REVEAL NZ LIMITED v INTHAYUNG [2022] NZHC 712

REVEAL NZ LIMITED v INTHAYUNG [2022] NZHC 712 [8 April 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-2405[2022] NZHC 712BETWEEN REVEAL NZ LIMITED(IN LIQUIDATION)PlaintiffAND INTHAYUNGDefendantHearing: 6 April 2022Appearances: K Paterson for the plaintiffA Kenwright for the defendantJudgment: 8 April 2022JUDGMENT OF ROBINSON JThis judgment was delivered by me on 8 April 2022 at 3.00pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors/counsel:Buddle FindlayShanahans LawA Kenwright, Barrister, AucklandIntroduction[1] The plaintiff applies pursuant to rule 7.55 of the High Court Rules 2016 forpreservation orders in respect of two motor vehicles: a 2017 Mercedes-Benz C20(LHK265) (Mercedes); and a 2007 Porsche 991 (GSP566) (Porsche) (together, theVehicles).[2] In the substantive proceeding the plaintiff claims to be the legal and beneficialowner of the Vehicles and seeks, amongst other things, an order that the defendantsurrender them. The defendant denies the plaintiff's claim. She claims to be the legaland beneficial owner of the Porsche, and the beneficial owner of the Mercedes whichshe says is held on trust for her by the trustees of the DW Corrick Trust (Trust).[3] Pending determination of that substantive dispute the plaintiff applies fororders that:(a) the defendant surrenders the Vehicles and their keys to the plaintiff;(b) the plaintiff is to hold the Vehicles and not dispose of them pendingfurther order of the Court; and(c) leave be reserved for the parties to seek further orders relating to theVehicles.(Application)[4] The defendant opposes the application. In written and oral submissionscounsel for the defendant, Ms Kenwright, says that the defendant does not object tothe granting of an order preserving the Vehicles per se, but does object to the terms ofthe orders the plaintiff seeks. Ms Kenwright submits it would be appropriate for theCourt to grant preservation orders, but on terms that the defendant, rather than theplaintiff, hold the Vehicles pending further order of the Court.[5] The plaintiff initially made the application without notice. Toogood J declinedto proceed on that basis in light of an email to the Court from the defendant's counseladvising that the application was opposed. However, Toogood J required thedefendant to provide an undertaking to the Court by 22 December 2021. In accordancewith that direction the defendant has filed an undertaking on the following terms:1. I hereby undertake to the Court that the following vehicles will bepreserved and that I will not take any step that is likely to compromise anyinterest in the vehicles pending a further order of the Court.(a) 2017 Mercedes-Benz C20 (LHK265); and(b) 2007 Porsche 991 (GSP566).[6] The defendant says that there are no good grounds for the Court to grant theplaintiff's application, particularly given the terms of her undertaking.BackgroundThe parties[7] The plaintiff, together with its parent company (Reveal International Limited)and another related company, were placed into liquidation by shareholders' resolutionson 15 November 2021. Lynda Smart and Paul Valsic were appointed liquidators. Theshareholders of Reveal International Limited are Heimsath Alexander Trustee Limitedand Lex Trustee Company Limited as trustees of the Trust.[8] David Wayne Corrick was the sole director of the plaintiff and its parent.Unfortunately Mr Corrick passed away on 9 November 2021, shortly before thosecompanies were placed into liquidation. The defendant is Mr Corrick's widow.The Vehicles[9] In her supporting affidavit Ms Smart sets out the evidence upon which theplaintiff relies to establish an ownership interest in the Vehicles.[10] In relation to the Mercedes, this evidence includes:(a) An invoice dated 1 May 2018 recording the sale of the Mercedes byIngham Motor Holdings Limited (trading as Mercedes-Benz Auckland)to the plaintiff.(b) A Business Credit Agreement dated 1 May 2018 between Mercedes-Benz Financial Services Limited (MBFSL) as lender, the plaintiff asborrower and Mr Corrick as guarantor. Pursuant to that agreementMBFSL provided credit to the plaintiff to enable it to buy the Mercedes,and Mr Corrick guaranteed the plaintiff's obligations to MBFSL.(c) A PPSR Motor Vehicle Search showing the registration on 3 May 2018of a financing statement in relation to MBFSL's security interest in theMercedes. This records the plaintiff as the debtor.[11] In relation to the Porsche Ms Smart's evidence includes:(a) A Vehicle Offer and Sale Agreement dated 25 October 2013 betweenContinental Cars (Porsche) as vendor and the plaintiff as purchaser.(b) An unsigned asset financing agreement dated 30 October 2013 betweenBNZ as lender, the plaintiff as borrower and Mr Corrick as guarantor.Pursuant to that agreement BNZ agreed to lend the plaintiff money toby the Porsche, and Mr Corrick guaranteed the plaintiff's obligations toBNZ.(c) Email correspondence from BNZ to Continental Cars dated 31 October2013 recording that it had paid the amount of the purchase price toContinental Cars on behalf of the plaintiff.(d) Various invoices between Continental Cars and the plaintiff in relationto the Porsche.[12] In relation to both Vehicles Ms Smart's evidence also includes:(a) Extracts from the plaintiff's financial statement as at 31 March 2020.In particular, the plaintiff's Fixed Asset Schedule which lists bothVehicles as assets belonging to the plaintiff.(b) Email correspondence from the plaintiff's accountant to Mr Corrickconcerning Fringe Benefit Tax obligations that may arise if the Vehicles(amongst others) are available for private use by employees "including[Mr Corrick] and [the defendant] as associated parties".(c) An insurance policy schedule showing that the Vehicles are insured inthe plaintiff's name and a broker's invoice to the plaintiff dated 6September 2021 in respect of the premia. Ms Smart confirms theliquidators have continued that insurance post-liquidation.[13] On the other hand, the defendant says that Mr Corrick purchased both Vehiclesfor her personal use. She says the legal owner of the Mercedes is the Trust of whichshe is a beneficiary. Ms Kenwright submitted, albeit without evidence, that upon thepassing of Mr Corrick his property passed to Trust, including his interest in Mercedes.It is not clear how Mr Corrick personally is said to have had an interest in theMercedes.[14] The defendant says she is the legal and beneficial owner of the Porsche. Shesays Mr Corrick purchased it for her, and it was never owned by the plaintiff. Sherelies on an invoice from Waka Kotahi showing that she is the "registered owner" ofthe Vehicle. However, in her reply affidavit Ms Smart points to the following extractfrom Waka Kotahi's website, which makes clear that registration of a vehicle in aperson's name does not mean that person owns the vehicle:What it means to be the registered personThe registered person is the person responsible for the vehicle, but thisisn't the same thing as the legal owner. The Motor Vehicle Registerdoesn't record legal ownership. (Original emphasis)[15] It is not for the Court at this stage to determine who owns the Vehicles. Thatis for another day. However, I note that as matters stand the defendant has not providedany documentary evidence in support of her assertions of ownership, and that thoseassertions are quite contrary to the contemporaneous evidence provided by theplaintiff. The defendant may well have had the personal use of the Vehicles, andunderstood Mr Corrick purchased them for that purpose, but that will not bedeterminative of the ownership dispute.Storage[16] In her affidavit of 23 March 2022 the defendant says that the Porsche iscurrently stored securely in her garage. She says the Mercedes is being held by a cardealer, Richard Glasson. It is not clear from the evidence before me why the Mercedesis in Mr Glasson's possession; for how long he has held it; or the terms upon which heholds it.[17] A search of the Personal Properties Securities Register (PPSR) carried out bythe liquidators on 29 March 2022 revealed that on 4 March 2022, Modena 2000Limited (Modena) registered a financing statement in respect of a security interest itclaims over the Mercedes. Unusually, the financing statement records Modena as boththe debtor and the secured party.[18] Companies Office records show that Mr Glasson owns all the shares in Modenaand is one of its two directors. Modena's registered office, also its address for service,is at the offices of Paul Jackson & Associates Limited, Chartered Accountants. Emailcorrespondence provided in evidence shows that Mr Jackson has been assisting thedefendant in her dealings with the liquidators.[19] In her affidavit of 23 March 2022, the defendant made no mention of any newsecurity interest over the Mercedes, nor the recent registration of the financingstatement. In oral submissions Mr Kenwright explained that the defendant wasunaware of these recent dealings and not involved in them. That is as the Court wouldexpect given the terms of the defendant's undertaking. Having made enquiries MsKenwright is instructed that Modena has acquired a debt secured over the Mercedesthat was previously owed to another entity. However, there is presently no evidenceto that effect. MBFSL's financing statement remains registered on the PPSR.Legal Principles[20] The authors of McGechan on Procedure explain the purpose of rule 7.55 asfollows:The purpose of r 7.55 is to facilitate the interlocutory preservation of"property" or of "a fund" involved in the litigation itself, or evidence relatingto the litigation, so that claims are not rendered nugatory prior to thesubstantive hearing. The rule is not intended to provide a means of attachmentof the unrelated worth of the defendant's concern: Rapid Metal Developments(NZ) Limited v Rusher (1987) 2 PRNZ 85 (HC). In that case, McGechan Jremarked that any such sweeping jurisdiction would effectively overtake thecarefully controlled jurisdiction of the Court in relation to charging ordersbefore judgment under r 17.41 and in relation to freezing orders. The rule isnot intended to amount to a means for hopeful litigants to ensure defendantsremain judgment worthy.This approach to the rule was approved by the Court of Appeal in InvestorsProtection Co Limited v Ray Courtney Architects Limited (1993) 7 PRNZ 1(CA).[21] There is no dispute as to the relevant principles. An applicant for an orderunder r 7.55 need not meet the threshold required for an interim injunction but mustestablish that there is a "proper basis for the making of an order".1 In particular:(a) There must be "property" or a "fund", the right to which is in question.If the appropriate remedy in the substantive proceeding is not aproprietary one, an order under r 7.55 will not be appropriate.2(b) There must be a good reason for the order.3(c) Where the order sought relates to property the applicant mustdemonstrate a claim to an interest in that property, although notnecessarily extending to ownership.4(d) The risk of dissipation or destruction will be an important matter to takeinto account.51 Helicarr Helicopters Limited v Watts (1992) 6 PRNZ 61 at 65.2 Investors Protection Co Limited v Ray Courtney Architects Limited (1993) 7 PRNZ 1.3 Proco Holdings Limited v Thompson unreported, 3 February 1989, HC Auckland CP 2850/88 perGault J, cited in Helicarr Helicopters Limited.4 Helicarr Helicopters Limited v Watts.5 Lewis v Poultry Processors (Holdings) Limited (1988) 3 PRNZ 167 at 173 (HC).Discussion[22] The Vehicles are obviously property and both parties claim an interest in them.The key issue in dispute in the present application is whether there is a proper reasonand/or good grounds to grant the preservation order. The risk of dissipation ordestruction is relevant to that assessment.[23] Ms Kenwright submits there is no good reason to grant orders on the terms theplaintiff seeks. She says the Vehicles are safely secure where they are, and that theywill remain safely secured until the proceeding is determined. In the meantime herundertaking to the Court will remain. As such, there is no risk of dissipation ordestruction to the Vehicles.[24] Ms Kenwright goes further. She submits that the Vehicles will be at greaterrisk of being sold (and therefore dissipated) if preservation orders are made on termsrequiring possession of the Vehicles to be delivered to the plaintiff. She submits it hasalways been the liquidators' intention to sell the Vehicles at short notice once they haveobtained possession. She says that if the plaintiff genuinely intended to preserve theVehicles then it would not be applying for leave to be reserved for the parties to comeback to the Court for further orders. Ms Kenwright also suggested that the liquidatorswould necessarily incur storage costs that would ultimately reduce any distribution tothe shareholder Trust of which the defendant is a beneficiary.[25] I do not agree. I accept Mrs Paterson's submission that there are proper reasonsand good grounds to make the preservation orders sought. In particular:(a) The defendant's undertaking is that she will not take steps likely tocompromise any interest in the Vehicles. However, that undertaking isnot given by third parties and does not bind third parties. Thatlimitation applies particularly to the Mercedes which is presently beingheld by Mr Glasson. As noted there is no evidence as to preciselywhere, how, why or on what terms Mr Glasson is holding the Mercedes.(b) The recent registration of the (unusual) financing statement on thePPSR raises concerns. There may be good reasons for that registration,but the lack of any evidence to explain these dealings and thedefendant's explanation through counsel that she was unaware of themdemonstrates the limits of the defendant's undertaking. This addsweight to the plaintiff's application.(c) The insurance policies for the Vehicles are held by the plaintiff. Theplaintiff continues to pay the premiums. There are various conditionsattached to those policies, including as to who may drive it and how itmust be stored. However, the plaintiff has no way of knowing whetherthose conditions are being met.(d) It is unclear whether or not the Vehicles are currently being driven.(e) It is unclear precisely how the Vehicles are being stored or (in the caseof the Mercedes) on what terms.[26] I do not share the defendant's concerns that there is a risk the plaintiff will sellthe Vehicles if the application is granted. That would breach the express terms of theorders and be in contempt of Court. The plaintiff is presently in the hands of itsliquidators. Ms Smart has said in evidence (and the liquidators have advised throughcounsel) that the plaintiff will hold the Vehicles and keep them insured pending furtherorder of the Court. The liquidators will be well aware of the plaintiff's obligations, aswell as their own, including to the Court.[27] Finally, the liquidators have advised through counsel that they are able toarrange for the Vehicles to be stored safely and securely without cost.[28] For these reasons I am satisfied in all the circumstances that it is appropriate tomake the orders sought. There is no prejudice to the defendant in doing so.Result[29] The application is granted. I order that:(a) The defendant is to surrender up the Mercedes and the Porsche and eachof their keys to the plaintiff (via its liquidators or its solicitors).(b) The plaintiff is to hold the Vehicles and not dispose of them pendingfurther order of the Court.(c) Leave is reserved for either party to seek further orders relating to theVehicles.Costs[30] Having succeeded with its application the plaintiff is entitled to costs. If theparties agree I would order that costs be reserved pending determination of thesubstantive proceeding. Otherwise, the plaintiff should file a memorandum of notmore than 5 pages within 10 working days and the defendant within a further 5working days. I will deal with any costs issue on the papers. I can indicate mypreliminary view is that costs should be calculated on a 2B basis.Next steps[31] During the hearing, counsel agreed to confer with a view to filing a JointMemorandum proposing timetable orders to progress matters. Any JointMemorandum (or, failing agreement, a memorandum from each party) is to be filedby 5.00pm on Wednesday 13 April 2022.[32] The Registry will convene a teleconference on Thursday, 14 April 2022. Ifthe parties can reach agreement on appropriate terms this can be vacated.__________________Robinson J