Whitford Properties Ltd (in liq) v Coumat Ltd

[2019] NZHC 1001

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-1053

[2019] NZHC 1001

BETWEEN

WHITFORD PROPERTIES LIMITED (IN LIQUIDATION)

Plaintiff

AND

COUMAT LIMITED

First Defendant

GREGORY BRUCE HAYHOW

Second Defendant

Hearing:

22 November 2018

Appearances:

M C Black for the Plaintiff

G D Stringer and P J Wright for the Defendants

Results:

30 April 2019

Reasons:

8 May 2019

JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 8 May 2019 at 4 pm pursuant to r 11.5 of the High Court Rules

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

Solicitors:           Craig Griffin and Lord, Auckland

Inder Lynch, Auckland

Counsel:M C Black, Auckland P J Wright, Auckland

WHITFORD PROPERTIES LTD (IN LIQ) v COUMAT LTD [2019] NZHC 1001 [8 May 2019]

[1]    On 30 April 2019 I issued a results judgment in this matter, granting the defendants’ (“Coumat” and “Mr Hayhow”) application for an order striking out WPL’s proceeding.

[2]    I also dismissed the plaintiff’s (“WPL”) applications for summary judgment and discovery, and the defendants’ for summary judgment. These are my reasons.

Introduction

[3]    By this proceeding WPL seeks a share of sums that it contends Coumat acquired as vendor of land of which WPL is a former owner. Coumat denies that WPL is entitled to any share.

[4]    This Court has already determined an earlier claim by WPL against the defendants to this proceeding (“2014 proceeding”) and a Mr Bruce to whom I refer below.1 The defendants’ applications are made on the ground that this proceeding is an abuse of process, as WPL is seeking to re-litigate issues already decided in the 2014 proceeding or which could have been so decided.2 I accept this submission for the reasons below.

Background

[5]    The facts are set out in Whitford Properties Ltd v Bruce, and in the Court of Appeal’s decision in Coumat Ltd v Whitford Properties Ltd.3 What follows are those relevant to this decision.

[6]    WPL is the prior owner of a large parcel of land in Whitford (“land”). In 2014, WPL defaulted on its mortgage obligations to the ANZ, which then exercised its power of sale.

[7]    In the exercise of that power, ANZ issued a request for tenders to purchase the land. At the time WPL’s debt to the bank was approximately $8.5 million. Mr Allen,

1      Whitford Properties Ltd v Bruce [2016] NZHC 625.

2      High Court Rules 2016, r 15.1(d)

3      Whitford Properties Ltd v Bruce, above n 1; and Coumat Ltd v Whitford Properties Ltd [2018] NZCA 15.

a shareholder in and director of WPL, and a guarantor of its obligations to the bank, was the successful tenderer. Mr Allen and the bank entered into an agreement for sale and purchase, pursuant to which Mr Allen paid the bank a deposit of $1.25 million, a sum he had borrowed from Mr Hayhow.

[8]    Mr Allen did not settle his agreement for sale and purchase with the bank. In or about June 2014, the bank cancelled the agreement, and Mr Allen forfeited his deposit which the bank applied in reduction of WPL’s debt.

[9]    Mr Bruce, also a shareholder in and director of WPL, and a guarantor of its obligations, then entered the fray in July 2014. He and/or Coumat paid WPL’s debt to the bank, that debt now reduced by $1.25 million. The bank then transferred its mortgage to Mr Bruce.

[10]   In the exercise of his power of sale, Mr Bruce agreed to sell the land to Coumat for $10,014,956.4 The manner in which Mr Bruce and Coumat agreed the purchase price would be paid gave rise to the 2014 proceeding, that being the litigation referred to in [5] above. The agreement was that the $10,014,956 would be satisfied in the following way:

(a)a deposit of $2,560,054 (“deposit”), comprising:

(i)satisfaction of a debt of $1,310,054 that Mr Bruce owed Coumat to repay a loan made in October 2013; and

(ii)$1,250,000 being the sum referred to in [7] to [9] above.

(b)$7,454,902 to be paid on settlement. This was the sum paid to the ANZ in satisfaction of WPL’s debt to the bank, net of the $1.25 million referred to above.

[11]   In short, only $7,454,902 “changed hands”. Coumat became the registered proprietor of the land on 4 August 2016.

4      Property Law Act 2007, s 102.

2014 proceeding

[12]   WPL commenced  the  2014  proceeding  against  Mr Bruce,  Coumat  and Mr Hayhow.

[13]WPL’s causes of action in the 2014 proceeding were as follows:5

[46]WPL brings three causes of action against the defendants:

(a)Against Mr Bruce, Coumat and Mr Hayhow: mortgagee’s failure to strictly account for the mortgagee sale proceeds and liability as a statutory trustee;

(b)Against Mr Bruce: breach of duty of care;

(c)Against Mr Bruce, Coumat and Mr Hayhow: knowing receipt and dishonest accessory.

[14]   Duffy J heard the case in August 2016 and gave judgment for WPL in April 2017. The Judge did not accept all of WPL’s contentions but the outcome was that each defendant was ordered to pay WPL $2,560,054, being the deposit. Duffy J also awarded interest (compound in some respects) and costs, which she determined in July 2017.6

[15]The Judge made the following declarations and orders:

[151]Accordingly I make declarations as follows:

(a)Mr Bruce has breached the mortgagee’s duty to account for the surplus proceeds of the mortgagee sale of the land, insofar as he accepted payment less than the contract price.

(b)Mr Bruce has breached the mortgagee’s duty to obtain the best price reasonably possible insofar as he sold the land on terms whereby he did not receive good consideration for the full sale price of the land.

(c)Mr Hayhow and Coumat dishonestly assisted Mr Bruce in his breach of trust to account for the surplus proceeds of the sale of the land.

(d)Coumat knowingly received and enjoyed the surplus proceeds of the sale that were held on trust for WPL.

5      Whitford Properties Ltd v Bruce, above n 1.

6      Whitford Properties Ltd v Bruce [2017] NZHC 1674.

[152]I order as follows:

(a)Mr Bruce is to account to WPL in the sum of $1,310,054 and to pay equitable compensation to WPL in the sum of $1.25 million.

(b)Coumat is to account to WPL in the sum of $2,560,054;

(c)In the alternative, Mr Bruce, Mr Hayhow and Coumat are jointly or severally to pay WPL equitable compensation in the sum of $2,560,054;

(d)WPL’s total recovery from all defendants is limited to the sum of $2,569,054 together with such interest as the Court may order.

[16]Coumat and Mr Hayhow appealed Duffy J’s decision to the Court of Appeal.

The Court of Appeal dismissed the appeal in February 2018.7

[17]   In March 2018, Mr Hayhow or Coumat paid WPL the $2,560,054 plus the interest and costs that Duffy J had awarded.

Sale to Le Coz Limited

[18]This brings me to the present proceedings.

[19]   Prior to paying the sum due to WPL in March 2018, Coumat had entered into at least three agreements to sell the land. The purchasers under two of these failed to settle and forfeited the deposits they had paid. However, the third did settle.

[20]   WPL’s case is that it is entitled to approximately 25 per cent of both the forfeited deposits and the net proceeds of the successful sale, on the basis Coumat derived these funds from the land whilst it still had the use of WPL’s money. The  “25 per cent” to which I have referred is the percentage share, approximately, of the deposit of $2,560,054 to the $10,014,956 that Coumat ought to have paid on settlement of its purchase from Mr Bruce.

[21]The three agreements were as follows:

7       Coumat Ltd v Whitford Properties Ltd, above n 3.

(a)In September 2014 between Coumat and Whitford Village Holdings Limited (“WVHL”). WVHL forfeited its deposit of $1,125,000 when it failed to settle.

(b)In January 2016 between Coumat and a Mr Ford, pursuant to which Mr Ford forfeited a deposit of $550,000.

(c)In October 2016, so two months after the hearing before Duffy J. Coumat agreed to sell the land to a third party, Mr Murphy, for

$22.5 million. That price may appear remarkable but it reflects valuable resource consents that were obtained after Coumat acquired the land. Coumat and  Mr Murphy’s  nominee,  Le  Coz  Limited  (“Le Coz”), settled this sale in July 2017, and Le Coz then became the registered proprietor of the land.

WPL’s causes of action

[22]WPL pleads the following causes of action.

[23]   First, that the defendants’ failure to account to WPL for WPL’s share of the gain realised on the sale to Le Coz was achieved in breach of trust and of fiduciary duties.

[24]   Secondly, WPL seeks restitution of its share of that same profit. It contends that Coumat has been unjustly enriched through its retention of the funds.

[25]   Thirdly, that the defendants are liable in equity to account for at least a share of the deposits that the two prospective purchasers paid and forfeited as referred to above.

Application to strike out

[26]I turn now to the defendants’ application to strike out.

[27]   The defendants submit that the present proceeding, or at least the first two causes of action, is precluded by what counsel, Mr Wright, referred to as the “finality”

rules. In particular, the defendants submit that the first two causes of action are precluded by cause of action estoppel and the doctrine of merger; by issue estoppel; and because they constitute an abuse of procedure in the sense originally identified in Henderson v Henderson.8 Counsel also submitted that WPL had made an election as to its remedy in the 2014 proceeding, could not resile from it, and that it was seeking “double recovery”.

[28]   It is unnecessary to consider each ground on which the defendants’ have based their application, because I am satisfied that this proceeding is an abuse of process as the defendants submitted.

Relevant authorities

[29]   In Beattie v Premier Events Group Ltd, the Court said that it is an abuse of process for a plaintiff to commence a proceeding in which it seeks to rely on issues or facts which could and ought to have been raised in a previous proceeding.9 The Court made that statement at the conclusion of a section in which it referred to the principal authorities, which I shall reproduce to give the necessary background:

[43]      A third kind of case is often traced to the judgment of Sir James Wigram VC in Henderson v Henderson the case relied on by Mr Eichelbaum. In a well-known passage, the Judge said:

In trying this question, I believe I state the rule of the Court correctly, when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.

[44]That statement of the law was referred to by this Court in

Commissioner of Inland Revenue v Bhanabhai where reference was also made

8      Henderson v Henderson (1843) 3 Hare 100, 67 ER 313 (Ch).

9      Beattie v Premier Events Group Ltd [2014] NZCA 184, [2015] NZAR 1413 (footnotes omitted).

to the discussion of Henderson v Henderson in Johnson v Gore Wood & Co (a firm). For present purposes, it is sufficient if we repeat Lord Bingham’s observations in Johnson, which were quoted by this Court in Bhanabhai:

… Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.

[45]      Thus it is an abuse of process to commence a proceeding, although not estopped by the principles of either cause of action estoppel or issue estoppel, where the plaintiff seeks to rely on issues or facts which could and ought to have been raised in a previous proceeding.

[30]    Similarly, in Broadspectrum (New Zealand) Limited v Nathan, the Court of Appeal said:10

[49]      It is incumbent upon a party to litigation to raise every point that is relevant to the issues before the court in that litigation. This point is often traced to the following passage from the judgment of Sir James Wigram VC in Henderson v Henderson [as above]:

[50]      If a party does not raise an aspect of its case in litigation, but then in a later proceeding attempts to introduce it as relevant to the same issue between the parties, that can amount to an abuse of procedure. Lord Bingham put the matter as follows in Johnson v Gore Wood & Co (a firm) [as above]:

10     Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA 434.

Discussion

[31]   I am satisfied that WPL could and ought to have pursued its present claims in the 2014 proceeding. WPL knew well in advance of trial that Coumat intended to sell the land, and that the value of the land would increase substantially if Coumat obtained resource consents for subdivision, which it did in late 2014 or in 2015. Indeed, on one reading of its pleading and Duffy J’s judgment, WPL was in fact pursuing a claim to a share of any funds that Coumat derived after its acquisition of the land.

[32]WPL’s knowledge of Coumat’s intentions is evidenced by the following.

[33]   In June 2015, so more than a year before the hearing in front of Duffy J, WPL made an application for a freezing order against Coumat.11 By its application, WPL sought to restrain Coumat from disposing of or encumbering the land, alternatively an order that any sale by Coumat should be on identified conditions including a sale price of not less than $21 million with the proceeds of sale retained pending trial. The reference to $21 million recognises the value of the resource consents.

[34]   Although he declined the application, Wylie J did not doubt that Coumat intended to sell the land. Rather, there was no agreement to sell on foot at the time nor evidence that Coumat would dissipate the proceeds if it did sell. Those matters, and deficiencies with WPL’s undertaking, led the Judge to decline the application. In

[65] of his judgment, Wylie J said:

[65]   Here the only identified asset is the property. It could be the subject   of a freezing order. However, Mr Gustafson, appearing for Whitford, was at pains to stress that Whitford wishes to cause as little commercial disruption to Coumat as is possible, whilst preserving its claims against Coumat. He accepted that Coumat could and should continue to pursue the resource consent necessary to permit subdivision of the property, but said that it should not dispose of, dissipate the existing equity in, or further encumber the property by way of mortgage, lien or additional secured borrowings. He accepted that if Coumat obtained the resource consent, the property should be sold, provided that it is sold on the terms imposed by Whitford, namely that it should be sold for not less than $21 million, that the sale proceeds should be paid in cleared funds, and that the sale proceeds should be held by third party solicitors pending determination of the substantive proceedings.

11     Whitford Properties Ltd v Bruce [2015] NZHC 1426.

[35]   I note also that WPL knew of at least one of the agreements referred to in [21] above, being the agreement between Coumat and WVHL. I say that because WPL pleaded that agreement in its statement of claim in the 2014 proceeding, and it also pleaded the caveat that WVHL had lodged to protect its interest under that agreement.12

[36]   Mr Black, for WPL, submitted that WPL could not have pursued Coumat in the 2014 proceeding for a share of the sums now in issue, particularly as Coumat agreed to sell to Mr Murphy after the trial before Duffy J, and even then the defendants declined to provide information when asked to do so.

[37]   I do not accept this submission. It was not necessary for Coumat to have agreed or completed a sale for WPL to plead such causes of action as it considered would entitle it to a declaration or an order that Coumat account in due course, as WPL has now done.

Issue estoppel

[38]   Mr Wright also submitted that an issue estoppel arises as WPL put a case to the Court in the 2014 proceedings that it was entitled to a share in the proceeds of sale, and this was dismissed.

[39]   The background to this submission is WPL’s pleading for an order that the defendants to the 2014 proceeding:13

(e)... also account for any consequential benefits or gains derived by them from the mortgagee sale and in obtaining the property.

[40]   The following passages from Duffy J’s judgment are relevant, in that they respond to this pleading:14

[44] Coumat attempted to sell the land once it secured its purchase. There was more than one attempt. Sale and purchase agreements were executed but it was not clear to me if any had settled and ownership of the land transferred

12     See the Second Amended Statement of Claim, dated 3 May 2016, being annexure “D” to the Affidavit of G B Hayhow, sworn 6 July 2018.

13     See the Second Amended Statement of Claim, above n 12, at [15](e).

14     Whitford Properties Ltd v Bruce, above n 1.

to someone else. I do not see these as relevant as the circumstances are quite different from the subject sale.

…

[142]     For the breaches of the duties Mr Bruce owed to WPL, WPL also seeks orders for an account and equitable compensation from Mr Hayhow and Coumat. However, they did not owe those duties to WPL. Accordingly, WPL can claim no relief against Mr Hayhow and Mr Coumat for breaching those duties.

[143]     WPL has also sought declarations giving it a proprietary interest in the land or for the defendants to account for consequential benefits or gains derived by them from the mortgagee sale or from obtaining the property.

[144]     WPL has provided little in the way of legal argument to support it having a proprietary interest in the land. It has not sought to undo the sale of the land, which is sensible in the circumstances. Once the mortgagee sale proceeded to settlement WPL’s entitlement to relief became restricted to recovery of the surplus funds from the mortgagee sale together with interest. Accordingly WPL’s request for orders or declarations recognising it as having a proprietary interest in the land, or ordering the defendants to account for benefits and gains derived from the mortgagee sale (other than the failure to pay the deposit payment) is dismissed.

...

[149]     Coumat has effectively received the land at a discount price (as a result of Mr Bruce’s breach of trust) and in this way it has profited from its equitable wrong doing. Accordingly, Coumat can be ordered to account for profit of $2,560,054 or, alternatively, to pay WPL equitable compensation of the same sum.

[150]     Because I consider all of WPL’s interest and entitlements in the land ceased at the time it was sold to Coumat I consider that, as with the relief sought in relation to Mr Bruce, WPL can claim no ongoing proprietary interest in the land. Nor can it claim recovery from Mr Hayhow or Coumat of any benefits they may have subsequently derived from Coumat’s acquisition of the land.

…

[41]WPL did not cross-appeal the Judge’s findings and is bound by them.

[42]   I add that, in its appeal to the Court of Appeal, WPL made an application to adduce evidence of Coumat’s agreement to sell the land to Mr Murphy. In support of its application, WPL submitted that  the  evidence  was  relevant  to  Coumat  and  Mr Hayhow’s “honesty” or lack thereof. It also submitted that Coumat and

Mr Hayhow were “proportionally accountable in equity for a share of the on-sale profit made by them”.

[43]The Court of Appeal declined the application, saying:15

[66] We decline the application to adduce new evidence. The proposed new evidence was to the effect that the Whitford Land had been on-sold by Coumat in late 2016 for a price in the vicinity of $22 million or more, a great profit. However, given that it is agreed that when the Whitford Land was sold the best price reasonably obtainable was the $10,014,956 sale price, evidence of later sales is irrelevant.

[44]   This suggests to me that the Court of Appeal agreed with Duffy J that WPL had no interest in the land or proceeds derived from it, beyond the sale to Coumat.

[45]   Whether or not the above found an issue estoppel meeting the requirements of Shiels v Blakeley, they certainly reinforce a conclusion that WPL’s current proceeding is an abuse of process.16

Conclusion

[46]   For these reasons, I was satisfied the proceeding is an abuse of process and struck it out accordingly. That in turn made it unnecessary to determine the other applications to which I referred to in [2] above.

Costs

[47]   I hope the parties can agree costs and disbursements but they may file brief memoranda if necessary.

Peters J

15     Coumat Ltd v Whitford Properties Ltd, above n 3.

16     Shiels v Blakeley [1986] 2 NZLR 262 (CA).