Worldclear Limited v T1 Holdings Limited (in liquidation)

[2019] NZHC 1246

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2018-419-189

[2019] NZHC 1246

IN THE MATTER OF

a breach of contract and claims in Equity

BETWEEN

WORLDCLEAR LIMITED

Plaintiff

AND

TI HOLDINGS LIMITED (IN LIQUIDATION)

First Defendant

AND

RICHARD JAMES WHITHAM

Second Defendant

AND

RETAIL GURU LIMITED

Third Defendant

Hearing:	30 April 2019
Appearances:	J S Ridling for Plaintiff
Judgment:	4 June 2019

JUDGMENT OF PAUL DAVISON J

This judgment was delivered by me on 4 June 2019 at 4:15 pm Pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Braun Bond & Lomas Ltd, Hamilton

WORLDCLEAR LIMITED v TI HOLDINGS LTD (IN LIQ [2019] NZHC 1246 [4 June 2019]

[1]    Worldclear Limited (the plaintiff) applies for judgment against Richard Whitham (the second defendant) by way of formal proof and also seeks a related tracing order.

[2]    On 30 October 2018, on an earlier application for judgment by formal proof, Lang J entered judgment against Retail Guru Limited (the third defendant), in the sum of NZ $382,965.68. His Honour reserved leave to the plaintiff to further apply to enter judgment against the three defendants in relation to other sums that the plaintiff may ascertain have been converted by them.1

Plaintiff’s claim and causes of action against the second defendant

[3]    Service of the proceedings upon the second defendant was effected by email on 22 August 2018. Prior to the proceedings being forwarded to him, he had agreed to accept service via email. The second defendant’s email advising that service of the proceedings could be effected via his email address and the email forwarding the proceedings to him are exhibited to the second affidavit of David Hillary, the plaintiff’s managing director, filed in support of the application for formal proof.

[4]    The second defendant has not filed a statement of defence or taken any other steps in relation to the proceeding since being served on 22 August 2018.

[5]    Rules 15.9(1) and (2) of the High Court Rules 2016 provide that where a defendant does not file a statement of defence within the number of working days required by the notice of proceeding, and the plaintiff seeks judgment by default for other than a liquidated demand, the proceeding must be listed for formal proof and no further notice is required to be given to the defendant.

[6]    In my judgment delivered on 23 May 2018 granting freezing orders, I set out the background to the plaintiff’s claim against the defendants, including the second defendant, which I reproduce here:2

[3]        Worldclear has operated as a financial service provider from premises in Hamilton since January 2015.

1      Worldclear Ltd v TI Holdings Ltd (in liq) [2018] NZHC 2803.

2      Worldclear Ltd v Whitham [2018] NZHC 1175.

[4]        In his affidavit Mr Hillary has described how in August 2017 Mr Whitham was employed by Worldclear with responsibilities to establish banking relationships on behalf of Worldclear with banks in New Zealand. After Mr Whitham encountered difficulties establishing bank accounts for Worldclear, it was agreed that a company would be set up through which Mr Whitham would establish bank accounts which could then be used by Worldclear for the transfer of funds in accordance with its business. Mr Hillary has annexed to his affidavit exhibits confirming that Mr Whitham was employed by Worldclear and showing the establishment of the first respondent, TI, of which Mr Whitham is a director.

[5]        Also exhibited to Mr Hillary’s affidavit is an agreement dated 18 January 2018 between Worldclear and Retail Guru regarding the initial start- up funding of TI. The agreement signed by Mr Whitham for Retail Guru and TI, and by a representative of Worldclear states that Worldclear will provide initial start-up funding of $41,500 to TI for the activation of foreign currency accounts. The agreement further provides for the initial start-up funding to be paid to a bank account held by Retail Guru. The agreement further provides:

TI holdings Limited will be charged bank fees from ANZ and ASB respectively. Remaining funds will remain in stasis unless required by Worldclear Limited, or utilised to pay necessary banking fees, or utilised to make payments upon written approval by Worldclear Limited.

[6]        Mr Hillary says in his affidavit that once TI was established, funds were transferred by Worldclear into TI’s bank accounts and thereafter transferred by TI to parties nominated by Worldclear. Similarly, funds were received by TI on behalf of Worldclear and held in the bank accounts it had established in order to carry out transactions for Worldclear.

[7]        Mr Hillary says that Mr Whitham requested that any monies to which he became entitled pursuant to his arrangements with Worldclear were to be paid to him via the second respondent, Retail Guru.

[8]        In return for Mr Whitham operating TI in accordance with Worldclear’s directions, Worldclear agreed to pay him a director’s fee together with a bonus for every banking relationship he established.

[9]        Payments of the directors’ fees and bonus were made by Worldclear to Retail Guru, and Mr Hillary has annexed copies of invoices issued by Retail Guru to Worldclear in accordance with these arrangements. Other expenses were met by Worldclear by payments made to Retail Guru for such items as a trip by Mr Whitham to Singapore to establish bank accounts there, and for setting up a new company in Singapore which would open bank accounts in order to conduct business for Worldclear.

[10]      Mr Hillary says that as of 16 May 2018 the value of funds held in TI’s bank accounts on behalf of Worldclear totalled $3,308,450.

[11]      On 17 May 2018 Mr Hillary says that he received confirmation from the Bank of America that a transfer of funds from other sources to the TI ASB account of US $400,000 had been successfully processed. The same day Mr Hillary says he received confirmation from Chase Bank that an order to transfer funds from other sources to the ASB account operated by TI of US

$499,200 had been successfully processed. As a result of those two inward payments from sources not under the control of TI Holdings, Mr Hillary says that the total Worldclear funds held by TI as at 17 May 2018, totalled

$4,611,535.

[12]      Mr Hillary says that on Thursday 17 May 2018 Mr Whitham was in his office apparently attending to his routine work relating to the operation of the TI accounts by processing payments and transactions undertaken by Worldclear. However, during the morning he left the office explaining that he had to look after a sick child, and saying that he would not be in the following day. The following day, Mr Hillary sent Mr Whitham text messages asking whether he was available to process two large foreign exchange transactions that were required to be done that morning, and saying that the Worldclear staff were unable to access the TI bank accounts at the ANZ, ASB, and BNZ as usual. Mr Whitham responded by text at 09:59 am commenting “that’s weird”. Thereafter, Mr Whitham did not respond to Hillary’s further messages requesting him to contact him. Mr Hillary says that when the Worldclear staff who were authorised to access the TI bank accounts enquired of the banks why they were unable to access the accounts, they were told that they had been deleted as users by the account administrator, Mr Whitham.

[13]      After finding that the Worldclear staff were unable to access the internet banking platforms of the banks, Worldclear then contacted the ANZ bank, and Mr Hillary says that Worldclear was told that Mr Whitham had ordered the transfer of almost all the available funds to his personal account at the ASB bank.

[14]      Enquiries made by Mr Hillary on Friday 18 May led him to conclude that Mr Whitham and his family had left New Zealand and on the same day Mr Hillary was informed by the New Zealand Police that Mr Whitham had departed New Zealand.

[15]      The same day Mr Hillary noticed that drop box files on the Worldclear system were being changed and deleted, and from the activity log it appeared that Mr Whitham was responsible for doing so.

[16]      Mr Hillary says that Mr Whitham is an employee of Worldclear who continued to receive payments as an employee throughout the entire period following his employment to the present time. Mr Hillary further states that the funds held in the bank accounts in the name of the second respondent, TI Holdings, are funds owned by Worldclear and at no time were these funds actually beneficially owned by TI Holdings or Mr Whitham. Mr Hillary says that he believes that Mr Whitham appears to have left New Zealand and is attempting to either obtain or retain Worldclear’s funds which were held on its behalf by the second respondent, TI Holdings.

The plaintiff’s evidence

[7]    The plaintiff’s evidence in support of the causes of action is primarily contained in the four affidavits of Mr Hillary. In his first affidavit, sworn 21 May 2018, Mr Hillary described the plaintiff as a registered financial services provider, whose business involves the provision of account, foreign exchange and payment

services to personal, commercial and institutional customers who are located in and outside New Zealand. As set out in the factual summary in my judgment of 23 May 2018, the second defendant commenced employment with the plaintiff in August 2017. His role was to establish banking relationships on behalf of the plaintiff with New Zealand banks. After some initial difficulties were encountered it was agreed between the plaintiff and the second defendant that a company would be established through which the second defendant would establish bank accounts which would then be used by the plaintiff for the transfer of its funds. That company was TI Holdings Ltd (the first defendant), and the second defendant was the company’s sole director.

[8]    Mr Hillary says that until 17 May 2018, the second defendant as part of his duties as an employee of the plaintiff, facilitated the transfer and conversion of funds for payments through accounts held in the name of the first defendant. Mr Hillary explains that at all times the bank accounts opened in the names of the first defendant were recorded in the accounting records as assets on the balance sheet of the plaintiff only and not the first defendant. That was because the funds held in the first defendant’s accounts were held for the plaintiff and because the first defendant had no separate proprietorial interest in the funds.

[9]    Mr Hillary describes in his evidence how the second defendant attended the plaintiff’s offices for work as usual on Thursday, 17 May 2018, before saying that he had to leave early to look after a sick child. It appears that the second defendant had for some time been planning to depart New Zealand without any prior notice to his employer. Mr Hillary says that based on the plaintiff’s cash management workbook as of 17 May 2018, the plaintiff had executed outgoing transactions from funds held by the first defendant totalling NZ $1,807,943.32. Mr Hillary says that if all those transactions were successfully and correctly processed the plaintiff’s total exposure would have thereby been reduced to NZ $2,803,591. However, if the 17 May 2018 outgoing transactions were not correctly processed, the plaintiff’s exposure is NZ

$4,541,585,3  being almost the same amount as a judgment entered by the Supreme

Court of Singapore against the defendants.

3      In this judgment I use the figure of $4,541,585, being the sum referred to in the statement of claim. The amount of the judgment entered by the Supreme Court of Singapore is $4,541,858, which figure has also been referred to in the plaintiff’s documents.

[10]   In his second affidavit in support of the plaintiff’s application for judgment by formal proof, Mr Hillary says that the liquidators of the first defendant in their liquidators’ report of 1 August 2018 state that the total value in New Zealand dollars of funds recovered or frozen as of 1 August 2018 is approximately $3,458,679. Mr Hillary says that as of 1 August 2018 the total amount of misappropriated funds which are still outstanding and not accounted for is NZ $1,083,179.

[11]   The plaintiff also relies upon an affidavit of one of the liquidators of the first defendant, Mr Colin Sanderson. Mr Sanderson, together with Mr Iain McLellan, is a liquidator of the first defendant. He says that as a result of their investigations, the liquidators have determined that on 22 May 2018 a transfer of NZ $10,000 was made from the first defendant into the personal bank account of the second defendant. On 17 May 2018 a transfer of NZ $50,000 was made from the third defendant to a party annotated as “YouMoney”. Mr Sanderson says that further inquiries with the Bank of New Zealand, with which the third defendant’s account was held, have confirmed that the payment was made to the account of the second defendant and his wife Erica Whitham.

[12]   In his second affidavit Mr Sanderson exhibits a spreadsheet which he has prepared which details all the payments which have been made to the plaintiff or the plaintiff’s lawyers on its behalf and which are to be credited against the amount of NZ

$4,541,585, being virtually the same amount as the judgment entered for the plaintiff by the Supreme Court of Singapore on 26 July 2018.

[13]   Mr Sanderson’s spreadsheet shows that a total of $1,544,933 has been paid to Worldclear or its lawyers. In addition, the third defendant repaid to the liquidators of the first defendant the sum of $309,000 resulting in a total amount recovered by or on behalf of the plaintiff of $1,853,933 and leaving an outstanding balance of $2,687,652.

[14]   Accordingly, the plaintiff claims that Mr Whitham enriched himself at the expense of the plaintiff to a total of NZ $4,541,585 and that such funds as he misappropriated and transferred out of the first defendant’s account to himself and others were thereafter impressed with a constructive trust and held for the benefit of the plaintiff.   The plaintiff therefore seeks judgment against Mr Whitham for the

amount of the Singapore judgment, less the recovered amounts as detailed by Mr Sanderson.

[15]   The plaintiff says that it also satisfies the requirements for its claim of knowing receipt by those parties to whom Mr Whitham arranged the transfer of the plaintiff’s funds. The plaintiff says that Mr Whitham was responsible for transferring the funds and did so by his own actions, that he had the requisite knowledge that the funds belonged to the plaintiff and that his actions were unlawful.

[16]   On the basis of the evidence contained in the affidavits of Mr Hillary and Mr Sanderson, the plaintiff submits that all of the elements required to bring claims against Mr Whitham for conversion; money had and received and knowing receipt are established. The plaintiff therefore seeks judgment against Mr Whitham for the outstanding balance as detailed by Mr Sanderson of $2,687,652.

The plaintiff’s causes of action

[17]The plaintiff pleads three causes of action against Mr Whitham, being:

(i)Conversion of funds.

(ii)Claim for money had and received.

(iii)Claim of breach of trust and knowing receipt.

[18]   On 26 July 2018 judgment by default was entered by the Supreme Court of Singapore against Mr Whitham and the first and third defendants in the sum of NZ

$4,541,858. A copy of the sealed judgment of the Supreme Court of Singapore is produced by Mr Hillary as an exhibit.

First cause of action – conversion

[19]   In relation to the conversion cause of action, the plaintiff alleges that the first defendant at all times held the plaintiff’s funds on trust for the plaintiff, and the second defendant, as director and employee of the first defendant, was only authorised to

access the first defendant’s bank accounts and transfer or deal with the plaintiff’s funds held in those bank accounts on behalf of and as directed by, the plaintiff.

[20]   The plaintiff alleges that the second defendant’s failure to use and apply the plaintiff’s funds as directed by the plaintiff was a conversion of the plaintiff’s funds and has deprived the plaintiff of those funds. The plaintiff seeks judgment against the second defendant in the sum of $4,541,585, being effectively the same sum for which judgment has been entered by the Supreme Court of Singapore against the second defendant, his wife Erica Whitham, and the first and third defendants, less the amount of $1,853,933 already recovered.

[21]   The plaintiff’s submissions did not expressly deal with the cause of action in conversion, other than to say that the elements were made out and without referring to those elements. I find that it is not satisfied for two reasons.

[22]First, as explained by Lord Templeman in Lipkin Gorman v Karpnale Ltd:4

Conversion does not lie for money, taken and received as currency: see Orton v Butler (1822) 5 B & Ald 652 and Foster v Green (1862) 7 H & N 881.

[23]   Second, conversion as a tort protects possession, not ownership. As explained by Mummery J in the English Court of Appeal in MCC Proceeds Inc v Lehman Brothers International:5

Some of the legal propositions relied on to support this argument were not disputed. It is helpful to record those in order to define and restrict the area of dispute on the law.

Conversion is a common law action, tortious in form, imposing strict liability for a wrongful interference with the right to possession of a chattel. It consists of any act of wilful interference, without lawful justification, with any chattel in any manner inconsistent with the right of another, whereby that other is deprived of the use and possession of it. See Salmond & Heuston on Torts (21st Edition) pages 97-98.

…

A person has title to sue for conversion if he has either actual possession or an immediate legal right to possession of the goods at

4      Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 (HL) at 559. See also Officeserve Technologies Ltd v Annabel’s (Berkeley Square) Ltd [2018] EWHC 2168 (Ch) at [26].

5      MCC Proceeds Inc v Lehman Brothers International [1998] 4 All ER 675 (CA) at 685 - 686.

the time of conversion. It is not necessary to prove ownership. A bailee at will has an immediate right to possession sufficient to bring a conversion claim.

[24]And later in the judgment of Mummery J:6

conversion is a common law action and the common law did not recognise the equitable title of the beneficiary under a trust. It recognised only the title of the trustee, as the person normally entitled to immediate possession of the trust property.

[25]   As observed by Lord Pill in the Court of Appeal, relying on the House of Lords decision of Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd:7

…equitable title or interest does not found the cause of action: it is the possessory title. For a plaintiff to succeed in an action in conversion he must show that in law he had the requisite possessory title, either actual possession or the right to immediate possession.

[26]   The plaintiff’s cause of action in conversion is founded on an equitable title to money, that was in the possession of a third party, and therefore must fail.

Second cause of action – claim of money had and received

[27]    The plaintiff’s second cause of action against the second defendant is for money had and received. The plaintiff alleges that its funds have been received by the second defendant, who has been unjustly enriched by his receipt of the funds at the expense of the plaintiff.

[28]   Here the plaintiff alleges that its funds have been received by the second defendant as a result of his transfer of funds held beneficially for the plaintiff in the first defendant’s accounts, to accounts held and controlled by him. The plaintiff alleges that the second defendant has been unjustly enriched by his receipt of the plaintiff’s funds and that by his actions the plaintiff has been deprived of its use of or access to its funds, which remain in the possession or under the control of the second defendant.

6      At 691.

7      At 701; Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd [1986] AC 785.

[29]   Under this cause of action, the plaintiff seeks judgment for the amount of its funds transferred directly or indirectly to the second defendant, or such other amount as the Court considers appropriate.

[30]   The House of Lords case of Lipkin Gorman, also concerned a claim for money had and received. There the appellant’s solicitors alleged that the respondents had received money from a partner of their firm, who upon drawing those funds from the bank without the authority of the partnership obtained legal title to those funds. Lord Goff, analysing the requirement of the claimant’s title to that money, said:8

The first ground is concerned with the solicitors' title to the money received by Cass (through Chapman) from the bank. It is to be observed that the present action, like the action in Clarke v. Shee and Johnson, is concerned with a common law claim to money, where the money in question has not been paid by the appellant directly to the respondents — as is usually the case where money is, for example, recoverable as having been paid under a mistake of fact, or for a consideration which has failed. On the contrary, here the money had been paid to the respondents by a third party, Cass; and in such a case the appellant has to establish a basis on which he is entitled to the money. This (at least, as a general rule) he does by showing that the money is his legal property, as appears from Lord Mansfield's judgment in Clarke v. Shee and Johnson. If he can do so, he may be entitled to succeed in a claim against the third party for money had and received to his use, though not if the third party has received the money in good faith and for a valuable consideration. The cases in which such a claim has succeeded are, I believe, very rare…

[31]And as Lord Hoffman said in the House of Lords decision of OBG Ltd v Allan:9

…a person who wrongfully secures payment of money due to another cannot be sued by the true creditor for money had and received to his use. That is because the creditor is not the owner of the money. The wrongful payment was treated as a matter between the paying party and the recipient which did not affect the creditor’s position.

[32]   On the basis of the foregoing, and bearing in mind the manner in which the plaintiff has pleaded his case, no claim for money had and received may lie against the second defendant, other than as may be brought by the first defendant. The plaintiff has said that the first defendant held its funds in trust for it, therefore the first defendant is the legal owner of those funds. A claim for money had and received is founded in common law, and as appears from the House of Lords authorities cited

8      At 572.

9      OBG Ltd v Allan [2007] UKHL 21, [2008] 1 AC 1 at [103].

above, requires the claimant to possess the legal ownership of those funds, not the mere equitable ownership. The matter might have been different had the plaintiff argued that the funds were not held in trust for it by the first defendant, but instead the possession of those funds was merely vested in the first defendant, in a bailee/bailor type relationship. In such a case the plaintiff would have been able to assert its ownership over those funds.

Third cause of action – breach of trust and knowing receipt

[33]   By its third cause of action the plaintiff claims that the first defendant, held the plaintiff’s funds on trust for the plaintiff and in breach of trust the plaintiff’s funds were transferred without authority by the first and second defendants to accounts other than as directed by the plaintiff. The plaintiff alleges that the second defendant was responsible for transferring the funds, including transferring $50,000 into his personal bank account and into the accounts of other entities he controlled, knowing that he had no entitlement to the money.

[34]   The plaintiff says that the evidence establishes that the second defendant is liable for breach of trust. It says that the second defendant was at all times aware of the trust on which the first defendant held and had control of the plaintiff’s funds, and by transferring those funds to himself and to other parties or entities which he controlled the second defendant clearly acted in breach of the trust. In respect of this cause of action the plaintiff seeks judgment for the amount of its funds transferred directly or indirectly by and from the first defendant’s accounts to the second defendant.

[35]   In my view the plaintiff has conflated the separate causes of action of breach of trust, knowing receipt and dishonest assistance, and has also conflated the roles of the first defendant as a corporate trustee and the second defendant as sole director thereof. The plaintiff has said that the first defendant held its funds on trust for it. That is simple enough. The plaintiff has then said that the second defendant has breached that trust. That is conceptually incorrect. The principle of separate corporate entity provides that the first defendant as an incorporated company, is an individual entity capable of entering into arrangements and agreements with other individual

entities, including assuming the role of a trustee. The second defendant is the sole director of the first defendant. He is also the sole shareholder. While he has complete control over the affairs of the first defendant, that does not mean he is capable of breaching the trust owed by the first defendant to the plaintiff. Only the first defendant can do that. The second defendant’s liability lies in dishonest assistance and knowing receipt.

[36]   I am, however, satisfied that the first defendant held those funds in trust for the plaintiff. The subject matter is certain - it is the quantum of the funds transferred by the plaintiff to the defendant. The object is also certain - it is the plaintiff on whose behalf those funds were beneficially held. Finally, the intention is also clear - the first defendant was to hold those funds for the benefit of the plaintiff, and to make payments from those funds to third parties, at the direction of the plaintiff.

[37]   I am also satisfied that when the first defendant transferred those funds to the second defendant it was acting in breach of that trust.

[38]   The second defendant’s role in that breach is also perfectly clear. A non-trustee will be liable for knowing assistance in a breach of trust when they assist a trustee to commit a breach of trust, and they possess a dishonest state of mind in the sense that their knowledge of the relevant transaction was such that their participation was contrary to acceptable standards of honest conduct.10 Here the second defendant has participated in and assisted the carrying out of the breach of trust by transferring the funds from the first defendant to himself (or to entities he controls), and has done so with the requisite dishonest state of mind.

[39]   Furthermore, the second defendant has knowingly received those trust funds from the first defendant. The requirements for knowing receipt were described by Hoffman LJ in El Ajou v Dollar Land Holdings plc as follows:11

This is a claim to enforce a constructive trust on the basis of knowing receipt. For this purpose the plaintiff must show, first, a disposal of his assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and thirdly,

10     Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 at 389.

11     El Ajou v Dollar Land Holdings plc [1993] EWCA Civ 4, [1994] 2 All ER 685 (CA) at 700.

knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty.

[40]I am satisfied that here all of those requirements are made out.

Tracing of misappropriated and transferred funds

[41]   The plaintiff alleges that the second defendant as trustee pursuant to a constructive trust, misappropriated trust property of which the plaintiff was the beneficial owner and that the plaintiff is entitled to both assert a personal claim against the second defendant and enforce an equitable lien or charge on the funds to secure restoration of the trust fund.

[42]   The plaintiff as beneficiary of the constructive trust says that its claim to the trust’s property or its traceable proceeds can be maintained against the second defendant and against anyone who receives the property or derives title from him except a bona fide purchaser for value without notice of the breach of trust. Here the plaintiff says that it has identified a sum of $50,000 that was transferred from its bank account through the bank account of the third defendant, and thence into a personal bank account of the second defendant which is held jointly with his wife, Erica Whitham. The plaintiff says that the $50,000 sum is readily identifiable and has not been mixed with other assets. It is therefore easily identifiable and traceable, and is currently subject to a freezing order made by the Court. Accordingly, the plaintiff seeks an order of the Court directing the transfer of the sum of NZ $50,000 from funds presently held by the second defendant to the liquidators of the third defendant.

Amendment to the freezing order

[43]   The plaintiff also seeks an order amending the terms of the freezing order presently in place. An interim freezing order was made on 22 May 2018 and subsequently extended to remain in effect until further order of the Court. The freezing order attaches to the personal assets of the second defendant. In order to facilitate the plaintiff’s recovery of the $50,000 sum traced as being transferred from the third defendant’s account into the personal bank account of the second defendant held jointly with his wife Erica Whitham, the plaintiff seeks an order amending the freezing

order so as to release that sum from the scope of the freezing order so it may be returned to the plaintiff.

Ancillary disclosure order

[44]   In relation to the substantive freezing order, the plaintiff also applies for an ancillary disclosure order so that its ongoing investigation into the whereabouts of the missing funds can be further investigated. The plaintiff says that for the period between its discovery of the misappropriation of its funds and the granting of the freezing order, it is unknown if any of the amounts misappropriated and transferred by the second defendant into his personal bank account were subsequently transferred to other third party accounts. In order to investigate any such transfers of funds, the plaintiff seeks an ancillary order of discovery directing the BNZ Bank to provide copies of the bank statements for the second defendant’s personal bank account with the BNZ for that period.

Conclusion

[45]   I am satisfied by the evidence of Mr Hillary and Mr Sanderson and the exhibits annexed to their affidavits that the plaintiff is entitled to recover from the second defendant the full amount of the funds misappropriated from the account or accounts of the first defendant by the second defendant totalling $4,541,585 less the recovered sum of $1,853,933, being the sum of $2,687,652. The evidence establishes that the second defendant knowingly and deliberately misappropriated funds belonging to the plaintiff in accounts held by the first defendant and directed the funds either to himself or other entities associated with himself for the purposes of enriching himself at the expense of the plaintiff.

Result

[46]   I find for the plaintiff on breach of trust, dishonest assistance and knowing receipt.

[47]I accordingly make the following orders:

(a)Judgment by way of formal proof against the third defendant for the sum of NZ $2,687,652.00.

(b)An order that the BNZ holds the transferred amount of NZ

$50,000 in the personal bank account of Richard and Erica Whitham (account number [xxx] in the name of Richard and Erica Whitham) on a constructive trust for the plaintiff.

(c)An order that the plaintiff is entitled to trace the amount of NZ

$50,000 into the bank account of Richard and Erica Whitham (account number [xxx] in the name of Richard and Erica Whitham).

(d)An order that the plaintiff is to pay to the liquidators of Retail Guru Limited the amounts recovered from the BNZ by way of the tracing order.

(e)An order that the freezing order (CIV-2018-419-137) be amended so that the plaintiff is able to recover from the BNZ bank (account number [xxx] in the Richard and Erica Whitham) up to NZ $50,000.

(f)An ancillary order to the freezing order requiring discovery by the third defendant and/or the BNZ bank of all bank statements of the account number [xxx] in the name of Richard and Erica Whitham for the period between 16 May and 22 May 2018.

(g)The second defendant is ordered to pay the plaintiff interest on the judgment debt of NZ $2,687,652.00 as calculated by the Interest on Money Claims Act 2016.

(h)The second defendant is ordered to pay costs to the plaintiff calculated on scale 2B of $7,805.

Paul Davison J