SETH v TAIMOORI [2021] NZCA 474

SETH v TAIMOORI [2021] NZCA 474 [20 September 2021]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA210/2021[2021] NZCA 474BETWEEN ANMOL SETHAppellantAND MIRZA AREEB BAIG TAIMOORIRespondentHearing: 23 August 2021Court: French, Mander and Palmer JJCounsel: J G Ussher for AppellantB P Rooney for RespondentJudgment: 20 September 2021 at 9 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay costs to the respondent for a standard appeal ona band A basis, together with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by French J)Introduction[1] Mr Taimoori paid money to a company controlled by Mr Seth for the purposesof a property development. The property development never eventuated. In theHigh Court, Downs J held that Mr Seth was liable to repay the money on the groundsthat he owed Mr Taimoori a fiduciary duty which he had breached.1[2] Mr Seth now appeals that decision.Background[3] Mr Taimoori and Mr Seth were acquaintances. In August 2015, there werediscussions between them about Mr Taimoori participating in the development of anAuckland property owned by Mr Seth. Mr Seth had obtained resource consent fora sub-division for three dwellings.[4] Subsequently Mr Seth asked Mr Taimoori to contribute $300,000 on the basisthat Mr Seth would undertake the development and the two of them would share inthe profits. When Mr Taimoori said he did not have $300,000, Mr Seth suggested heborrow it and provide his family home as security.[5] Mr Taimoori had no experience in property development. Based on whatMr Seth told him and Mr Seth's Facebook pages, he understood Mr Seth to bea successful businessman and entrepreneur.[6] On 6 August 2015, Mr Seth sent Mr Taimoori a document for signature.The first page was headed "Memorandum of Understanding" and identified the partiesto the document as Mr Taimoori and Anmol Residential Ltd (Anmol Residential).It also stated that the parties were entering into the memorandum of understanding torecord an "investment agreement".[7] Anmol Residential was a company controlled by Mr Seth whose first name isAnmol. Mr Seth was the sole director, and the only shareholder was another of hiscompanies in the Anmol Group. Mr Seth had signed the memorandum on behalf ofAnmol Residential.1 Taimoori v Anmol Residential Ltd [2021] NZHC 533 [High Court judgment] at [64] and [83].[8] Key provisions of the memorandum were:(a) Anmol Residential was described as being "in charge" of theconstruction project.(b) Mr Taimoori was to commit to an initial investment of $300,000 viahome re-finance.(c) Mr Taimoori would then be "granted a JV" (it was common ground thatthis meant "joint venture").(d) The memorandum would be superseded by a second agreement, thescope and intent of which would be broadly defined by thememorandum.[9] On receipt of the memorandum, Mr Taimoori transferred $50,000 of personalsavings to Anmol Residential and on the following day he added his signature to thememorandum.[10] Mr Taimoori's bank declined his application for a loan for the balance.However, Mr Seth told him he had a contact at Westpac who could help. The contact,who corresponded with Mr Taimoori as Mr Seth's executive assistant, duly arrangedfinance.[11] Mr Seth also encouraged Mr Taimoori to see Mr Seth's own lawyer,a Mr Singh, regarding the loan. Subsequently, the loan was drawn down on20 August 2015, through Mr Singh's firm. Mr Taimoori then transferred $220,000 toAnmol Residential.[12] A few days later, Mr Taimoori sought assurances from Mr Seth after seeinga comment on a blog describing Mr Seth as a conman. Mr Seth told him the allegationwas false.[13] The development never eventuated. No houses were ever constructed.[14] In September 2016 and in 2017, Mr Seth made payments totalling $30,680 toMr Taimoori. The latter was coming under increasing financial pressure and wasrepeatedly asking Mr Seth for information about what was happening with theproperty. In evidence, Mr Seth said the $30,680 was not a partial repayment of the$270,000 and so not an admission of wrongdoing, but rather a compassionate loan tosomeone in need. That evidence was not accepted by the Judge.2[15] In early 2018, Mr Taimoori issued proceedings against Mr Seth andAnmol Residential. Later in 2018, Anmol Residential was placed into liquidation aswere other companies in the Anmol Group. The effect of the liquidation was to stayMr Taimoori's claim against Anmol Residential, leaving Mr Seth as the onlydefendant.[16] The statement of claim originally pleaded three causes of action but one ofthose was struck out before trial, leaving a claim for breach of fiduciary duty anda claim of misrepresentation under the Fair Trading Act 1986.The High Court decision[17] The Judge held that the claim for misrepresentation under the Fair Trading Actfailed. That was because there was insufficient evidence to prove the particularmisrepresentations relied on.3 These related to Mr Seth's title to the property and thenon-disclosure of an interest allegedly retained in it by the person who had sold it tohim, thereby rendering it impossible for him to develop the property.[18] However, the Judge upheld the claim for breach of fiduciary duty. He rejectedan argument that the two men were on equal terms and operating at arm's length.4Instead, applying the indicia of a fiduciary relationship identified in Cook v Evatt(No 2),5 the Judge held that Mr Seth owed a fiduciary duty to Mr Taimoori to use thelatter's money only for the purposes of the development and to return any money notused for that purpose.62 High Court judgment, above n 1, at [64].3 High Court judgment, above n 1, at [65]–[66].4 At [29]–[34].5 At [26], relying on Cook v Evatt (No 2) [1992] 1 NZLR 676 (HC) at 685.6 At [33].[19] The Judge further held that Mr Seth had breached that duty by failing todevelop the property and failing to repay all of Mr Taimoori's money.7 In coming tothat conclusion, the Judge rejected Mr Seth's evidence that he had in fact used themoney to meet development costs and that the reason the project failed was becauseMr Taimoori had not invested the full $300,000. In support of his assertion that themoney had been spent on development costs, Mr Seth had produced invoices.The Judge considered extrinsic evidence implied the largest of these was a forgery.8He generally found Mr Seth to be a vague and evasive witness who lacked credibility.9[20] Having found there had been a breach of fiduciary duty, the Judge turned toremedies. Mr Taimoori had asked the Court to find that he had a constructive trustover the property giving him a beneficial interest in it. However, the Judge was notpersuaded to find there was or should be a constructive trust. In his view, theappropriate remedy was the orthodox remedy of restitution of the outstandingbalance.10[21] The Judge therefore ordered Mr Seth to pay Mr Taimoori the sum of $239,320together with interest.11 He also ordered payment of increased court costs on accountof Mr Seth's conduct of the litigation12 and, in light of the testimony regarding theinvoices, directed the Registrar to send a copy of his judgment to theCommissioner of Police.13[22] On appeal, Mr Seth raised a number of grounds of appeal which we now turnto address.[23] Before doing so, we record there is no cross-appeal on the part of Mr Taimooriregarding the Judge's dismissal of the Fair Trading Act claim and his refusal to finda constructive trust.7 At [64].8 At [63].9 At [47].10 At [82].11 At [83].12 At [85]–[86]13 At [87].AnalysisWas a fiduciary duty owed by Anmol Residential, not Mr Seth?[24] On behalf of Mr Seth, counsel Mr Ussher submitted that if there was anyfiduciary duty owed, it was owed by the company and not Mr Seth personally.He acknowledged there was no reason as a matter of law why there could not beconcurrent fiduciary duties. But he argued that, on the facts of this case, it was onlythe company who could have been a fiduciary. In support of that contention,Mr Ussher said it was clear as evidenced by the memorandum of understanding thatthe two parties to the arrangement were Mr Taimoori and the company and that it wasthe company who was going to head the project. In those circumstances, Mr Usshersubmitted the fact Mr Seth was the director of the company and the owner of theproperty should not have been determinative.[25] The Judge's finding of a fiduciary relationship however was not based solelyon Mr Seth's status as director and landowner but also on his actual conduct and thevulnerability of Mr Taimoori. As Mr Seth well knew, Mr Taimoori had no commercialexperience and, without any power or ability to supervise Mr Seth, was totally relianton him personally. It was very much a relationship of trust and confidence. Mr Sethwas Mr Taimoori's only source of information about the development and what washappening to his money. It was Mr Seth who held himself out to be an expert. And itwas Mr Seth who personally helped arrange the finance and who encouragedMr Taimoori to use Mr Seth's own lawyer. As the Judge also noted, in evidenceMr Seth himself described the company as the means to an end, in effect merely acorporate vehicle.14[26] In all those circumstances, we consider the Judge's finding of a fiduciaryrelationship was consistent with established principle and justified on the evidence.This ground of appeal fails.14 At [34].The finding Mr Seth had breached his fiduciary duty was contrary to the evidence[27] Mr Ussher submitted the basis of the Judge's finding of a breach was that nowork had been done on the property at all. However, that was not correct on theevidence before the Court. Mr Ussher cited references in Mr Taimoori's evidence tothe fact he looked at the completed development work and to statements that the reasonhe wanted his money back was because he lost interest in the development and wantedto move on with something else.[28] Those references are however taken out of context. The rest of the evidenceshows that Mr Taimoori was talking about work that had been done before he everbecame involved. And that the reason he lost interest in the development was becauseof the complete lack of progress. He never saw any evidence of work after he hadpaid his money over.[29] Mr Seth's evidence was that Mr Taimoori's money was used "to assist in thepreliminary work to ensure that the development could proceed towards Stage 2 whereconstruction would begin". He also stated "Stage 1 was moving forward and expenseswere being met as and when they were incurred". His brief of evidence said that theinvoices he was producing confirmed that the money received from Mr Taimoori wasin fact used. The brief of evidence did not contain any detail of this alleged work nordid Mr Seth identify in his brief the invoices to which he was referring. He did produceinvoices and statements at the hearing which on the face of them equated with theamount of money paid by Mr Taimoori, but as mentioned the Judge found (for goodreason as we discuss) that some of the documents were likely to be forgeries.[30] In our view, there was a strong evidential foundation for the Judge's finding ofbreach. We too would have reached the same conclusion. This ground of appeal alsofails.There was no pleaded basis for the Judge's finding of breach[31] Mr Ussher identified this ground of appeal as the most important.[32] Under the heading "First cause of action - breach of fiduciary duty" the secondamended statement of claim pleaded the same misrepresentations pleaded in relationto the Fair Trading Act claim. The Judge said that had Mr Taimoori's case restedexclusively on those points it would have been in jeopardy because of the sameevidentiary problems that prompted him to dismiss the Fair Trading Act claim.15[33] However, the Judge went on to say that Mr Taimoori's case was advanced ona broader self-evident basis: that Mr Seth failed to develop the property and failed torepay Mr Taimoori his money. That, the Judge said, was the gist of Mr Taimoori'scase and his testimony and it was consistent with the digital correspondence betweenhim and Mr Seth in 2017 when Mr Taimoori was pressing for information.16[34] In Mr Ussher's submission, given that insufficient evidence was offered on thepleaded basis and leave was not sought to amend the second amended statement ofclaim, that should have been the end of the matter. Mr Ussher emphasised theimportance of parties being bound by their pleadings, citing the decision of this Courtin Price Waterhouse v Fortex Group Ltd.17[35] We acknowledge the importance of pleadings,18 but consider the suggestionthat "[j]udgment against [Mr] Seth accordingly was entered on a basis that departedfrom, and was inconsistent with, [Mr Taimoori's] pleaded case" is untenable.While the failure to take any steps to carry out the development may not have beenpleaded as a particular of breach, it was expressly pleaded in the general allegations.Mr Ussher conceded in oral argument that the relevant paragraph was a basis for thecauses of action. It was thus a matter in respect of which Mr Seth had been put onnotice and about which there was evidence. Most importantly, we note too thatwhether any work had been done was very much a live issue at the trial asdemonstrated by the evidence of both parties and the submissions of counsel. Mr Sethdoes not point to any prejudice he has sustained as a result of the pleading not beingunder the head of particulars.19 And nor could he.15 At [39].16 At [40].17 Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998 at 17–18.18 See Yan v Mainzeal Property and Construction Ltd (in liq) [2021] NZCA 99 at [493]–[494].19 Compare Keller v Daisley [2021] NZCA 351 at [117]–[119].It was a breach of natural justice for the Judge to refer the judgment to the police[36] In written submissions, Mr Ussher argued that it was a breach of Mr Seth'sright to natural justice as affirmed in s 27(1) of the New Zealand Bill of Rights Act1990 to refer the judgment to the police without giving Mr Seth an opportunity tocomment.[37] However, whether that is so or not, it cannot possibly impact on the correctnessof the judgment which is our sole focus in this appeal. We therefore reject this groundof appeal.The Judge unfairly declined to grant an adjournment[38] The High Court hearing held in March of this year coincided with Auckland'sfourth COVID-19 lockdown. On the Sunday immediately before the hearing was dueto commence, Mr Seth sought an adjournment through counsel on the grounds that hewas in Wellington with his ill mother, that he had always intended to return toAuckland for the hearing but once the lockdown was announced had assumed it wouldnot be proceeding and his laptop was in Auckland. The Judge advised counsel thatsame evening that the trial was to proceed and that there would be a conference callfirst thing in the morning to discuss format. The Judge indicated that he was amenableto the use of VMR if required.[39] At the conference call, the parties agreed that the trial should proceed by VMR.[40] On appeal, Mr Ussher says that although Mr Seth was able to appear by VMR,it meant flying back to Auckland from Wellington with his ill mother. That affectedthe fairness of the trial.[41] We were not however provided with any detail as to how it impacted on thefairness of the trial and there is certainly nothing in the record to indicate that it did.[42] This ground of appeal is also rejected.The Judge wrongly allowed late evidence to be adduced[43] This ground of appeal relates to the evidence of Mr Hayes, a witness called byMr Taimoori. His brief of evidence was provided on Thursday 25 February 2021, onlyone full working day before the hearing due to start on Monday 1 March 2021.According to Mr Seth, allowing Mr Hayes' late evidence seriously prejudicedMr Seth's rights to a fair trial.[44] It is necessary to explain the relevant background.[45] Mr Hayes' evidence related to the invoices produced by Mr Seth.As mentioned, in his brief of evidence Mr Seth asserted that Mr Taimoori's money hadbeen applied to the development and that he was producing various invoicesconfirming this. Mr Seth's brief of evidence was served on 2 February 2021.The invoices in question were not attached to the brief but on 5 February 2021 Mr Sethserved a list of documents. The list included eight invoices and one statement. Six ofthe invoices were redacted including the identity of the creditor.[46] The redactions were objected to and on 23 February 2021, Mr Seth providedunredacted copies of some of the documents.[47] The most important invoice in terms of amount was an invoice for $138,000issued by an entity called the Gladstone Trust. The invoice was numbered 080415.It was dated 8 April 2016 and contained a description of the work done as"Development Engagement". Mr Hayes was the manager of the Gladstone Trust andafter making inquiries of him about the invoice, Mr Taimoori's lawyers prepareda brief of evidence and served it on 25 February 2021.[48] In his evidence, Mr Hayes said he had never seen the invoice of 8 April 2016before, that the Gladstone Trust had never invoiced Anmol Residential for $138,000and that the Gladstone Trust's bank records showed it had never received a paymentof $138,000. Mr Hayes produced an invoice with the same number 080415 which hesaid the Gladstone Trust had sent Anmol Residence but:(a) with a different date — 8 April 2015, not 2016;(b) with a different amount — $215.11, not $138,000; and(c) with a different description of the work — "Travel to CHC regardingmeeting with Eddie", not "Development Engagement". Mr Hayes saysthe "meeting with Eddie" was about a Christchurch project.[49] Mr Seth had also produced a copy of an email from Mr Hayes which had somebrief costings totalling $120,000. With GST added, that would have come to$138,000. The copy Mr Seth produced did not have a subject line. Mr Hayes provideda copy of the same email he had sent which did contain a subject line "818 costrecoveries". This, Mr Hayes said, related to the 818 Christchurch project where thecosts had arisen due to a Mr Fonagy defaulting on a contract with Mr Seth.[50] As will be apparent, Mr Seth's complaint about the late filing has a somewhathollow ring to it. It was entirely his own fault. There was no valid justification forthe redactions and once the unredacted copies were made available, Mr Taimoori'scounsel acted quickly. To have excluded the evidence on the grounds of latenesswould have been contrary to the interests of justice.[51] Mr Seth contends that he was prejudiced by the late filing because it meant hewas denied the opportunity to locate and produce documentary evidence so as to meetthese new and serious allegations. However, despite having had over five months tolocate this documentary evidence, he has not done so.[52] We conclude that none of the grounds of appeal whether viewed individuallyor collectively has any merit. The appeal is therefore dismissed.[53] As regards costs, counsel agreed costs should follow the event, meaning thatthe losing party should pay costs to the successful party.Outcome[54] The appeal is dismissed.[55] The appellant must pay the respondent costs for a standard appeal on a band Abasis, together with usual disbursements.Solicitors:PCW Law Ltd, Auckland for AppellantLovegroves, Auckland for Respondent