Millionaire Makers Int'l Ltd v Portman Project Ltd
| Jurisdiction | New Zealand |
| Judge | Duffy J |
| Judgment Date | 01 July 2021 |
| Neutral Citation | [2021] NZHC 1610 |
| Docket Number | CIV-2020-404-2462 |
| Court | High Court |
Duffy J
CIV-2020-404-2462
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
Civil Procedure — application for either a preservation order1 or a freezing order pending the determination of their substantive claims in relation to money they paid into the defendant's bank account — plaintiffs contend that they paid the fund pursuant to a defective investor agreement misleading or deceptive conduct — validity of a director's acts — requirements for a freezing order — purpose of a preservation order — Fair Trading Act 1986 — Companies Act 1993
P L Rice for Plaintiffs
R B Hucker and A J Moana-Howard for Defendant
This judgment is delivered by me on 1 July 2021 at 3:00 pm
pursuant to r 11.5 of the High Court Rules.
Registrar / Deputy Registrar
The plaintiffs seek either a preservation order 1 or a freezing order 2 pending the determination of their substantive claims in relation to money they paid into the defendant's bank account. The sum of $260,000 (the fund) is currently frozen under an interim preservation order made by this Court on 17 December 2020. 3
The plaintiffs claim an interest and a proprietary remedy in the fund on the following bases:
-
(a) The defendant received the fund in circumstances which in good conscience preclude the retention thereof;
-
(b) The payment was mistaken; and
-
(c) Section 43 of the Fair Trading Act 1986 empowers a Court to direct a person who has engaged in misleading or deceptive conduct to refund money or return property. 4
The plaintiffs contend that they paid the fund to the defendant pursuant to a defective investor agreement. Put shortly, the plaintiffs allege that Mr Constable, the person who executed this agreement on behalf of the defendant was not properly appointed to his purported office of director. Accordingly, the investor agreement has no legal effect, and the defendant has no legal basis for retaining the fund.
In response, the defendant contends that the investor agreement is legally binding, and the plaintiffs are simply having doubts about their investment decision. The defendants say the plaintiffs have no arguable causes of action and no proprietary interest in the fund they paid to the defendant, which is now held in a Kiwibank account. There is no evidence of a real risk the fund may be dissipated. Thus, they cannot satisfy the requirement for either a freezing order or a preservation order.
The three requirements for a freezing order are: (a) a good arguable case on the substantive claim; (b) assets that the order can apply to; and (c) a real risk that the respondent will dissipate or dispose of those assets. 5 The remedy is flexible, and the Court must bear in mind the overall justice of the case. 6
The purpose of a preservation order is to facilitate the interlocutory preservation of property or a fund. The fundamental requirement is the existence of property or a fund against which a proprietary remedy claim can be made. 7
Accordingly, I have approached the factual and legal issues based on whether they reveal the plaintiffs to have a good arguable case for either a preservation order or a freezing order. This will be established if the allegations in the statement of claim are capable of tenable argument and are supported by sufficient evidence, bearing in mind the proceeding is still at an interlocutory stage. 8 I have then considered whether there is a fund/asset to which either a preservation order or a freezing order can attach, and whether there is a real risk of disposal or dissipation. Finally, I have considered where the balance of convenience, (which the parties addressed me on) and the overall justice of the case lies.
The first step is to determine whether or not the investor agreement has legal effect. The circumstances in which Mr Constable replaced Mr Lunn as a director of the defendant company require consideration.
The plaintiffs describe the defendant as a single purpose development company. It was incorporated on 23 September 2020 to undertake a 15 lot subdivision development (the development). At this time, Mr Lunn was the sole director and a
The plaintiffs' evidence is that Mr Chevin is the effective controller of several development companies that are managed through various professional agents and trusts. One such company, Reed Myers, was responsible for marketing the investment in the development.
In November 2020, the development was at an early stage. No resource consents had been obtained and the purchase of the land to be subdivided was yet to settle. The defendant needed funding to pay the deposit.
On 10 November 2020 Reed Myers advertised on the Trade Me website for a new development investor. The advertisement called for investment of $260,000 to replace a current investor who wished to sell out for personal reasons.
In his affidavit Mr Lunn deposes that he was not consulted about the Trade Me advertisement. Further, once it came to his attention it caused him concern. This was because the advertisement in his view gave the impression that: (a) the development was fully sold; (b) funding had been arranged except for the replacement of an existing investor; and (c) the development was on track for completion in May 2021.
However, to Mr Lunn's knowledge the “current investor” was a fiction, several of the sale and purchase contracts for the proposed new titles were still conditional, no funding had been arranged and development was very unlikely to be completed by May 2021. At the date of the advertisement the defendant still had not obtained resource consent, which was likely to take several months.
When Mr Lunn learnt of the advertisement, he says he complained to Mr Chevin that the advertisement was inaccurate, and that he should have been consulted before it was posted. However, the plaintiffs had already seen the advertisement and met with Mr Chevin. They say that in reliance on representations made in the advertisement and oral representations made by Mr Chevin at their meeting they entered into the investor agreement and deposited $260,000 into the defendant's bank account.
The investor agreement, dated 18 November 2020, was signed on behalf of the defendant by Mr Constable, purportedly as a company director. However, Mr Lunn says that Mr Constable was in reality no more than a bookkeeper for Mr Chevin's group of companies.
Mr Lunn says he did not authorise Mr Constable to enter into the investor agreement on behalf of the defendant, and Mr Constable was not appointed as a new director by a shareholder special meeting. Mr Lunn says Mr Constable simply registered himself as a director of the defendant online and removed Mr Lunn as a director a few days later.
The plaintiffs argue that Mr Constable had no authority to enter into the investor agreement on the defendant's behalf because he was not a director at the time of signing, he was not authorised to enter into the investor agreement by the lawful director Mr Lunn, and was not held out by the defendant as having authority to enter into the agreement.
The plaintiffs further argue that Mr Constable was not a director at the time of signing the investor agreement because the written resolution of the same day purporting to appoint Mr Constable as a director was unlawful and of no legal effect. This is because the resolution was only signed by a single shareholder, Totara Sea Trustee Ltd (TSTL) rather than the defendant's two shareholders. TSTL owns 95 per cent of the shares and Lunbros Ltd (Lunbros) holds the remaining five per cent. 9 The plaintiffs argue that shareholders can only pass a written resolution in lieu of a meeting if the resolution is signed by not less than 75 per cent of the shareholders entitled to vote, who together hold not less than 75 per cent of the votes entitled to be cast. The shareholders signing the written resolution must therefore constitute three quarters of the shareholders both in head count and voting power.
The plaintiffs argue that here TSTL was one of two entities holding shares in the defendant, and therefore TSTL only represented 50 per cent in number of the voters entitled to vote on the resolution. Accordingly, it was not possible for TSTL to pass a resolution under s 122 in lieu of a special shareholder meeting appointing Mr Constable a director.
In such circumstances a duly notified shareholders meeting was required to appoint Mr Constable a director. Only the board could convene such a meeting and all shareholders needed to be sent written notice of the time and place of the meeting and the business of the meeting at least 10 working days beforehand. In this case no special shareholders meeting was convened by the board (Mr Lunn) because none was requested. In the circumstances the plaintiffs maintain there was no valid appointment of Mr Constable as a director.
They further argue that because he was not a director Mr Constable lacked authority to enter into the investor agreement on the defendant's behalf. Accordingly, no agreement between the first plaintiff and the defendant came into legal existence.
The defendant contends that on the morning of 18 November 2020 a shareholder's resolution appointing Mr Constable as director was signed. Mr Constable then updated the company records with the incorrect date (being 19 November 2020). Mr Constable...
To continue reading
Request your trial