McLennan and Van Delden as Liquidators of Neil Timber Ltd ((in Liquidation)) v Livaja

• Jurisdiction: New Zealand
• Judge: Dobson J
• Judgment Date: 11 October 2017
• Neutral Citation: [2017] NZCA 446
• Docket Number: CA246/2016
• Court: Court of Appeal
• Date: 11 October 2017

Between

Iain McLennan and Boris Van Delden as Liquidators of Neil Timber Limited (In Liquidation)

Appellants

and

Boris Livaja

First Respondent

and

Iwona Grazyna Kotowska-Livaja

Second Respondent

and

Orion Trustee 1 Limited

Third Respondent

[2017] NZCA 446

Court:

Brown, Dobson and Brewer JJ

CA246/2016

IN THE COURT OF APPEAL OF NEW ZEALAND

Companies, Equity, Property — Appeal from a decision of the High Court dismissing an application that a caveat lodged should not lapse — whether there was equitable interest in the property on the basis that it was purchased using funds arising from the sale of a property that had been acquired in circumstances amounting to knowing receipt — whose knowledge or awareness was relevant

Counsel:

P J Dale for Appellant

S R G Judd for Respondents

• A The appeal is dismissed.

• B The appellants must pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Dobson J)

1 This is an appeal from a decision of Associate Judge Doogue dismissing an application by the appellants, the liquidators of Neil Timber Ltd (NTL), that a caveat lodged against a residential property located at 113G Sturges Road, Henderson, Auckland (the Sturges Road property), should not lapse. 1 The three respondents are the registered proprietors of the caveated property in their capacity as the trustees of the Orion Trust. 2 In essence, the appellants claim an equitable interest in the Sturges Road property on the basis that it was purchased using funds arising from the sale of a property that had been acquired in circumstances amounting to knowing receipt. The issue raised by the appeal is whether a party other than a party to whom relevant obligations were owed in the course of a particular transaction can bring equitable claims for relief relying on the breach of such obligations.

2 The background to the application for the caveat is protracted and somewhat complicated. An understanding of that background is necessary, however, to analyse the legal basis advanced for the appellants' claim to a caveatable interest.

Factual background

The relationship between Mr Ede and Ms Kotowska-Livaja

3 The second respondent, Ms Kotowska-Livaja, was married to Mr John Ede in January 2004. She met him previously whilst visiting New Zealand and maintained a long distance relationship with him from Poland where she lived. After the couple married, Ms Kotowska-Livaja returned to Poland until September 2004 when she moved to New Zealand with her mother and her son, who was then seven years old. Difficulties soon arose in the marriage. Mr Ede and Ms Kotowska-Livaja separated in March 2005, in which month she lodged a notice of claim against a residential property at 131 Edmonton Road, Te Atatu, Auckland.

4 Mr Ede had been bankrupted in June 2004. Before and after his bankruptcy he worked with NTL in a role treated as that of a shadow or quasi director. Throughout the relevant period NTL's sole director was Mr Stuart Boaden.

Mr Boaden explained that Mr Ede was working with NTL with a view to purchasing it

5 Mr Ede was also responsible for the formation of a company called Neil Timber Trustee Company Ltd (NTTCL). The sole shareholder and director of NTTCL was a member of Mr Ede's immediate family who appears to have participated at Mr Ede's direction. 3 Mr Ede's intention was to use NTTCL as the vehicle to purchase NTL, but that did not happen.

6 Over a period of some six years Mr Ede completed three agreements in relation to property with Ms Kotowska-Livaja. A first handwritten agreement was not explicitly in contemplation of marriage and was not witnessed. It recorded certain contingent promises that Mr Ede would make if he became engaged to marry Ms Kotowska-Livaja, in terms of provision of money and assets for her. The document appears to be dated August 2003, but its terms indicate that it was either completed later (after October 2004) or was amended after that time. 4

7 In January 2005 Ms Kotowska-Livaja settled the D'Angellis Trust. She had by then consulted an Auckland solicitor, Anthony Fortune. The trust deed was prepared by Mr Fortune's firm, Fortune Manning. It appointed Ms Kotowska-Livaja and FM Trustees 325 Ltd as the trustees. Mr Fortune and a second solicitor in his firm, Mr Selkirk, were the directors of that company.

8 A second “relationship property” agreement was concluded in April 2005. It was also prepared by Fortune Manning. The recitals acknowledged that Mr Ede had been adjudicated bankrupt. The April 2005 agreement recorded that the prior agreement of August 2003 had been partially performed by Mr Ede purchasing a motor vehicle and a sports bicycle for Ms Kotowska-Livaja. It further acknowledged that the remaining aspects of the August 2003 agreement that had not been fulfilled remained enforceable, including a transfer of an apartment at 1/1 Ambrico Place to Ms Kotowska-Livaja's trust. The parties also agreed that Mr Ede

would pay Ms Kotowska-Livaja $4,000 per month by way of maintenance from the date on which they commenced living apart (recorded as 14 March 2005). There was no analysis in the agreement of what comprised the pool of relationship property

9 In January 2006 Mr Fortune gave notice to Mr Ede on behalf of Ms Kotowska-Livaja that she wanted the April 2005 relationship property agreement to be honoured.

10 A third agreement was completed in January 2009. By then Mr Ede had been discharged from his bankruptcy. This is the only agreement that records it as being in relation to the division of property pursuant to ss 21 and 21A–21S of the Property (Relationships) Act 1976. Mr Ede confirmed an ongoing promise to pay monthly maintenance, and increased the amount to be paid from $4,000 to $6,500 per month until the marriage was dissolved, which the parties intended to occur after 15 July 2009. The January 2009 agreement also recorded Mr Ede's commitment to pay Ms Kotowska-Livaja $300,000 as her separate property in three instalments between February and June 2009. This was recorded as releasing Mr Ede from the obligation he had made in the April 2005 agreement to pay her $250,000 upon either a breakdown of their marriage in the future or his death.

The transaction at issue

11 In February 2006 Mr Ede signed an agreement for sale and purchase of an apartment at 30/1 Ambrico Place, New Lynn, Auckland. The purchaser was described as NTTCL or its nominee. The purchase price was $330,000 and settlement was to occur on 23 May 2006. On 7 March 2006 Mr Ede sent Mr Fortune a facsimile using an NTL cover sheet, attaching the three operative pages of the agreement for sale and purchase. Mr Ede's handwritten note on the cover page advised Mr Fortune:

Our property sale [5] is proceeding and funds will be available on settlement date or earlier to complete Ambrico purchase.

12 In March 2006 Mr Ede's solicitors gave notice to Mr Fortune that the D'Angellis Trust was to be nominated by NTTCL as the purchaser of the apartment. Mr Ede's solicitors acted for the purchaser in completing the conveyancing for the transaction. A letter from Mr Ede's solicitors to those acting for the vendor on 19 May 2006 noted that the nominee for the purchaser was not then bound because the deed of nomination, as between NTTCL as the nominator and the trustees of the D'Angellis Trust as nominee, had not been completed. It is reasonable to infer that the trustees accepted that nomination as the purchase was settled on 23 May 2006. Alternatively, Mr Ede may have instructed his solicitors to proceed, despite the nomination not having been formally accepted by the D'Angellis Trust. The D'Angellis Trust provided none of the consideration.

13 It is the source of the funds for purchase of 30/1 Ambrico Place that gives rise to the appellants' alleged caveatable interest. Mr Ede was involved in a complex land development scheme that involved NTL. NTL obtained a loan facility supposedly related to that development. A sum of $565,000 was made available, but not received by NTL directly. Instead, the money was paid into the trust account of Mr Ede's solicitors. The explanation was that Mr Ede claimed an entitlement to a commission of $360,000 for his part in the land development transaction and took that amount from the $565,000 that had been paid to his solicitors. On his instructions, the solicitors used that amount to pay for the purchase of 30/1 Ambrico Place and to make a further payment of $20,000 to Ms Kotowska-Livaja towards the cost of renovating the property. The statement prepared by Mr Ede's solicitors accounting for the $360,000 received was addressed to NTL and acknowledged receipt of that amount, implicitly from NTL.

14 Some aspects of the land transactions Mr Ede was involved in (although apparently not the purchase of 30/1 Ambrico Place) featured in his later criminal prosecutions for 22 charges under the Insolvency Act 2006, the Crimes Act 1961 and the Companies Act 1993. He was convicted and sentenced to three years and seven months' imprisonment. 6

15 Some three weeks after settlement, Messrs Boaden and Ede completed a joint letter respectively on behalf of NTL and NTTCL that was addressed to the D'Angellis Trust. It confirmed that the moneys applied to purchase the apartment at 30/1 Ambrico Place, and the $20,000 advance to Ms Kotowska-Livaja were not a loan, and were not to be repaid. On the same day Mr Boaden wrote a one sentence instruction to Mr Ede's solicitors, directing them to settle the purchase of 30/1 Ambrico Place and to issue the new owner as the D'Angellis Trust for Ms Kotowska-Livaja.

Subsequent developments and acquisition of caveated property

16 In October 2007 Ms Kotowska-Livaja settled a new trust (the Fata Morgana Trust) and resettled on that new trust the assets of the D'Angellis Trust. A company, Fata...