Wright Asset Management Limited v Marchi

[2022] NZHC 3180

NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B,

11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE
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IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2022-409-237

[2022] NZHC 3180

BETWEEN

WRIGHT ASSET MANAGEMENT LIMITED
Applicant

AND

PATRIZIA MARCHI

Respondent

Hearing:

26 October 2022

Appearances:

Lady D A T Chambers KC for Applicant

A C M Fisher KC and J D Ryan for Respondent

Judgment:

30 November 2022

JUDGMENT OF MANDER J

[1]    Mr Gary Wright and the respondent, Ms Patrizia Marchi, were in a de facto relationship. After several periods of separation and reconciliation, their relationship finally ended in 2021. In the early part of that year, they engaged in negotiations to agree a s 21A Property (Relationships) Act 1976 (the Act) agreement for the purpose of settling financial and property relationship issues between them. To that end, a property that had previously been the subject of a notice of claim lodged by Ms Marchi was sold by the applicant, Wright Asset Management Ltd (WAM), in its capacity as the trustee of the Verona Trust (the Trust), a trust settled by Mr Wright that owned the property.

WRIGHT ASSET MANAGEMENT LIMITED v MARCHI [2022] NZHC 3180 [30 November 2022]

[2]    In order to facilitate that sale,  WAM’s  solicitors  gave  an  undertaking  to Ms Marchi’s solicitors to hold the sale proceeds in their trust account until such time as Ms Marchi agreed to them being disbursed or a court order is made. After WAM provided that undertaking, negotiations between Mr Wright and Ms Marchi broke down. The funds remain in the solicitors’ trust account. Ms Marchi has declined to release the undertaking. As a result, WAM has sought orders releasing its solicitors from their undertaking and authorising payment of the funds. Ms Marchi opposes that application.

The parties’ respective positions

[3]    Apart from the preceding broad outline, there is little common ground between Mr Wright and Ms Marchi regarding the background to their relationship property dispute. The status of assets claimed to be at stake and the extent to which Ms Marchi was involved in and contributed to Mr Wright’s business are in issue. Each of them have filed affidavits in support of their respective positions.

[4]    WAM maintains the undertaking’s sole purpose was to facilitate the now defunct relationship property agreement in respect of which the funds generated from the sale of the property were intended to be applied. It says this was superseded by Ms Marchi’s refusal to sign the agreement. The solicitors should therefore be released from their undertaking because the basis upon which it was given, namely to enable settlement of the written agreement, has fallen away.

[5]    Ms Marchi, on the other hand, contends the undertaking was intended to protect her interests in the proceeds of a liquidated asset over which she may have a valid claim as part of the wider extant relationship property dispute the subject of litigation in the Family Court. Because there are proceedings on foot relating to the division of relationship property, it is appropriate that an asset over which she may have some entitlement should be preserved.

[6]It is necessary to traverse each party’s version of the relevant circumstances.

Competing narratives

The couple’s relationship

[7]    Ms Marchi’s evidence was that she met Mr Wright in Italy in December 2004 and moved to New Zealand to be in a relationship with him the following year. In July 2005, Ms Marchi says they decided to buy a property at 222 Kennedys Bush Road (the Property). It is not contested the Property was purchased by WAM but the couple lived there with their respective children until 2008, and thereafter between 2011 and 2019. Mr Wright’s evidence is that he and Ms Marchi did not commence a de facto relationship until February 2006, following the execution of an agreement contracting out of the Act. He maintains this agreement provided that all property he owned at the time remained his separate property, including any interest he may have had in the Verona Trust, and that no relationship property was ever settled on that trust.

The Verona Trust

[8]    Mr Wright is an experienced businessman who has been successfully involved in the clothing importation industry for over 20 years. He was originally in partnership with his brother. In 2002, they reorganised their interests and Mr Wright acquired rights to various clothing brands which were held by a number of trading companies he incorporated for that purpose. His acquisition of these rights was funded from his share in the equity of the original company that housed the brothers’ business. It is Mr Wright’s position that this equity is clearly separate property because it was an asset acquired by him well before the commencement of his de facto relationship with Ms Marchi.

[9]    In 2003-2004, Mr Wright reorganised his affairs and settled a number of trusts, including the Trust, in respect of which WAM was the sole trustee. Mr Wright is the sole shareholder of this corporate trustee and was its only director for some 16 years until the appointment of another director in April 2019. The Trust’s final and discretionary beneficiaries are Mr Wright, his spouse (but not a de facto partner), his children and any other offspring born to, or adopted by him. The default beneficiaries are his parents, brother, his issue and any siblings and issue of his spouse (but not a de facto partner). Ms Marchi is not a beneficiary. A number of assets have been settled

on the Trust including Mr Wright’s shares in the trading companies he incorporated in 2002-2003, together with a share of the equity in the original trading company, which takes the form of an advance for the funds used to acquire the brands held by the trading companies he later established.

[10]   Ms Marchi does not dispute the Property was purchased by WAM in its capacity as trustee of the Trust. However, she argues Mr Wright was “[a]t all material times” the sole director and shareholder of WAM and had effective control over it. Insofar as there is now a co-director, it is noted he was only appointed in 2019 and Mr Wright in his capacity as director and shareholder has the power to remove him. Ms Marchi also emphasised that under the trust deed, Mr Wright has the power to appoint trustees, to exclude all discretionary and final beneficiaries, and could, if he was to become the sole remaining beneficiary, require the trustees to vary or resettle the entire trust fund.1

The relationship property dispute

[11]   Mr Wright’s position is, at the time of the contracting out agreement when (he says) he and Ms Marchi commenced their relationship in 2006, all property he owned at the time remained his separate property, including any interest he may have had in the Trust. He maintains no relationship property was ever settled on the Trust and there can be no dispute the property was not acquired from any relationship property. It follows, he says, that the property does not form part of the relationship property pool.

[12]   Ms Marchi, however, contests the validity of the contracting out agreement, and says Mr Wright’s powers under the Trust deed mean he effectively controls its property. She points to the Property as having been used as the family home and, moreover, relies on her involvement in Mr Wright’s business and representations she maintains he made that he would financially provide for her and her children, notwithstanding the disputed contracting out agreement. Mr Wright disputes these contentions, all of which will need to be determined in the litigation before the Family Court.

1      Trusts Act 2019, s 122.

Sale of the property and the provision of the undertaking

[13]   In March 2021, Mr Wright and Ms Marchi, together with their respective lawyers, negotiated a potential relationship property settlement. In the previous years, there had been periods of separation and reconciliation. In early 2019, during one separation, Ms Marchi registered a notice of claim against the Property, as she did in respect of a number of other properties. Substantial progress was made towards reaching a resolution which necessitated Mr Wright raising funds in order to make a payment to Ms Marchi. The Property was put on the market to generate that money. That step was taken with Ms Marchi’s approval and she co-operated by removing her notice of claim on the Property on 29 March 2021.

[14]   On 9 April 2021, Ms Marchi’s solicitors wrote to Mr Wright’s solicitors requesting WAM provide undertakings not to deal with or encumber the Property without obtaining Ms Marchi’s written approval and advising that should such an undertaking not be forthcoming they would need to relodge the notice of claim. The following day, Ms Marchi’s solicitors advised she agreed to the sale of the Property subject to agreement on the “use/distribution” of the proceeds of sale. There was no response by Mr Wright’s solicitors to either of these communications.

[15]   On the afternoon of 7 May, Ms Marchi’s solicitors emailed Mr Wright’s solicitors noting the property had sold the previous day. They requested confirmation the sale proceeds would be held in Mr Wright’s solicitor’s trust account and would not be  disbursed  without  Ms Marchi’s   prior  written  consent.   Shortly  thereafter,   Mr Wright’s solicitors confirmed the property had sold for $1,557,000. They confirmed the reason for selling the property was to realise funds to meet the payment obligations to Ms Marchi under the relationship property agreement and then stated:

… so yes, we undertake to hold the nett sale proceeds in our trust account undisbursed until such time as [Ms Marchi] agrees to them being paid out, or a court order is made in relation to the sale proceeds.

[16]   Mr Wright’s evidence is that by this time he had signed the s 21 agreement and was waiting for Ms Marchi to do the same. He says it was on this basis that he agreed to his solicitors providing the undertaking, believing the agreement would shortly be finalised. However, the relationship property settlement was never confirmed and no

agreement was executed. The funds have since remained in the solicitors’ trust account and Ms Marchi’s solicitors have declined requests from Mr Wright’s solicitors to allow them to be released from the undertaking.

The nature of the application before this Court

[17]   The proceeding in this Court was initiated by way of a without notice application seeking leave to commence the proceeding by way of originating application, directions as to service, and a timetable for the filing of any opposition. Leave was granted by Associate Judge Paulsen on the understanding the main issue would be confined to the interpretation of a short solicitors’ undertaking and that any wider relationship property issues, while relevant as context, were separate and discrete considerations that would not need to be finally determined in this proceeding.2

[18]   In opposing the application, Ms Marchi has raised the appropriateness of the certification and memorandum provided respectively by WAM’s solicitor and counsel in support of the without notice application and the suitability of the originating application procedure in the circumstances of this case.

[19]   Ms Fisher KC, counsel for Ms Marchi, submitted the requirements of the High Court Rules 2016 (the Rules) when seeking leave without notice to commence a proceeding by way of originating application had not been met because there had been a failure to disclose all relevant material, including any defence that might be relied on by any other party and the facts that would support that position.3 It was argued the originating application procedure was not suitable because the proceeding raised questions that related to the determination of substantive issues between Mr Wright and Ms Marchi concerning WAM, the Trust and the classification of assets held by the Trust including the funds subject to the solicitors’ undertaking that are presently before the Family Court.

2      Re Wright Asset Management Ltd [2022] NZHC 1611 at [10]–[11].

3      High Court Rules 2016, r 7.23(1) and (3).

[20]   Lady Chambers KC, for WAM, disputed the certification and memorandum provided in support of the without notice application were inadequate. Counsel argued the issue for the Court’s determination is limited to whether the circumstances in which the undertaking was provided have changed such that it would be unreasonable for the solicitors to continue to be bound by it. It was submitted the focus is necessarily on the undertaking and the change of circumstances which it is contended support the application, rather than Ms Marchi’s relationship property claim. Lady Chambers submitted the scope of the argument has only broadened as a result of the material Ms Marchi has introduced, being evidence filed in support of the Family Court proceedings, that has necessitated Mr Wright responding in kind. She maintained the strength of Ms Marchi’s relationship property claim is irrelevant, as are the “disputes as to the background of [the] relationship” between Mr Wright and Ms Marchi.

[21]   In large part, the issue of the suitability of proceeding by way of originating application and the adequacy of disclosure of the ambit of the dispute between the parties for the purpose of making an application without notice reflects the essence of the substantive dispute. Lady Chambers argued the originating application procedure is suitable because the application is limited to the release of a solicitor’s undertaking and the circumstances underlying its provision, which in her submission have fundamentally changed. It follows, on her argument, the issue is confined to the purpose for which the undertaking was made and the reason for the sale of the property.

[22]   However, it is Ms Fisher’s position that WAM’s  application puts in issue   Ms Marchi’s substantive relationship property claim and necessarily involves the wider issue of the merits of matters to be argued before the Family Court. Such issues could not, in her submission, be appropriately dealt with within the ambit of an originating application. Both parties agree that is so. Where they depart is whether the question of releasing the solicitors from the undertaking can be properly assessed without having regard to the wider relationship property dispute. That is a question to which I will return shortly.

Court’s supervisory jurisdiction

[23]   The Court has a supervisory and disciplinary role with respect to solicitors’ undertakings,4 and an application to discharge a solicitors’ undertaking can be made by a party whose solicitor gave the undertaking.5 Where the intended purpose for which the undertaking was given has been frustrated and it would be unreasonable to require the solicitors to continue to be bound, the Court may order the solicitors’ release from their obligation.

[24]   Re AWS Legal Solicitors was such a case.6 An undertaking had been provided by solicitors to facilitate a commercial transaction. An assurance was given to a shareholder who was in dispute with his fellow shareholder that funds generated by the sale of the company’s assets would be held and only distributed once the current accounts had been finalised and agreed by the two shareholders. Dunningham J held the intended purpose for which the undertaking was given had been frustrated by the effluxion of time (some six years), during which no attempt had been made to finalise the current accounts nor any request to adjust the accounts. Any claim was now statutorily barred and the company had, in the interim, been struck off the Companies Register. It would therefore be unreasonable to require the solicitors to still be bound by its terms. This situation had arisen through no fault of the party that agreed to the undertaking being provided and there was no reason why that party should be kept out of the funds because of the solicitors’ ongoing obligation to their undertaking.

[25]   Another illustrative case is Amende v Kennedy,7 where funds were agreed to be held by a purchaser’s solicitors until a certificate of compliance was obtained in respect of renovation work that had been completed by the vendors some years previously. The solicitors’ undertaking enabled the sale to settle. However, the vendors failed to take any steps to obtain the necessary compliance certificate. In the absence of the vendors having performed their obligation to enable the undertaking to

4      Re AWS Legal Solicitors [2015] NZHC 2086, [2016] NZAR 1108 at [15], citing Australian Guarantee Corporation (NZ) Ltd v East Brewster Urquhart & Partners [1990] 2 NZLR 167.

5      Amende v Kennedy [2017] NZHC 1593.

6      Re AWS Legal Solicitors, above n 4.

7      Amende v Kennedy, above n 5.

be discharged, Whata J released the solicitors from its terms on the basis they could not be expected to maintain the undertaking “ad infinitum”.

Construction of the undertaking

[26]   An undertaking represents a distinct promise or engagement,8 and is generally to be viewed as a substitute for the strict performance of some commercial, contractual or procedural requirement. The person in whose favour the undertaking is provided is in effect waiving “the strict and punctual performance” of the obligation for the enforcement of the liability and accepting the undertaking in substitution.9 The sanctity of the duty to adhere to the undertaking is reflected in the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 which provide that, where a lawyer receives funds on terms requiring the lawyer to hold the funds in a trust account as a stakeholder, the lawyer must adhere strictly to those terms and disburse the funds only in accordance with them.10

[27]   However, as illustrated by the two cases previously reviewed, an undertaking may become redundant. Whether that state of affairs has been reached will largely turn on the purpose for which the undertaking was provided. In making that assessment, the observations of Fisher J in Australian Guarantee Corporation (NZ) Ltd v Brewster are to be borne in mind:11

In construing the meaning of such an undertaking it will generally be assumed that the undertaking was intended to facilitate the successful completion of an essentially commercial dealing. It should not normally be construed in any technical or legalistic fashion but rather by reference to the evident substance and intention.

[28]   In Dominion Finance Group Ltd (in liq and in rec) v Cavell Leitch Pringle & Boyle,12 Gendall J, when faced with the issue of having to construe a solicitor’s

8      Gill v Wainui Timber Co Ltd [1992] 1 NZLR 1 (CA) at 4.

9      Susan Robson The Laws of New Zealand Lawyers and Conveyancers (online ed, Lexis Nexis) at [109].

10     Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, r 10.5.2.

11     Australian Guarantee Corporation (NZ) Ltd v East Brewster Urquhart & Partners, above n 4, at 171.

12     Dominion Finance Group Ltd (in rec and in liq) v Cavell Leitch Pringle & Boyle [2013] NZHC 2718.

undertaking, observed that such an exercise was basically one of contractual interpretation and determining the objective intention of the parties.13

Analysis

[29]   WAM’s application to be released from the undertaking is premised on it having been provided on the basis funds would be required by Mr Wright to make payments to Ms Marchi under the proposed s 21A agreement, which he had already signed. WAM submits the purpose of the undertaking was to cater for that need and to facilitate meeting that anticipated monetary obligation. Because Ms Marchi has abandoned the agreement, it is argued the purpose of the undertaking has been frustrated through no fault of WAM or Mr Wright and it should now be viewed as having been overtaken by subsequent events and serving no purpose.

[30]   It was emphasised that the discharge of the undertaking is not entirely reliant on Ms Marchi’s consent because its terms provide for the undertaking to be released following a court order in relation to the sale proceeds. In that regard, reliance is placed on the evidence of the solicitor responsible for giving the undertaking that provision was deliberately made for the court’s oversight in order to avoid its release being solely dependent on Ms Marchi’s consent. With the anticipated relationship property agreement having collapsed, it is argued the purpose of the undertaking has been frustrated. It would be appropriate for the Court to intervene because it was only ever intended to be a short-term interim measure pending finalisation of what was understood to be a largely complete settlement between Mr Wright and Ms Marchi.

[31]   WAM’s position is that over a year has now elapsed and the issues between the former de facto partners is now the subject of litigation in the Family Court, with possible resolution realistically some years away. Such a situation was not contemplated at the time the undertaking was provided as is illustrated by the funds simply being held on call in the solicitors’ trust account. With WAM not being able to access the funds, it is submitted they are not being prudently managed in the best interests of the beneficiaries of the Trust and this state of affairs brings the corporate

13 At [51].

trustee’s duties to meet its obligations under the trust deed and the Trusts Act into question.

[32]   Ms Marchi argued the application rests on its own or, in reality, Mr Wright’s subjective intentions and that of his solicitors and ignores the ordinary meaning of the terms of the undertaking and the wider matrix of a relationship property dispute that is still extant between herself and Mr Wright. Ms Marchi’s relationship property claims concern her entitlement to a share in assets, including those of the Trust, and may potentially extend to Mr Wright’s powers in respect of that Trust which, it is argued, may constitute property for the purposes of the Act. Whatever WAM’s and Mr Wright’s motivations may have been for selling the Property and raising funds to facilitate the completion of a settlement, Ms Marchi argues she made no concessions regarding the status of the Trust’s assets or her interest in them. Ms Marchi argues the purpose of the undertaking was to protect her position pending the settlement of her claims and, when read objectively, that was the effect of its terms.

[33]   I accept the undertaking may well have been provided by Mr Wright’s solicitors for the purpose of facilitating and thereby securing Ms Marchi’s agreement to the relationship property settlement  recently  negotiated  between  herself  and  Mr Wright. However, the undertaking provided to Ms Marchi was in substitution of a claim she was otherwise making regarding assets perceived to be available to Mr Wright, including, it is apparent, property owned by the Trust. It is notable that, for the purposes of facilitating the sale of the Property, Ms Marchi had earlier withdrawn her notice of claim in respect of the Property.

[34]   The undertaking was provided to preserve  the  status  quo,  at  least  while Ms Marchi’s relationship property claim remained extant pending its potential settlement. Whatever the merits of Ms Marchi’s claims to share in property held by the Trust or her ability to contest the status of such property and the effect of prior contracting out agreements, while the recently negotiated relationship property agreement remained unexecuted, the solicitors were obliged to hold the sale proceeds undisbursed in accordance with the undertaking.

[35]   In the normal course a vendor is entitled to receive the proceeds of a sale and, in wanting access to those funds, WAM is not seeking to gain from its own wrongdoing. However, neither proposition is sufficient to release the solicitors from their undertaking in the circumstances of this case. To succeed on its application, WAM must effectively demonstrate Ms Marchi’s claim to the Trust’s property, and potentially on the sale proceeds, is entirely untenable.

[36]   WAM relies on the trust having been settled before Ms Marchi and Mr Wright formed their relationship; that assets settled by Mr Wright on the Trust were acquired prior to that relationship and were his separate property; that relationship property has not been applied to the Trust; and that the Trust itself cannot be relationship property. Mr Wright’s position that Ms Marchi has no claim, right or interest in these proceeds has been made very clear. However, no matter how compelling Mr Wright’s position may ultimately prove to be regarding Ms Marchi’s relationship property claim, it does do not alter the fact that, as matters presently stand, his position is contested by     Ms Marchi. Moreover, Ms Marchi’s claims that she has entitlements to share in Trust property continue to endure. At the time the undertaking was provided, I do not understand Ms Marchi to have made any concession regarding the validity of her claims, whatever their merit, hence the need for the undertaking as a required condition pending agreement.

[37]   Relief was granted in AWS Legal Solicitors and Amende v Kennedy, because the undertakings no longer served any discernible purpose. The Court was called upon to remedy a gridlocked situation, not because of any impasse between the original parties but because of redundancy created by time and disinterest. In contrast, the issues between Mr Wright and Ms Marchi are as alive now as they were in March 2021 when the undertaking was provided, perhaps more so.

Decision

[38]   I have closely examined WAM’s argument that the sale of the Property to generate funds needed to complete the near-perfected agreement between Mr Wright and Ms Marchi confined the intended purpose of the undertaking which has now been overtaken by subsequent events. However, for the reasons traversed, I do not consider

the undertaking can be limited in a way that ignores the wider relationship property dispute. Such an argument cannot succeed without this Court effectively accepting Mr Wright’s position regarding the status of the Trust and its assets being immune from any relationship property claim. Such would require analysis both parties accepted was beyond the bounds of the present application.

[39]   That conclusion takes one back to the argument made on behalf of Ms Marchi that the procedure used to commence this proceeding was not a suitable procedural pathway upon which to engage in the wider issues which are presently before the Family Court. Having found that the purpose of the undertaking is not as confined as was contended by WAM, that proposition has now been confirmed. However, that finding was not inevitable, nor does it follow that the approach taken by WAM in bringing its application by way of the originating application procedure was necessarily unwise. It was always WAM’s position that it was not necessary to traverse the wider merits of Ms Marchi’s claims. The fact I have found to the contrary in large part ties with my findings regarding the effect of the undertaking. Had I found differently, then the validity of the originating application procedure might have been confirmed.

[40]   The remaining issue concerns whether greater disclosure was required when making the without notice interlocutory application for leave to commence the proceeding by way of originating application to comply with r 7.23(2)(b) and the Rules’ certification requirements.14 Again, however, the premise upon which leave was sought and granted was that any wider relationship property issues, while relevant as context, were separate and discrete considerations that would not need to be finally determined for the purposes of this proceeding. That is the way WAM argued its case in the substantive application.

[41]   In the event, I have heard and determined the application without embarking on an analysis of the relationship property issues or the merits of Mr Wright and    Ms Marchi’s positions regarding their wider dispute. Whether greater information about Ms Marchi’s proceedings in the Family Court would have given Associate Judge

14     High Court Rules, r 7.23 and Form G32.

Paulsen cause to pause or have resulted in him declining leave is difficult to assess. However, given the consistent approach taken by the applicant in its application for leave and arguing the substantive application, and its similarly consistent stance that the issue was limited to the interpretation and effect of the solicitor’s undertaking, I do not consider the Rules’ requirements were breached.

[42]   Having regard to the basis on which the interlocutory application was granted and the limited ambit within which the substantive application was required to be argued and determined, greater disclosure of the background to the property relationship litigation at the leave stage is unlikely to have led to a different outcome. However, quite why it was necessary to make that application without notice to     Ms Marchi is elusive. Providing her with the opportunity to be heard, to express a contrary view regarding whether the merits of the relationship property issues needed to be traversed, may have brought that issue into starker relief at an earlier point in the process and caused greater focus to be placed on whether the chosen procedural path was appropriate in the circumstances.

Result

[43]   WAM’s application that its solicitors be released and discharged from their undertaking, and authorising payment of the funds to which that undertaking relates, is declined.

Costs

[44]   Ms Marchi, having successfully resisted WAM’s application, is entitled to costs and disbursements on a 2B basis. Notwithstanding that indication, if the parties wish to be heard they may file and exchange submissions (not more than three pages) in the ordinary way.