SERGENT v WHITE (ALSO KNOWN AS WOOD) [2015] NZHC 1351

SERGENT v WHITE (ALSO KNOWN AS WOOD) [2015] NZHC 1351 [15 June 2015]IN THE HIGH COURT OF NEW ZEALANDWANGANUI REGISTRYCIV-2014-483-000031[2015] NZHC 1351BETWEEN PAUL GRAHAM SERGENTFirst PlaintiffSERGENT HOLDINGS LIMITED(formerly known as KIWI HONEYLIMITED)Second PlaintiffPAUL GRAHAM SERGENT ANDARMSTRONG BARTON TRUSTEECOMPANY LIMITED being the trusteesof P G FAMILY TRUSTThird PlaintiffAND ELLEN WHITE (ALSO KNOWN ASELLEN WOOD)First DefendantHONEYWORX LIMITEDSecond DefendantBEE NZ MANUKA LIMITEDThird DefendantHearing: 10 June 2015Counsel: L C Rowe for PlaintiffsL M Hansen for DefendantsJudgment: 15 June 2015JUDGMENT OF COLLINS JSummary of judgment[1] The freezing order made on 18 August 2014, which was modified on 9 October 2014, is to remain in place.Context[2] On 31 July 2014, Mr Sergent, his company (Kiwi Honey) and family trust (the Sergent Family Trust) commenced proceedings against Ms Wood and two of her companies. The statement of claim sets out 11 causes of action, which allege against Ms Wood breaches of fiduciary duty, money had and received, conversion, deceit and debt. The total claimed in the statement of claim is $1,057,993.11.[3] On 18 August 2014, a freezing order was put in place to prevent Ms Wood and her companies disposing of assets. That freezing order was modified on 9 October 2014 to enable Ms Wood and her companies to complete the sale of her honey business to a company called Queen and Country Ltd (Queen and Country). The settlement involves Queen and Country paying $330,000 on 8 August 2015 and $308,000 on 8 August 2016.[4] Ms Wood and her companies have now applied to have the freezing order set aside. Four grounds are relied upon:(1) The plaintiffs do not have a good arguable case.(2) There is no risk of dissipation of assets.(3) The freezing order was obtained without full and proper disclosure.(4) The overall justice does not justify continuation of the freezing order.Background[5] Ms Wood and Mr Sergent commenced a romantic relationship in about 2006. The duration of that relationship is disputed. What is not disputed is that Ms Wood was an employee of Kiwi Honey from 2006 to 2012, and that she and Mr Sergent engaged in a joint venture to purchase and develop rental properties at 14 Matai Street, Wanganui and 137 Karaka Street, Wanganui.[6] It is also not disputed that during the time Ms Wood was employed by Kiwi Honey, she established a beehive and honey business. Ms Wood now lives at an undisclosed address in South Australia.[7] The gravamen of the plaintiffs' claims is that Ms Wood inveigled herself intoa position of trust and took advantage of Mr Sergent's naivety to misappropriatemoney and assets that belonged to the plaintiffs.The pleadings[8] The first cause of action is brought by Mr Sergent against Ms Wood. It alleges Ms Wood breached her fiduciary duty to Mr Sergent by making sevenpayments from Mr Sergent's personal accounts to Ms Wood and/or to third partiesfor the benefit of Ms Wood. The total claimed in the first cause of action is $266,226.29.[9] The second cause of action is based on the same factual allegations as the first cause of action. The second cause of action pleads money had and received.[10] The third cause of action is also brought by Mr Sergent against Ms Wood. It alleges Mr Sergent lent Ms Wood $24,000 between 11 August 2006 and 5 September 2008 and that she is now indebted to him for that sum.[11] The fourth cause of action is brought by Kiwi Honey against Ms Wood. It alleges breaches of fiduciary duty and that Ms Wood misappropriated for her benefit four payments totalling $269,579.93 from Kiwi Honey.[12] The fifth cause of action is based on the same factual allegations as the fourth cause of action. The fifth cause of action pleads money had and received.[13] The sixth cause of action is brought by Kiwi Honey against Ms Wood and alleges Ms Wood converted property and assets owned by Kiwi Honey worth $199,718.75.[14] The seventh cause of action is brought by Kiwi Honey against Ms Wood. This cause of action alleges Ms Wood is indebted to Kiwi Honey for the sum of $104,134.50 for the sale of hives and a debt.[15] The eighth cause of action is brought by Kiwi Honey and alleges breaches of fiduciary duty by Ms Wood in relation to 11 beekeeping sites and the purchase of a truck by Ms Wood. The eighth cause of action seeks $73,000 from Ms Wood.[16] The ninth cause of action is brought by Kiwi Honey against Ms Wood and alleges she made false representations about suffering cancer that led to Kiwi Honey making payments totalling $105,000 to assist Ms Wood.[17] The tenth cause of action is brought by the Sergent Family Trust and alleges breaches of fiduciary duty by Ms Wood when payments were made by the Sergent Family Trust to third parties for the benefit of Ms Wood. The amount claimed in this cause of action is $16,333.64.[18] The eleventh cause of action is based on the same factual allegations as the tenth cause of action. This cause of action pleads money had and received.[19] No statement of defence has been filed. Instead, the defendants have filed a notice of appearance under protest to jurisdiction.[20] The defendants' position is that Ms Wood and Mr Sergent were in a de factorelationship and that the proceeding concerns relationship property. Under s 4(4) of the Property (Relationships) Act 1976 any question relating to relationship property should be dealt with in the Family Court. Ms Wood has commenced proceedings in the Family Court in Wanganui against Mr Sergent.[21] Ms Wood also says that at least the fourth, fifth and eighth causes of action brought by Kiwi Honey against Ms Wood personally are based upon an employment relationship. Ms Wood says s 161(1) of the Employment Relations Act 2000 (the Employment Relations Act) confers exclusive jurisdiction on the Employment Relations Authority to deal with those causes of action.[22] The parties have filed a total of 21 affidavits. Suffice to say for presentpurposes, the plaintiffs' claims are vigorously denied. There is a vast array ofallegations and counter-allegations that cannot be determined at this preliminary stage of the proceedings.[23] During the course of the hearing before me, Ms Hansen, counsel for Ms Wood, accepted that the factual dispute about the duration of Mr Sergent's and Ms Wood's romantic relationship could not be resolved on the papers. Accordingly,the claim that parts of the dispute should be dealt with in the Family Court has to be put to one side when determining the application to set aside the freezing order.Criteria for a freezing order[24] The grounds for making a freezing order are well established. Applicants must demonstrate:1(1) they have a good arguable case in relation to their substantive claims;(2) there are assets to which a freezing order can attach; and(3) there is a real risk the defendants will dissipate or dispose of those assets.[25] The good arguable case threshold is met if the allegations in the statement of claim are capable of tenable argument and are supported by sufficient evidence, bearing in mind the preliminary stage at which the application is brought.2[26] The "risk of dissipation" criterion is satisfied if there is a real risk that a judgment in favour of the plaintiff will not be satisfied, either wholly or partially, if the freezing order is not made.31 Shaw v Narain [1992] 2 NZLR 544 (CA).2 Hannay v Mount [2011] NZCA 530.3 Oaks Hotels & Resorts NZ Ltd v Body Corporate 358851 [2013] NZHC 2695.Employment Authority jurisdiction[27] Sections 161(1)(a), (b), (f), (g), (r) and (3) of the Employment Relations Act are relied upon by Ms Wood. They provide:161 Jurisdiction(1) The Authority has exclusive jurisdiction to make determinations about employment relationship problems generally, including—(a) disputes about the interpretation, application, or operation of an employment agreement:(b) matters related to a breach of an employment agreement:...(f) matters about whether the good faith obligations imposed by this Act (including those that apply where a union and anemployer bargain for a collective agreement) have been complied with in a particular case:(g) matters about the recovery of wages or other money undersection 131:...(r) any other action (being an action that is not directly within the jurisdiction of the Court) arising from or related to theemployment relationship or related to the interpretation of this Act (other than an action founded on tort):...(3) Except as provided in this Act, no court has jurisdiction in relation to any matter that, under subsection (1), is within the exclusive jurisdiction of the Authority.[28] The effect of s 161(3) of the Employment Relations Act is that the High Court has no jurisdiction to make determinations about employment relationship agreements and their effects.44 Beattie v Premier Events Group Ltd [2014] NZCA 184, (2014) 21 PRNZ 826.[29] In Pain Management Systems (NZ) Ltd v McCallum Panckhurst J explained the issue of jurisdiction in an employment context in the following way:5To my mind the core concept which is determinative of the exclusive jurisdiction of the Authority is whether the determination which is required is indeed about an employment relationship problem. In the words of the definition of that concept is the underlying problem of relating to, or arising out of, an employment relationship. I think it is important to distinguish between a claim which may have its origins in an employment relationship on the one hand, and a claim the essence of which is related to or arises from the employment relationship of the parties on the other. Is the issue in a particular claim an employment relationship one, or is the subject-matter of the claim some right or interest which is not directly employment related at all? In this regard it may be necessary to distinguish between situations where the opportunity to breach the right or interest at stake arose in the context of an employment relationship as opposed to those where some employment right or interest is truly at stake.[30] The approach taken by Panckhurst J was endorsed by a Full Court of the High Court in BDM Grains Ltd v Parker.6[31] Ms Hansen may prove to be correct when she submits that the fourth, fifth and eighth causes of action arise out of an employment relationship. However, at this stage of the proceedings, I cannot determine if those causes of action arose in the context of an employment relationship, or whether an employment right or interest is truly engaged. If the latter is established, then the High Court will not have jurisdiction. Unfortunately, hotly contested factual issues will need to be determined before the High Court can determine if it has jurisdiction in relation to those causes of action.A good arguable case?[32] I re-emphasise that at this juncture I need only be satisfied the plaintiffs have a good arguable case. It would be wrong for me to attempt to make any factual findings in relation to disputed matters.[33] The plaintiffs employed the services of Mr Petterson, a forensic accountant, before commencing proceedings. In his first affidavit, Mr Petterson explained the5 Pain Management Systems (NZ) Ltd v McCallum HC Christchurch CP72/01, 14 August 2001 at [22].6 BDM Grange Ltd v Parker [2006] 1 NZLR 353 (HC) at [66].investigations he had undertaken and why he concluded "the evidence that[Ms Wood] was stealing money and property from the plaintiffs is compelling".7[34] The plaintiffs obtained an affidavit from Mr Maximo, a former employee of Ms Wood and Kiwi Honey. In his affidavit Mr Maximo explained in detail what the plaintiffs say were systemic thefts by Ms Wood from Mr Sergent and Kiwi Honey of plant, property and stock.[35] Mr Archibald, a former employee of Ms Wood, also provided an affidavit in which he said he was innocently implicated in the theft of Kiwi Honey hives by Ms Wood.[36] Mr Sergent has provided six affidavits in which he sets out in considerable detail the factual basis of the allegations in the statement of claim.[37] Ms Wood has filed four affidavits in which she refutes the key allegations and challenges the credibility of Mr Sergent and some of his witnesses. One of Ms Wood's witnesses, Mr Kumeroa, said in his affidavit of 14 October 2014 thatMr Sergent offered him money to give evidence against Ms Wood. In an affidavit dated 10 March 2015, Mr Kumeroa retracted the relevant parts of his first affidavit and acknowledged he had committed perjury in his first affidavit.[38] Ms Hansen submitted that the first, second, fourth, fifth, sixth, eighth, ninth, tenth and eleventh causes of action were implausible because the alleged defalcations were described by Mr Petterson as being "unsophisticated". Ms Hansen argued that it is unlikely Mr Sergent would have been duped by "unsophisticated"measures, as he is a successful businessman. Ms Hansen said the allegations were entirely consistent with Ms Wood's theory of the case, namely that Ms Wood and MrSergent were in a de facto relationship and that she assisted Mr Sergent to administerthe plaintiffs' affairs for which she was properly rewarded.[39] Ms Hansen submitted the third and seventh causes of action are clearly untenable because Mr Sergent had signed company accounts writing off a debt to7 Affidavit of D R Petterson, 30 July 2014 at [12].Ms Wood of approximately $95,000. Ms Hansen said Mr Sergent's explanation thathe did not recall signing the deeds of forgiveness has an error of unreality about it.[40] All I can do at this juncture is explain the affidavit evidence filed on behalf of the plaintiffs provides a sufficiently plausible foundation for the allegations in the statement of claim and that those allegations are capable of tenable argument. Mr Petterson's evidence alone provides sufficient foundation for the freezing order.His evidence demonstrates the plaintiffs have a good arguable case.Fiduciary relationship[41] Ms Hansen also submitted the pleadings did not disclose a genuine fiduciary relationship. She submitted friendship does not create a fiduciary relationship.[42] As I understand the plaintiffs' case, they submit Ms Woods gained theconfidence of Mr Sergent, Kiwi Honey and the Sergent Family Trust over a period of time, and that ultimately Ms Wood gained a position of trust and owed fiduciary duties to the plaintiffs.[43] It is impossible at this juncture to determine the exact nature of Ms Wood'srelationship with Mr Sergent, Kiwi Honey and the Sergent Family Trust. That is an important issue which will have to be resolved at the substantive hearing.Risk of dissipation of assets[44] Ms Wood entered into an agreement to sell her business and assets at the time she was making plans to leave New Zealand. She now lives somewhere in South Australia, but does not wish to disclose her address for fear of reprisal by Mr Sergent.[45] The fact Ms Wood no longer lives within the jurisdiction of the High Court provides sufficient grounds for me to conclude the freezing order is necessary to avoid the dissipation of the assets that are currently frozen.Lack of disclosure[46] Ms Hansen submitted Mr Sergent did not disclose until his fifth affidavit that he and Ms Wood had been in a relationship. Ms Hansen said this was a case of"egregious" non-disclosure which in itself justifies discharging the freezing order.8Ms Hansen also said that Mr Sergent's failure to disclose that he had obtained theevidence of a handwriting expert, which showed he had signed the deed of forgiveness in relation to the debt of $95,000, was a material non-disclosure.[47] In his first affidavit, Mr Sergent confirmed the veracity of the allegations in the statement of claim. That document alleged Mr Sergent and Ms Wood"established a friendship and then an intimate relationship which lasted until late2007".9 Thus, while the duration of the relationship is disputed, Mr Sergent broughtthe existence of his "intimate relationship" with Ms Wood to the Court's attentionthrough the statement of claim.[48] It would have been advisable for Mr Sergent to have explained the evidence from the handwriting expert at an early juncture. However, I do not think thisoversight was "an egregious omission". The fact Mr Sergent signed thosedocuments does not necessarily negate the allegations in the statement of claim that relate to the alleged debt of approximately $95,000.The overall justice[49] In my assessment, the freezing order was issued properly and it should remain in place. I appreciate, however, that Ms Wood will have commitments to meet when the first payment for her business is received from Queen and Country.[50] For this reason, I grant leave to Ms Wood to apply to the Court for the freezing order to be varied to enable her to meet those obligations. Ms Wood will need to fully and candidly explain those obligations.8 Allen v Commissioner of Inland Revenue (2004) 21 NZTC 18,718 (CA) at [93].9 Statement of Claim, 31 July 2014 at [17].Conclusion[51] The freezing order made on 18 August 2014 and varied on 9 October 2014 remains in force.[52] Leave is granted to Ms Wood to apply to vary the terms of the freezing order to enable her to meet her obligations.[53] Costs are reserved._________________________D B Collins JSolicitors:Armstrong Barton, Wanganui for PlaintiffsFranks & Ogilvie, Wellington for Defendants