Powell v K 2 Investment Group Ltd

• Jurisdiction: New Zealand
• Judge: Osborne J
• Judgment Date: 30 August 2021
• Neutral Citation: [2021] NZHC 2253
• Docket Number: CIV-2018-409-191
• Court: High Court

Between

Richard Owen Powell

Plaintiff/Counterclaim Defendant

and

K 2 Investment Group Limited

First Defendant/First Counterclaim Plaintiff

and

K2 Investment Group Australia Pty Limited

Second Defendant/Second Counterclaim Plaintiff

and

Gabor Kemeny

Third Defendant/Third Counterclaim Plaintiff

[2021] NZHC 2253

Osborne J

CIV-2018-409-191

IN THE HIGH COURT OF NEW ZEALAND

CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA

ŌTAUTAHI ROHE

Contract, Equity, Property — claim for outstanding loan balance and specific performance of a mortgage obligation — in personam claim as an exception to the indefeasibility of title — effect of orders of the Family Court of Australia — indoor management rule — default rate and oppressiveness — effect of creditor delay and oppressiveness — priority of competing equitable interests — Credit Contracts and Consumer Finance Act 2003

Appearances:

S D Campbell and J J Anson-Holland for Plaintiff

P J Woods and T E Hutchinson for Defendants

JUDGMENT OF Osborne J

This judgment was delivered by me on 30 August 2021 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

TABLE OF CONTENTS

Introduction	[1]
The claims outlined	[11]
The issues and the outcome	[24]
The facts	[25]
Ms Durney and Mr Kemeny structure a business together	[25]
The trust deeds	[27]
The partnership agreements	[31]
The acquisition and funding of the property acquisitions and development	[39]
The loan agreement — its negotiation, execution and advance	[42]
The terms of the loan agreement	[56]
K2 New Zealand defaults on loan repayment	[62]
What Ms Durney had been doing	[69]
Mr Kemeny tries to telephone Mr Powell	[71]
The FCA proceedings and interim orders	[80]
The final orders of the FCA	[94]
Mr Powell's caveat proceeding	[96]
Subsequent dealings in relation to the Napier property	[98]
The relevance of the FCA orders and the caveat judgment	[101]
Issue 1: authority to represent K2 New Zealand	[103]
The issue identified	[103]
The Durney email	[106]
Mr Kemeny as agent of the partnerships?	[114]
The final FCA order	[120]
Outcome	[124]
Issue 2: validity of the loan agreement	[136]
The issue identified	[136]
Submissions — defendants	[138]
Submissions — plaintiff	[144]
Conclusion	[146]
Issue 3: did Mr Powell make the agreed advance?	[148]
The issue identified	[148]
Submissions	[150]
Conclusion — payment of the loan	[153]
Issue 4: application of the Credit Contracts and Consumer Finance Act 2003 (CCCFA)	[159]
The issue identified	[159]
The evidence	[160]
Submissions — defendants	[164]
Submissions — plaintiff	[165]
Discussion	[176]
Issue 5: the ownership of an equitable interest	[195]
The issue identified	[195]
Submissions — defendants	[199]
Submissions — plaintiff	[208]
Discussion	[215]
Issue 6: the priority of competing equitable interests	[227]
The issue defined	[227]
Pleadings and submissions — plaintiff	[228]
Pleadings and submissions — defendants	[229]
Discussion	[233]
Issue 7: the validity of the caveats	[248]
Mr Powell's caveat over the Hastings property	[248]
K2 Australia's caveats over the two properties	[251]
Issue 8: entitlement to the escrow funds	[260]
The issue identified	[260]
Discussion	[267]
Costs and disbursements	[273]
K2 New Zealand	[274]
K2 Australia and Mr Kemeny	[276]
Orders	[277]

Introduction

1 Three people are central to this case. Two of them are parties.

2 First, there is Richard Powell who in 2012 made the loan which gives rise to the proceeding. Mr Powell is the plaintiff.

3 Second, there is Gabor Kemeny, one of two partners in two property development businesses managed by the first defendant, K 2 Investment Group Ltd (K2 New Zealand), as agent. It was to K2 New Zealand that Mr Powell made his loan. Mr Kemeny is the third defendant, also a counterclaim plaintiff.

4 Each of these men gave evidence (being the only witnesses called). In my findings upon the evidence, I find them both to have been honest, credible witnesses, albeit with some discrepancies which related to reliability on particular matters rather than general credibility.

5 The third central player was Mr Kemeny's former de facto partner, Bronwynne Durney. She and Mr Kemeny were also in business together. Ms Durney was the sole director and sole shareholder of K2 New Zealand.

6 Ms Durney was not called as a witness by either Mr Powell or the defendants. To the extent I reach conclusions as to her conduct it has necessarily been upon the oral evidence of Mr Powell and Mr Kemeny and upon the documentary record. Any account Ms Durney might have given as to her conduct is not available to the Court. It is, however, important context to this judgment that both Mr Powell and Mr Kemeny have, out of their dealings with Ms Durney, suffered significant financial reversals and are aggrieved at aspects of her behaviour. Mr Kemeny refers to funds which Ms Durney took from K2 New Zealand for her own purposes. Upon the dissolution of the Kemeny/Durney relationship, Mr Kemeny came to distrust Ms Durney, now regarding himself as a victim of her “fraud and embezzlement”. Mr Kemeny said he also considered Mr Powell a victim of Ms Durney's conduct. In short, this case concerns two men who have lost much through their dealings with Ms Durney.

7 This judgment examines the rights, interests and liabilities which arose out of Mr Kemeny's and Mr Powell's dealings with Ms Durney and K2 New Zealand.

8 On 23 December 2011, Mr Kemeny caused his company (the second defendant) K2 Investment Group Australia Pty Ltd (K2 Australia) to lodge caveats over the titles of the two properties at issue, claiming a beneficial interest as cestui que trust (of a trust of which K2 New Zealand was trustee).

9 Mr Powell lodged caveats over some of the titles of the two properties during February and March 2013.

10 Mr Powell's caveats became the subject of an application to sustain caveats which was heard and determined in this Court in November 2013, (the caveat judgment). 1 The Napier caveat was ordered lapsed but with leave to Mr Powell to lodge a second caveat. 2 The Hastings caveat was sustained.

The claims outlined

11 Mr Powell in 2012 agreed to advance to K2 New Zealand on a six month loan a sum of AUD$77,916.20 (the loan agreement). 3 He paid that sum to a nominated solicitor's trust account.

12 The loan was not repaid by the repayment date.

13 Mr Powell sues K2 New Zealand (first cause of action) for NZ$100,000 (the equivalent of AUD$77,916.20) plus interest.

14 The loan agreement provided in the event of default in payment, K2 New Zealand would grant and execute in favour of Mr Powell a mortgage over identified properties in Napier and Hastings (the two properties).

15 K2 New Zealand has not provided such a mortgage.

16 Mr Powell sues (second cause of action) for specific performance of the mortgage obligation.

17 There are complexities to K2 New Zealand's legal ownership as registered proprietor of the two properties. As I have stated, K2 New Zealand was the agent to manage each partnership business of property development. But K2 New Zealand was also Ms Durney's trustee company, being one of the two partners (with Mr Kemeny's K2 Australia) in the business. The two companies each held a 50 per cent interest in the profit of the partnership business and in the net proceeds upon dissolution. K2 Australia was effectively the vehicle by which Mr Kemeny had entered into two commercial partnerships with his (personal) partner, Ms Durney, to develop the two properties. After the relationship between Mr Kemeny and Ms Durney broke down, the Family Court of Australia (FCA) made a number of orders determining their property interests.

18 Mr Powell (third cause of action) seeks declarations that his interests have priority over the interests of K2 Australia and Mr Kemeny (and seeks also related orders as to the caveats lodged by K2 Australia).

19 The issues between the parties are further complicated by the fact that, following the making of the FCA's orders and the caveat judgment, K2 New Zealand's title in the Napier property was transferred to Mr Kemeny and the Napier property thereafter sold with a portion of the proceeds held in escrow (the escrow fund).

20 Mr Powell (fourth cause of action) seeks orders (based on a constructive trust) releasing 50 per cent of the escrow fund to him.

21 Defences in relation to each of the causes of action, including affirmative defences and positive allegations, were filed in the names of K2 New Zealand, K2 Australia, and Mr Kemeny himself.

22 Additionally, a counterclaim was filed by which it was asserted that Mr Powell did not acquire any interest, whether as mortgagee or otherwise, in the two properties. Orders are sought that Mr Powell's caveat over the Hastings property title be removed and that the escrow fund be distributed to Mr Kemeny.

23 Mr Powell challenges Mr Kemeny's authority to represent K2 New Zealand in this proceeding. Mr Kemeny, in response, invokes orders of the FCA, subsequently registered in New Zealand, as having both appointed him agent and ordered the transfer to him ownership of K2 New Zealand itself.

The issues and the outcome

24 I will deal with the issues arising in the following order, and with the following outcomes:

(a) Issue 1: Authority to represent K2 New Zealand (at [103]–[135])

Did Mr Kemeny have authority to have K2 New Zealand engage in litigation?

• (i) No. Mr Kemeny has not established any lawful delegation...