrs Patel has taken property settlement proceedings (“the Australian proceedings”) in the Family Court of Australia (New South Wales Division) under the Family Law Act 1975, an Act of the Commonwealth of Australia.
[3] The proceedings in this Court are related to property which forms part of the subject matter of the Australian proceedings, particularly company shares, bank accounts and real estate. At the heart of the New Zealand proceedings is an allegation by Mrs Patel that the shares in certain New Zealand-registered companies which are held by Praful Patel, Narendra Patel’s brother, are in fact shares which are held in trust for her former husband, either jointly with her or alone, and which are susceptible to orders for the division of property in the Australian proceedings.
[4] In one of the New Zealand proceedings, CIV-2012-404-2593 (”CIV 2593”), Mrs Patel asserts, in the latest iteration of the statement of claim, eight alternative causes of action as follows:
a) A claim under the Family Law Act 1975 (Commonwealth of Australia) for the division of property owned by Narendra Patel, Praful Patel, and her.
b) A claim for interim relief in aid of the Australian proceedings.
c) A claim for a freezing order to support the claims in the Australian proceedings.
d) A claim under s 44 of the Property (Relationships) Act 1976 (New
Zealand).
e) A claim in equity alleging that “the properties of the companies” in which Praful Patel holds shares are owned by him allegedly as trustee for Narendra Patel and her.
f) An equitable claim based on an allegation of a constructive trust arising from Mrs Patel’s reasonable expectation that she had an interest in the disputed assets and the land owned by the companies.
g) A claim based on an alleged “express and/or constructive trust”
arising from the unjust enrichment of Narendra Patel and Praful Patel.
h)A claim, based on knowing receipt, that Praful Patel and Narendra Patel took title to certain of the disputed assets in breach of Mrs Patel’s proprietary rights.
[5] A number of these causes of action are the subject of arguments by Narendra Patel and Praful Patel that this Court has no jurisdiction to deal with them. In respect of the claims under the Australian Family Law Act to property in Australia and New Zealand, and the claim under the Property (Relationships) Act 1976, the arguments will involve consideration of the domicile of Narendra Patel and Mrs Patel. At least in respect of real estate owned, and bank accounts held, by the New Zealand- registered companies, there is a question whether Mrs Patel’s claims must be confined to the shares in the companies or may extend to the assets of the companies.
[6] In support of her claims in respect of the shares in the companies and the companies’ assets, Mrs Patel registered caveats against properties owned by the companies and also filed notices of her claims under s 42 of the Property (Relationships) Act. She has applied to sustain the caveats in CIV-2012-404-2316 (“CIV 2316”). The companies have applied for orders removing the caveats and the s 42 notices in CIV-2012-404-1500 (“CIV 1500”). Praful Patel and two of the companies also sued Mrs Patel for damages for alleged defamation and applied for declarations in respect of the ownership of the companies’ shares (CIV-2012-404-
1502). The plaintiffs have since discontinued this proceeding and I say no more about it.
[7] In respect of the proceeding by Mrs Patel seeking division of property, CIV-
2593, Narendra Patel has signalled a forum non conveniens argument asserting that, if this Court does have jurisdiction to deal with those matters, the claims should nevertheless be heard in Australia in conjunction with the proceedings already under way there.
[8] I was informed from the Bar that the companies are indebted to the Bank of New Zealand in the sum of approximately $30 million and that the Bank’s security attaches to all of the companies and their tangible assets. To pay tax and reduce the level of debt, the companies propose to sell a property at 55 Clyde Road, Browns Bay (“the Browns Bay property”), which owned by one of the companies, Viaduct Waterfront Investments Limited (“Viaduct”). It is said that arrangements are in place to sell the property at auction through Colliers International ("Colliers"), and it is anticipated that the estimated sale price of $5.5 million will be sufficient to enable the companies to meet their immediate obligations regarding company tax and the indebtedness to the Bank.
Discussion of orders sought to allow the sale of the Browns Bay property and
for limitations on management of the companies’ assets
[9] There is a dispute over whether the s 42 notice and caveat present an obstacle to the effective marketing of the Browns Bay property and the achievement of a fair value price. Ms Hollings QC has contended that the protections provided by the notices and caveat should remain in place at least until the property is sold and title is due to be transferred to the purchaser. I am satisfied on the affidavit evidence and counsel’s submissions, however, that that there is a legitimate reason for the sale and that it would be more commercially realistic to assume that the removal of those encumbrances would provide Viaduct with the ability to obtain the best price for the asset. If Mrs Patel succeeds in her claim to the shares in Viaduct, the reduction in bank debt will benefit her by increasing the value of the shares. Mrs Patel’s concerns about the manipulation of the companies’ assets to defeat her claims can be met, in the interim, by attaching conditions to the removal of the s 42 notice and the caveat from the title.
[10] At present, it is only the Browns Bay property which Viaduct seeks to sell and no application has been made by any of the other companies for immediate relief. Mrs Patel will have the assurance for the immediate future that the other properties cannot be disposed of without the intervention of the Court.
[11] Aside from those pragmatic considerations in favour of the relief sought in respect of the Browns Bay property, I am not persuaded that Mrs Patel has an arguable claim that the Browns Bay property itself, as opposed to shares in the company which is the registered proprietor of it, is susceptible to orders vesting beneficial ownership in her, whether under the Australian Family Law Act, or under the New Zealand Property (Relationships) Act, or in equity. In the absence of any evidence or allegation that the companies are shams, Ms Hollings QC has not presented an arguable basis for lifting the corporate veils so as to enable the Australian or New Zealand courts to make orders directly affecting the companies’ assets.
[12] Nevertheless, while I think it is appropriate at this stage to remove any impediment to the sale of the Browns Bay property by Viaduct, I am satisfied on the evidence that there is a good arguable case in the CIV-2593 proceeding that Praful Patel is a resulting or constructive trustee of at least some of the shares in the companies, and that Mrs Patel has a beneficial interest in the shares. I am also satisfied that Mrs Patel’s claims to such interests ought to be protected, so far as possible, pending substantive resolution of the claims, whether by this Court or in the Australian proceedings. Narendra Patel and Praful Patel have not had an adequate opportunity to respond to the allegations made by Mrs Patel in her affidavit of 2 August 2012 in the CIV-1500 and CIV-2316 proceedings. I do no more, therefore, than say that, on the basis of documents copies of which are attached to the affidavit, I am satisfied that there is at least a prima facie case that Praful Patel holds the shares in trust. Mr Salmon did not argue otherwise.
[13] Mr Salmon did submit, however, that the injunctive relief sought by Mrs Patel in relation to the companies’ bank accounts and the use of company funds amounted to freezing orders which the Court was not entitled to issue. In the light of the documents located by Mrs Patel, however, I am satisfied that it is appropriate to
make those currently managing the affairs of the companies accountable to her for their actions, and for the Court to exercise a supervisory role, pending resolution of the claims. In the context of the proceedings overall, the orders I intend to make are legitimate conditions on the exercise of the Court’s discretion to remove the s42 notice and caveat from the Browns Bay property. Since the companies appear to be no more than vehicles for investment in real estate, there should be little for the companies to do in the interim other than receive rent and meet ordinary outgoings. A reservation of leave to apply for directions will enable the parties to deal with any proposal for the proper encumbrance, transfer or other disposal of assets which may be unduly inhibited by the orders made in this judgment. For that reason, I decline to order Mrs Patel to give any undertaking as to damages.
[14] In general terms, I indicated these views to counsel at the hearing and allowed the parties time to agree on terms which would achieve an appropriate balance between protecting Mrs Patel’s interests pending resolution of the issues and allowing the companies to act in the ordinary course of business and, in particular, to meet the immediate demands to pay tax and reduce debt. They were unable to agree but I have, at least, had the assistance of detailed proposals in memoranda from Mr Salmon and Ms Hollings QC and I propose to make orders which contain elements of the suggestions made by both counsel. I do so on the basis that leave to be reserved to the parties to make further applications for interlocutory orders will extend to applications to vary the terms of the orders regarding the sale of the Browns Bay property, the disposition of the proceeds of sale, and the conduct of the business of the companies.
[15] I am conscious that Mrs Hinton QC did not remain in Court throughout the hearing on 6 August 2012 and that she was excused from attendance on the basis that no orders would be made directly affecting Narendra Patel without notice to her and an opportunity to make submissions. I do not think the orders made in this judgment breach that assurance but, in case they do, I will reserve leave to Mrs Hinton to make an urgent application for further or other orders. In any event, I will reserve leave to any party to make further applications which may be heard at the next interlocutory hearing on 20 September 2012.
Discussion of applications for discovery orders
[16] In respect of the claims in CIV-2593, Mr Salmon argued that the applications by Mrs Patel for orders under the Australian legislation and the New Zealand relationship property legislation were misconceived and bound to fail. He conceded there was an arguable case in equity for the existence of a trust in relation to the company shares. I did not hear from Ms Hollings on the jurisdictional issues other than in passing, and do not have a settled view on any of them. A preliminary view, however, suggests there may be real impediments to this Court making orders under the Australian Family Law Act and, if Mrs Patel’s claims are confined by law to the companies’ shares (movables) rather the companies’ assets (immovables), Mrs Patel will need to overcome the jurisdictional limits imposed by s7 of the Property (Relationships) Act. Nevertheless, it seems to me that there must be arguable jurisdiction for this Court to hear and determine equitable causes of action brought in relation to shares in New Zealand-registered companies which are currently held by a New Zealand resident.
[17] Realistically, Mr Salmon was not opposed to orders for tailored discovery and orders for discovery against non-parties, except to the extent that he queried whether such orders could be made, or should be made, in the proceedings related directly to the s 42 notices and caveats. Mrs Patel’s discovery applications were made in CIV-1500 and I accept that they might more aptly have been made in CIV-
5012 or CIV-2593. I am satisfied, in part because of the nature of the allegations made in Mrs Patel’s affidavit of 2 August 2012, that discovery orders of the type sought should be made in Mrs Patel’s substantive proceeding, CIV-2593, notwithstanding that the jurisdictional issues have not been resolved.
Timetable orders
[18] I record, therefore, the timetable orders made orally on 6 August 2012 as follows:
(a) I made an order directing Mrs Patel to file and serve any amended statement of claim under CIV-2539 by 20 August 2012. That has been done and no further order is necessary.
(b)I also ordered that the respondent parties in that proceeding would have until 3 September 2012 to file pleadings in response to any amended statement of claim and to make any further interlocutory applications which might be appropriate. I do not know whether that has been done.
[19] In any event, given that this judgment is delivered later than intended, I make an order varying the earlier timetable to provide that the respondent parties in CIV-
2539 shall have until 12 September 2012 to file and serve pleadings in response to the amended statement of claim dated 20 August 2012.
[20] All parties in the three remaining proceedings (CIV 2012-404-1500, -2316 and -2593) shall have leave to file and serve any further interlocutory applications which may be appropriate in those proceedings by 13 September 2012. Any notices of opposition in respect of any such application shall be filed and served by
18 September 2012.
[21] I also amend the timetable order for the filing of memoranda identifying the outstanding issues by extending the time for that step until 17 September 2012.
[22] I record the order that submissions in respect of the unresolved interlocutory issues which are for hearing on 20 September 2012, and which will include any fresh interlocutory applications made in accordance with these orders, shall be filed and served by 18 September 2012.
Non-party discovery orders
[23] On the basis of the usual undertaking as to costs by an applicant for non-party discovery, I make the following orders in CIV-2012-404-2593:
(a) An order for non-party discovery against Markhams Chartered
Accountants and Business Advisers in terms of the application dated
30 April 2012 made in CIV-2012-404-1500 as if it were made in CIV-
2012-404-2593.
(b) An order for non-party discovery against the Bank of New Zealand
Limited in terms of the application dated 30 April 2012 made in CIV-
2012-404-1500 as if it were made in CIV-2012-404-2593.
(c) An order for non-party discovery against Brown Partners Lawyers in terms of the application dated 30 April 2012 made in CIV-2012-404-
1500 as if it were made in CIV-2012-404-2593.
(d)An order for non-party discovery against Asset Metro Limited in terms of the application dated 30 April 2012 made in CIV-2012-404-
1500 as if it were made in CIV-2012-404-2593.
[24] The parties against whom the orders for non-party discovery have been made shall have 21 days from the date of this judgment to provide sworn lists of documents. Further, in the event that any of the parties or named non-parties requires to be heard in respect of the orders made, leave is reserved accordingly to apply for such further or orders of the Court as the applicant may consider appropriate. Mrs Patel shall pay the actual and reasonable costs incurred by the discovering party in complying with the orders.
Tailored discovery orders
[25] I make the following orders in CIV2012-404-2593:
(a) An order for discovery against Narendra Patel in terms of the application dated 30 April 2012 made in CIV-2012-404-1500 as if it were made in CIV-2012-404-2593.
(b)An order for discovery against Praful Patel in terms of the application dated 30 April 2012 made in CIV-2012-404-1500 as if it were made in CIV-2012-404-2593.
Orders for removal or lapse of the caveat and s42 notice over the Brown’s Bay
property
[26] In CIV-2012-404-1500, I direct that the Registrar-General of Land shall remove forthwith the notice of claim lodged on behalf of Renuka Patel over the real property owned by the Viaduct Waterfront Investment Limited at 55 Clyde Road, Browns Bay numbered 8975407.1 as referred to in Schedule 2 to the application by the applicants dated 20 March 2012.
[27] In CIV-2012-404-2316, I order that the interim orders made by this Court on
10 May 2012 shall be varied so as not to apply to the caveat and notice of claim over the property at 55 Clyde Road, Browns Bay, owned by Viaduct Waterfront Investment Limited, to enable the proposed sale of that property by auction, and further order that the caveat and notice of claim over the Browns Bay property are to lapse within five days of the sealing of this order.
[28] The orders in [26] and [27] are made on the following conditions that, until the further order of the Court:
(a) Mrs Patel shall not disclose any information obtained by virtue of these orders to any person other than her professional advisors.
(b) Praful Patel, on behalf of Viaduct Waterfront Investment Limited
(“Viaduct”), shall instruct Colliers International (Colliers”):
(i)to copy to Mrs Patel or her solicitors (either way at an address to be nominated by her solicitors) on any material correspondence regarding the intended auction of Viaduct’s property at 55 Clyde Road, Browns Bay, such information to include any correspondence regarding auction terms, times,
and practice by Colliers at the auction of submitting ‘vendor bids’ and the fixing of a reserve; and
(ii)to respond to any queries by Mrs Patel regarding arrangements for the action of Viaduct’s Browns Bay property as if she were a vendor.
(c) Navendra Patel, Praful Patel and any of the companies in CIV-2012-
404-1500 and CIV-2012-404-2316 (“the companies”) shall not themselves or through an intermediary or agent seek to bid at the auction of the Browns Bay property nor shall they seek to negotiate a purchase of the property at any time. The Browns Bay property shall not be acquired by either Praful Patel or Narendra Patel or their agent, or by any entity used or controlled by Praful Patel or Narendra Patel, or by any of the companies or any of their agents. For the avoidance of doubt, this will not prevent Colliers undertaking or arranging dummy vendor bids under the reserve if that is Colliers’ practice/recommendation at the auction.
(d) Praful Patel and Viaduct shall:
(i)irrevocably instruct Russell McVeagh to act for Viaduct on the sale of the Browns Bay property; and
(ii)procure Russell McVeagh to give an irrevocable undertaking to Mrs Patel as follows:
“We undertake that, following receipt of any settlement funds arising from the sale of 55 Clyde Road, Browns Bay, we will pay those settlement funds (less real estate agent’s commission relating to the sale) to BNZ in partial repayment of advances to the Companies by BNZ currently secured by mortgage 8647434.3 registered over the certificate of title to the property.”
(e) Praful Patel and Viaduct shall irrevocably instruct Russell McVeagh to
confirm directly to Mrs Patel’s solicitors that the proceeds of sale of
the Browns Bay property have been paid in accordance with their undertaking.
(f) Forthwith upon payment of the proceeds of sale of the Browns Bay property in accordance with Russell McVeagh’s undertaking, Narendra Patel and Praful Patel shall obtain from the Bank of New Zealand (“BNZ”) confirmation of account balances and debt across all accounts held by them or the companies and provide the same to Mrs Patel’s solicitors.
(g)The bank borrowing of the companies or any of them shall not be increased from the level of indebtedness immediately following repayment of BNZ debt as advised by the BNZ following payment of the proceeds of sale of the Browns Bay property.
(h)Other than making such payments for tax, rates, insurance premiums, routine maintenance costs, professional fees, property management fees, body corporate levies, real estate agent fees and commissions, property advertising costs, and the repayment of bank debt, none of the companies shall make any payment, or enter into any deed, instrument or contract to acquire any asset valued at more than
$20,000, or receive a supply of services to a value of greater than
$20,000, without first providing Mrs Patel’s solicitor’s 21 days’ written notice of their intention to do so, such notice to include copies of any documents relevant to that proposed transaction or payment.
(i)(Save for the purposes of giving effect to these orders), the companies shall not, without first providing Mrs Patel’s solicitor’s 21 days’ written notice of their intention to do so (such notice to include copies of any documents relevant to the proposed transaction):
(i)undertake any activity which would cause any of the companies to assume or extend any liability of more than
$20,000, or dispose of any asset valued at under $20,000 other
than in accordance with these orders or in the ordinary course of business, or encumber or dispose of any asset valued at more than $20,000; or
(ii)cause any of the companies to make advances to any person or entity;
(iii)further encumber, charge, sell, transfer, or otherwise deal with any interest in any real property including rights as a mortgagee;
(iv)repay any loans in favour of Narendra Patel, Praful Patel or any relative of either of them;
(v)amend, or cause or permit to be amended, any term of the Constitution or Articles of Association of any of the companies.
(j)Praful Patel shall procure that, not later than the 21st day following the end of each calendar month, each of the companies shall provide to Mrs Patel’s solicitors a copy of that month’s financial statements for the company, which statements shall be prepared by a chartered accountant and shall disclose all receipts of income and payments of expenditure for the month, and all bank balances.
(k)Narendra Patel, Praful Patel and the companies shall not transfer or cause or permit to be transferred any shares in the companies without Mrs Patel’s prior written consent.
Ancillary orders
[29] In addition to leave reserved at [20] above, any party to CIV-1500, CIV-2316, or CIV-2593 shall have leave to apply on not less than three days’ notice to the other parties for any order amending or supplementing any of the orders made at [23]-[28].
[30] Copies of the orders made in this judgment are to be provided to all of the
companies’ bankers, Colliers International and Russell McVeagh.
[31] Notwithstanding r14.8 of the High Court Rules, costs are reserved. If required, I will hear the parties on costs in relation to the matters dealt with in this judgment at the hearing on 20 September 2012.
.............................................
Toogood J
2
0
1