UNKA v DODD [2018] NZHC 1665

UNKA v DODD [2018] NZHC 1665 [6 July 2018]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2018-485-170[2018] NZHC 1665IN THE MATTER OF Ownership of the shares of CopperfieldVillage LimitedBETWEEN LESLEY CHRISTINE UNKA as trustee ofthe PRATIMA BHABNISHA PATELTRUSTApplicantOPERATIONAL SERVICES LIMITEDApplicantLESLEY CHRISTINE UNKAApplicantEVAN DESMOND BOURKEApplicantAND ARTHUR WATSON DODDRespondentCOPPERFIELD VILLAGE LIMITEDRespondentHearing: 13 March 2018Counsel: Q S Haines for ApplicantsJ A Langford for RespondentsJudgment: 14 March 2018Reasons: 6 July 2018JUDGMENT OF CLARK JIntroduction[1] On 13 March 2018 I heard the applicants' application for an interim injunction.I declined to make the orders sought. In this judgment I provide my reasons fordeclining the application.Background[2] The background facts, which are not disputed, involve Mr Dodd beingapproached in early 2016 by Ron Schlatter, a mortgage broker and friend of severalyears. Mr Schlatter had a proposition for Mr Dodd. If Mr Dodd were to allow a personto use his name he would be paid $50,000. Mr Dodd deposed to "this sound[ing] toogood to be true, which it has proven to be".[3] As Mr Dodd's several properties were owned by his trust he did not feelexposed and agreed to be involved. The point of Mr Dodd's involvement was to lendcredibility to a loan application to be made by one Keran Unka, a bankrupt. The loanwas apparently to fund the purchase of a commercial property at Kapiti, known asCopperfields. Mr Dodd understood from a lawyer and an accountant acting forMr Unka at a meeting on 2 May 2016 that although he was driving the matter,Mr Unka was to be kept at a distance from the transaction because he was a bankrupt.There was no mention of Mr Unka's wife and she was not present at the meeting.[4] Mr Dodd had been told that after approximately six months from May 2016Mr Unka would refinance the complex and Mr Dodd's role would end.[5] Mr Bourke, a friend and business associate of Mr Unka's, signed the sale andpurchase agreement for Copperfields in his name. Mr Bourke nominated the newlyformed Copperfield Village Limited (Copperfield Village) to be the nominatedpurchaser of the property. Nomination of Copperfield Village was conditional uponshares in the company being held by Mr Dodd as trustee. Mr Bourke's company,Operational Services Limited, was to have the management contract for the property.A "deed of trust for shares" was signed by Mr Dodd and emailed to Mr Unka's lawyer,Mr Soper, on 5 May 2016.[6] Over the following months, Mr Dodd was required to make various cashinjections to keep the company solvent. In December 2016, Mr Unka offered Mr Dodda loan agreement recording Mr Dodd's total payments at $135,000 plus interest at15 per cent, amounting to approximately $150,000. Mr Dodd says he is out of pocketby approximately $270,000.[7] By October 2017 Mr Dodd "was sick of the whole matter" and sought to takecontrol of Copperfields with the intention of carrying out maintenance andimprovements to make the complex more saleable and limit his exposure. With noprospect of Mr Unka, or any beneficiary of the trust for shares, being in a position torefinance the company, Mr Dodd gave notice pursuant to cl 11(f) of the trust deed thathe considered the deed had been breached, that the breaches could not be remediedand that he intended to sell the property.[8] A loan offer of $100,000 was made by the applicants to Mr Dodd. The purposeof the advance was to repay Mr Dodd. He would also be released from his personalguarantees. The loan offer expired on 16 March 2018, three days after the injunctionhearing.The application[9] The application sought a broad range of orders:1.1 That shares in Copperfield Village Limited vest with Lesley ChristineUnka as Trustee of the Pratima Bhabnisha Patel Family Trust;1.2 That Arthur Watson Dodd be removed as director of CopperfieldVillage Limited and that Lesley Christine Unka, Evan Desmond Bourkeand William Louis Slater be appointed as directors instead;1.3 That the operational services agreement between Copperfield VillageLimited and Operational Services Limited be reinstated and that ArthurWatson Dodd provide access to all bank accounts, so staff wages, taxesand expenses can be paid;1.4 That the loan offer made by Citywide Capital Limited be accepted andfunds drawn down with Arthur Watson Dodd receiving $100,000 as setout in the loan document. With all parties reserving their respectiverights to claim against each other for any losses they wish tosubsequently claim;1.5 That the property at 7-13 Seaview Road, Paraparaumu, owned byCopperfield Village Limited to be listed for sale with Dean Anderson ofColliers Real Estate;1.6 That any net sale proceeds after all expenses be held on trust pendingthe outcome of the substantial proceedings in this matter;1.7 An order that the applicants be bound by the undertaking of LesleyChristine Unka, Evan Desmond Bourke, Operational Services Limitedand Lesley Christine Unka as trustee of the Pratima Bhabnisha PatelFamily Trust in the event of a costs order in these proceedings.[10] An equally broad range of grounds was advanced as the basis for the orders. Ido not propose to set those out. The application is made in reliance in ss 131 and 174of the Companies Act 1993, the Trustee Act 1956 and on the basis of the evidence offour deponents.Reasons for dismissing the application[11] The approach to be taken to applications for interim injunctions is settled. Inorder to succeed, a plaintiff must show:1(a) there is a serious issue to be tried;(b) the balance of convenience weighs in favour of making the orderssought; and(c) the overall justice favours the making of the orders sought.[12] The statement of claim pleads three causes of action: breach of trust, breach ofcontract and breach of fiduciary obligation. Mr Haines, for the applicants, submittedthe purpose of the injunction was to allow settlement of funds and further injection ofcapital into Copperfield Village.[13] The respondents oppose the application on the grounds the applicants seek touphold a sham arrangement designed by Keran Unka to conceal his involvement asthe architect and effective director of the arrangement, and to defeat the insolvencylaws. Mr Langford for the respondents said it is a matter of record that Mr Unka1 American Cyanamid Co v Ethicon Ltd [1975] AC 395 (HL).became bankrupt on 14 December 2014. An undischarged bankrupt must not, withoutthe consent of the Assignee or the court, either directly or indirectly enter into, carryon, or take part in the management or control of any business; or be employed by acompany, trust or trustee that is owned, managed or controlled by a relative of thebankrupt.2[14] The applicants essentially seek the Court's enforcement of agreements whichI cannot be confident, in the context of an urgent interim injunction, are lawful. I amtherefore not satisfied the applicants have met the threshold of a serious question to betried.[15] Mr Unka was bankrupt at the time the arrangements were put in place and theywere deliberately structured to keep Mr Unka at a distance. Mr Unka's accountant,Mr Smith, deposed to the fact:Mr Unka was to be kept at a distance from the transaction and was only to belegally involved as an employee of a management company which would holdthe management contract for the property.[16] Mr Unka's lawyer, Mr Soper, stated in his affidavit:It was very clear that Mr Dodd was holding the shares on trust for the Unkainterests.[17] From the information and evidence available to the Court it seems clearMr Dodd was "fronting" for Mr Unka.[18] Compounding my concern as to whether the documents are intended todisguise the real intention of the parties is that Mr Soper's evidence (that Mr Doddheld shares for "Unka interests") is at odds with the terms of the initial trust deednaming Pratima Bhabnisha Patel as the sole beneficiary. The trust's beneficiary hasbeen variously described in the trust documents:(a) The first version of the "deed of trust for shares" is undated. The namedbeneficiary is "Pratima Bhabnisha Patel". It is signed by Mr Dodd andwitnessed by Mr Schlatter. Mr Dodd has initialled every page except2 Insolvency Act 2006, s 149.for the final page, page five. The beneficiary has not signed thedocument.(b) Another version of the deed of trust for shares is dated 6 May 2016. Itnames the beneficiary as "Pratima Bhabnisha Patel Trust". The word"Trust" has been added in handwriting. Ms Unka has signed thedocument as trustee of the Pratima Bhabnisha Patel Trust and hersignature is witnessed by Mr Bourke. The addition of the word "Trust"has been initialled by Ms Unka but not by Mr Dodd.[19] The next document is the trust deed apparently establishing the Pratima FamilyTrust. It is dated 1 April 2016. Under the trust deed Ms Unka is the sole trustee. Thetrust deed is signed by Ms Unka as settlor and trustee. Mr Bourke witnessed her twosignatures. Clause 21 of the trust deed states the trust "shall be known as the PratimaFamily Trust". None of the pages are initialled. There is no certainty, therefore, thatthey form part of the same document that is signed on page 10.[20] A further document is a single page headed "Resolution of Trustees". It isdated 22 April 2016. Although the document has made provision for the names andsignatures of three trustees, two of the spaces are blank. The only signature isMs Unka. She has added "sole" before the word "trustee". The resolution permits anadditional name to be used for the Pratima Family Trust, the additional name beingthe "Pratima Bhabnisha Patel Trust".[21] There is conflicting evidence as to the identity of the beneficiary for whom thetrust assets were to be held:(a) Mr Soper deposed to emailing Mr Langford on 21 April 2016 andinforming him, on instructions from the Unka family, the beneficiarywould be a trust and Mr Unka would not be a beneficiary or trustee.(b) As at 11 October 2017 email correspondence with Mr Langford hasMr Soper referring to "P Patel" as a person, noting that he "never hadany contact with her".(c) Mr Unka describes Pratima Patel as his niece, an accountant who livesin Auckland. Mr Unka annexed to his affidavit a document containinga text message said to be from his niece explaining why she could not"enter the trust relationship". The purported screen shot does notidentify the author of the text or contain any other identifier (such asthe sender's phone number) although of course Mr Unka's evidence isthat the text is from Ms Patel.(d) There is no evidence from Ms Patel personally although at the hearingMr Haines said an affidavit could be expected from Ms Patel.[22] Mr Haines submitted the Pratima Family Trust is not trying to hide or disguisethe involvement of anyone from the Unka family. The fact Mr Unka identified aproperty he commended to others as being of potential interest and introduced othersdoes not make the trust a sham.[23] New Zealand case law suggests the courts approach with caution invitationsto regard trusts as a shams. But where a document does not evidence the true intentionof the parties it will be regarded as a "sham" because it is a pretence.3 The evidencebefore me strongly suggests Mr Unka was involved in the arrangement to a greaterextent than simply commending a property of potential interest.[24] Mr Haines submitted a "holistic approach" was required to be taken to theconstruction of the trust but he accepted there was a potential lack of certainty. Evenif an express trust was not created, a constructive trust arose where Mr Bourkenominated the company to settle the contract.[25] Serious questions are raised on the evidence as to the real intention of theparties and certainty of beneficiary. The issues were not, and are not expected to be,fully investigated in the context of an urgent hearing for an interim injunction.3 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009]2 NZLR 289 cited in Clayton v Clayton [2016] NZSC 29, [2016] 1 NZLR 551 at [113].[26] Mr Haines submitted the urgency of the application arose from the pendingexpiry of the loan agreement and Mr Dodd's expressed intention to cancel OperationalServices Limited's management contract. I found that difficult to accept in the absenceof any evidence of a request being made to extend the loan agreement.[27] The overall justice and the balance of convenience favoured declining theapplication for a mandatory injunction. The applicants failed to establish that there isa serious question to be tried.[28] In addition, and fatally in this case, no undertaking as to damages wasprovided. An "undertaking as to costs" was filed with the application. Mr Hainessubmitted the intention was to comply with r 7.54 of the High Court Rules 2016. Anintention to comply is clearly inadequate. Rule 7.54 requires a signed undertaking thatthe applicant will comply with any order for payment of damages to compensate theother party for any damage sustained through the injunction.[29] For these reasons the application was declined._____________________________Karen Clark JSolicitors:QH Law, Levin, for ApplicantsLangford Law, Wellington for Respondents