Schmidt (aka Ash) v Ebada Property Investments Limited HC Auckland CIV 2011-404-4752

[2011] NZHC 1696

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-4752

BETWEEN  TAYLOR JADE SCHMIDT (ALSO KNOWN AS LINDA ASH)

First Plaintiff

ANDANTHONY MIKHAL SCHMIDT (ALSO KNOWN AS WILLIAM PERESE, AND PREVIOUSLY KNOWN AS WIREMU WILLIAM ANTHONY TE WHAIROA WANOA, WILLIAM DANIEL HIRCHKOP AND BILL KAHN REICHFELD)

Second Plaintiff

ANDEBADA PROPERTY INVESTMENTS LIMITED

First Defendant

ANDBRIAN PATRICK GARRITY Second Defendant

ANDNOEL ROBERT HAIR Third Defendant

Hearing:         1 November 2011

Counsel:         Mr and Mrs Schmidt, in person, Plaintiffs I Razak for First and Second Defendants N W Woods for Mr Hair

Judgment:      25 November 2011

JUDGMENT OF HEATH J

This judgment was delivered by me on 25 November 2011 at 11.00am pursuant to Rule 11.5 of the

High Court Rules

Registrar/Deputy Registrar

SCHMIDT V EBADA PROPERTY INVESTMENTS LIMITED HC AK CIV 2011-404-4752 25 November 2011

Introduction

[1]      Mr and Mrs Schmidt seek an interim injunction to restrain the registered owner of a property situated at 11 Bell Road, Mangatawhiri, near Pokeno (the Bell Road property), from “selling, transferring or disposing” of the property.  Initially, the application was made without notice.  Potter J directed that it be determined on notice to the registered proprietor, Mr Hair.

[2]      In response to Mr and Mrs Schmidt‟s substantive proceeding, Mr Hair seeks an order for summary judgment in his favour, on the grounds that the claims against him have no prospect of success.  He has also applied to strike out the claim.  If Mr Hair  were  unsuccessful  in  his  attempts  to  dispose  of  the  proceeding,  he  seeks alternate relief requiring a more explicit pleading to be filed.

[3]      All applications were heard together, on 1 November 2011.

Background facts

[4]      I base my summary of the facts primarily on the Statement of Claim and Mr and Mrs Schmidt‟s joint affidavit in support of their interim injunction application.  I do so because, on applications of the type before the Court, it is necessary to assume that disputed questions of fact will be resolved at trial in favour of the plaintiffs.  My summary should not be taken as indicating any acceptance by Ebada Property Investments Ltd (Ebada), Mr Garrity or Mr Hair of the allegations made against each of them.  Most of the material allegations of fact are in dispute.

[5]      In 2001, Schmidt Trustee Ltd acquired the Bell Road property.  At that time, Schmidt Trustee Ltd was, on Mr and Mrs Schmidt‟s case, trustee of two “Parallel Trusts” called “The TJ Schmidt Trust and The AM Schmidt Trust”.  Subsequently they are said to have been joined into “a combined Partnership Trust” called “The Schmidt Trusts”.

[6]      In  October  2002,  the  Excel  Estate Trust  was  formed  “with  four  „Mirror

Beneficiary Trusts‟” called The Nature Estate Trust, The Tech Estate Trust, The

Schmidt Estate Trust and The Excel Tech Trust.  These are said to have been “joined by a Deed of Declaration (collectively)”, into The Excel Estate Trust.1   Mr and Mrs Schmidt assert that from the time of formation of the Excel Estate Trust (in October

2002) Schmidt Trustee Ltd held the Bell Road property on trust for it.

[7]      Mr Garrity formerly practised as a lawyer.  Mr and Mrs Schmidt allege that from July 2004, he provided services as both a lawyer and a trustee for the various trusts to which I have referred.

[8]      In August 2004, Mr Garrity entered into negotiations on behalf of Schmidt Trustee Ltd with Transit New Zealand.  The object was to obtain compensation for the acquisition of part of the Bell Road land that had been taken under the Public Works Act 1981.

[9]      Around September 2004, Mr Hair began to graze cattle on the Bell Road property.   A number of contracts were entered into, though there are differences between Mr and Mrs Schmidt and Mr Hair about those that were signed and are enforceable.

[10]     Ebada was incorporated on 8 November 2005.2   Mr Garrity is its sole director and shareholder.  Mr and Mrs Schmidt allege that Mr Garrity formed the company “with the intention of using it to hold property”.  They say it was agreed, at that time, that Ebada would become the trustee of the Excel Estate Trust and that Bell Road, along with properties at 1493 and 1495 Kaiaua Road, Mangatangi, would be transferred into Ebada‟s name.  Mr and Mrs Schmidt allege that various agreements were made with Mr Garrity in relation to the payment of the mortgage debt and the

costs of sale.

1 This aspect of Mr and Mrs Schmidt‟s case is more fully explained in Pepper New Zealand

(Custodians) Ltd v Schmidt HC Auckland CIV 2011-404-5497, 15 November 2011 at paras [22]–[24].

2 While Mr and Mrs Schmidt deposed that the date of incorporation was 8 November 2005, the

Companies Office Register records Ebada‟s incorporation date as 8 December 2005.

[11]     On 20 December 2005,3 an agreement to transfer the Kaiaua Road properties into Ebada‟s name was allegedly reached.  Ebada took title to the two Kaiaua Road properties on 5 January 2006.

[12]     On 17 January 2006, Mr Garrity completed negotiations with Transit New Zealand about the Bell Road property. Transit New Zealand agreed to pay an interim settlement sum.  Mr and Mrs Schmidt allege that a further payment of $23,594.61 was  made to  Mr Garrity‟s  personal  account.   They allege that,  at  Mr Garrity‟s direction, $212,351.44 was paid off the mortgage on the Bell Road land but that Mr Garrity  (without  authority  from  them)  retained  the  $23,594.61  for  his  own purposes.

[13]     Schmidt Trustee  Ltd  transferred  the  Bell  Road  property to  Ebada on  20

November 2006.  Mr and Mrs Schmidt were not directors of Schmidt Trustee Ltd at that time.  Nor was Mr Garrity.  At the time of its acquisition by Ebada, Mr and Mrs Schmidt claim that the Bell Road property had a registered valuation of $740,000. Mr Garrity is alleged to have instructed lawyers to act for both Schmidt Trustee Ltd and Ebada in relation to the transfer of the Bell Road property, as part of a concerted attempt to deprive the Schmidts of their rightful interest in the land.

[14]     In their own words, Mr and Mrs Schmidt say:4

(a)       Ebada acquired finance in the amount of $200,749.19 from Westpac Bank.  „Bell Road‟ had a registered valuation of $740,000.00 at the time of transfer.  There was around $618,504.18 in equity in „Bell Road‟ ($740,000.00 less the Mortgage of $121,495.82) when it was transferred from [Schmidt Trustee Ltd] (for [Excel Estate Trust]) to Ebada (for Excel Estate Trust]).

(b)       The funds of $200,749.19 were transferred from Ebada (for [Excel Estate Trust]) to lawyers acting for [Schmidt Trustee Ltd] (for [Excel Estate Trust]), who were then, as instructed by Mr Garrity;

(i)       To pay $121,495.82 to discharge [Schmidt Trustee Ltd‟s]

Mortgage with The ANZ Bank; and

3 This date is taken from the Statement of Claim. The Schmidts‟ joint affidavit refers to a date of 20

November 2005.

4 I have reassembled these paragraphs from the Statement of Claim, to make the narrative more comprehensible.

(ii)      To pay $74,324.47 to [Excel Estate Trust‟s]  Bank Account.

This was the residual amount once all the legal fees and associated costs for [Excel Estate Trust] were paid; and

(c)       Mr Garrity accessed [Excel Estate Trust‟s] bank account, and made 2 transfers to his Bank Account for $4,416.00 and $70,000.00 on 27

November 2006.

(d)      It  was  also  agreed  between  [Excel  Estate Trust],  Ebada  and  Mr

Garrity;

(i)        To pay $20,000.00 to Mr Garrity and Ebada as compensation for their Lawyer/Trustee duties.   This was paid out of the

$74,324.47 held for [Excel Estate Trust]; and

(ii)      That [Excel Estate Trust] pay all the outgoing costs for „Bell Road‟ (such as Rates, and Insurance), while Ebada held „Bell Road‟ in Trust for [Excel Estate Trust].

(e)       Mr Garrity and Ebada did not fully account to [Excel Estate Trust] for these funds of $74,324.47.  A partial account was given, but no full record.   Mr Garrity advised on 27 February 2007 that he had taken $35,000.00 of these funds to contribute to his $50,000.00 divorce commitment, despite advising in May 2006 that he was to draw these funds off „Kaiaua Road‟, and indeed did.

[15]     Mr Hair purchased the Bell Road property from Ebada in December 2008 for

$700,000.  He took title to it on 13 January 2009.  A few days later, on 21 January

2009, Schmidt Trustee Ltd was struck off the register of companies.  No application for restoration has been made.

[16]     Mr and Mrs Schmidt say that Mr Hair acquired the property with knowledge of the frauds committed by Ebada and Mr Garrity.   The injunction is sought to preserve their interests while Mr and Mrs Schmidt pursue a substantive claim to impeach Mr Hair‟s otherwise indefeasible title to the land.5

The fraud claim

[17]     Mr Hair denies having any knowledge of impropriety on the part of Ebada or

Mr Garrity at the time of purchase.  He asserts that he had no reason to believe that

Ebada had no right to sell the property to him.

5 Land Transfer Act 1952, ss 62, 63, and 182. See also Frazer v Walker [1967] NZLR 1069 (PC).

[18]     As  registered  proprietor  of  the  Bell  Road  property,  Mr  Hair  has  an indefeasible title.   In the absence of fraud, his interest as registered proprietor is paramount.6    For Mr and Mrs Schmidt to impeach Mr Hair‟s title, they must demonstrate that he had actual knowledge of dishonesty on the part of Ebada and/or Mr Garrity at the time the property was transferred into his name or perhaps that he had cause to suspect a competing claim but he deliberately refrained from making further inquiries.7

[19]     Mr and Mrs Schmidt allege that Mr Hair entered into the transaction to acquire Bell Road on 15 December 2008 in the full knowledge that:8

54.1     [Mr and Mrs Schmidt] (by Trusteeship and Trust arrangement) were

the rightful owners of „Bell Road‟; and

54.2Mr Hair was contractually obliged to notify [Mr and Mrs Schmidt] of any significant changes or impending changes with his contractual arrangements with [Mr and Mrs Schmidt] in direct relation to „Bell Road‟ (but avoided doing so); and

54.3     Mr Hair was in Breach of his contract with [Excel Estate Trust]

under Clauses [4.1], [5.1] and [5.2], ...; and

54.4     Mr Garrity was a Trustee regarding the ownership of „Bell  Road‟

with [Mr and Mrs Schmidt], and not the owner; and

54.5Mr  Hair was duty bound to contact [Mr and Mrs Schmidt] and enquire what the implications were with the impending transaction with  Mr  Garrity  and  Ebada,  but  avoided  doing  so  for  fear  of exposing the transaction prior to Settlement.

[20]     For present purposes, I assume (in favour of Mr and Mrs Schmidt) that they could establish a case of fraud against Ebada and Mr Garrity.  The issue is whether, on the allegations made in the Statement of Claim or the affidavit evidence provided by Mr and Mrs Schmidt on their interim injunction application, there are primary facts from which an inference of fraud on the part of Mr Hair might be drawn, if no

evidence to the contrary were to be given at trial.

6 Land Transfer Act 1952, ss 62, 63(1)(c) and 182.

7 Assets Co Ltd v Mere Roihi [1905] AC 176 (PC) at 210.

8 These allegations are taken from the Statement of Claim.

Tenancy proceedings

[21]     This is not the first occasion on which Mr and Mrs Schmidt have joined battle with Mr Hair over rights of ownership or occupancy of the Bell Road property. The allegations made in the present proceeding are coloured by what has happened in  the  past.   A short  summary of  the  history  of  earlier  tenancy proceedings  is required.

[22]     Mr Hair brought proceedings before the Tenancy Tribunal to terminate Mr and Mrs Schmidt‟s tenancy of the Bell Road property.  A decision to that effect was given on 17 April 2009.9     However, that decision was reversed on appeal to the District Court, on 12 October 2009, on grounds that did not determine whether Mr and Mrs Schmidt had a right to remain on the land.10   The District Court directed a re-hearing in the Tenancy Tribunal.

[23]     On re-hearing, the Tribunal made an order terminating the tenancy.11    An appeal to the District Court failed.12   Mr and Mrs Schmidt‟s attempt to challenge that decision  in  the  High  Court  was  also  unsuccessful.13      Undeterred,  Mr  and  Mrs Schmidt sought special leave to appeal to the Court of Appeal.   In a judgment delivered  on  2 August  2011,  the Court  of Appeal  dismissed  the application  for special leave and set aside a stay of proceedings that had been issued by this Court pending determination of the application.14     The Court of Appeal could find no question of law on which a challenge could appropriately be launched.  Allegations

of bias and unfair hearings in the various fora were rejected.

Caveat proceedings and the fraud claims against Mr Hair

[24]     Running parallel with the Tenancy Tribunal proceedings were challenges to caveats that had been lodged against the Bell Road property by Mr and Mrs Schmidt.

9 Hair v Schmidt TT Manukau 09-01949-MK, 17 April 2009.

10 Schmidt v Hair DC Manukau CIV 2009-092-1684, 12 October 2009. Judge Blackie disagreed with

the Tribunal‟s finding that the Schmidts were likely to default on rent payments in the future.

11 Hair v Schmidt TT Manukau 10-02511-MK, 5 August 2010.
12 Schmidt v Hair DC Manukau CIV 2010-092-3374, 7 October 2010.

13 Schmidt v Hair HC Auckland CIV 2010-404-6804, 3 May 2011. Leave to appeal to the Court of

Appeal was declined on 26 May 2011.

14 Schmidt v Hair [2011] NZCA 362.

These  engaged  the  allegations  of  Mr  Hair‟s  complicity  in  fraudulent  activities

concerning the land.

[25]     Mr Schmidt had lodged a caveat on 17 February 2010.   An application to sustain it (in response to an application for its lapse) was dismissed by Associate Judge Christiansen on 23 July 2010.15  After that, Mrs Schmidt lodged a caveat.  She applied for an order that her caveat not lapse.   Her application was dismissed by Associate Judge Bell, on 14 March 2011.16    Although a number of procedural objections had been raised on behalf of Mr Hair, the Associate Judge dealt with the application on the merits.

[26]     Judge Bell was not satisfied that Mrs Schmidt had shown an arguable case that the sale by Ebada to Mr Hair was unauthorised or in breach of trust.17   However, for the purpose of the application before him, the Judge accepted that there “may be room to challenge” the way in which Ebada had exercised its power of sale.18   That, of course, was not enough to establish fraud on the part of Ebada and certainly not on the part of Mr Hair.

[27]     I proceed on a footing that is more generous to Mr and Mrs Schmidt, by assuming that they can prove their allegation of fraud against Ebada and Mr Garrity. Nevertheless, I agree with Judge Bell‟s subsequent analysis of why Mr Hair‟s title ought not to be impeached for fraud. The Associate Judge said:

[59]     In my judgment, the position is governed by s 182 of the Land

Transfer Act:

182  Purchaser from registered proprietor not affected by notice

Except in the case of fraud, no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire into or ascertain the circumstances in or the consideration for which that registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or of any   part   thereof,   or   shall   be   affected   by   notice,   direct   or constructive, of any trust or unregistered interest, any rule of law or

15 Schmidt v Hair HC Auckland CIV 2010-404-3987, 23 July 2010.

16 Schmidt v Hair HC Auckland CIV 2010-404-7389, 14 March 2011.
17 Ibid, at para [51].

18 Ibid, at para [53].

equity to the contrary notwithstanding, and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud. (Emphasis added.)

[60]      Section 182 protects Mr Hair.  The information he had may be more extensive than he lets on in his affidavit.   He may well have known that [Ebada] owned the property under arrangements which gave the Schmidts or trusts associated with them beneficial interests in the property (even if he did not know exactly what trusts were).  But s 182 makes it clear that it was not his job to check whether the sale by the trustee was authorised in terms of the trust or to make sure that the vendor accounted to beneficiaries for the purchase money.   In my judgment, Mrs Schmidt’s case does not take the matter to the stage where Mr Hair’s knowledge falls outside the protection of s 182.  His title is not impeachable for fraud.  (Judge Bell‟s emphasis)

[28]     I have considered whether the allegations of fact on which Mr and Mrs Schmidt rely (in this proceeding) to establish a foundation for a finding of fraud against Mr Hair take the point any further.19   The evidence does not go far enough to establish either that Mr Hair knew Mr and Mrs Schmidt were (in any capacity) “rightful owners” of the Bell Road property at the time he acquired it.  Nor does it establish grounds to allege that Mr Hair had some contractual obligation to notify Mr

and Mrs Schmidt, as tenants, of his dealings with Mr Garrity.

[29]     Any suggestion of breach of the grazing lease is irrelevant.   There was no legal duty for Mr Hair to contact Mr and Mrs Schmidt to obtain their views on the legitimacy of his proposed contract with Ebada.20    None of those facts (if proved) individually or cumulatively, has any prospect of founding an allegation of fraud.  It follows that Mr and Mrs Schmidt cannot establish a foundation for an inference of fraud on the part of Mr Hair.  His title cannot be impeached.

Conclusions

[30]     My finding that there is no foundation for an allegation that Mr Hair was complicit in fraudulent activity allegedly undertaken by Ebada and Mr Garrity is

sufficient to dispose of all three applications:

19 Those facts are set out in para [19] above.

20 In any event, cls 5.1 and 5.2 are simply general conditions relating to the obligations of parties to act in good faith and with genuine intent and to keep each other informed. Clause 4.1 is concerned with termination.

(a)      On the application by Mr Hair for summary judgment, Mr Hair has discharged  the  onus  of  demonstrating  that  Mr  and  Mrs  Schmidt cannot succeed, in any of their causes of action on the best view of the case from their perspective.  I am satisfied that there is no reason to provide Mr and Mrs Schmidt with further time to repair their claim. They have had ample opportunity to put relevant claims and evidence

forward.  In my view, their case against Mr Hair is irreparable.21

(b)My finding  on  the  summary judgment  application  is  sufficient  to dispose   of   the   need   to   address   the   strike-out   or   particulars‟ applications.

(c)      There is no basis on which I could grant an interim injunction in favour of Mr and Mrs Schmidt.  The relevant principles are set out in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd.22   There is no seriously arguable case of a fraud in which Mr Hair was complicit, and the balance of convenience and overall interests of justice favour Mr Hair, as the registered proprietor of the property since January

209.. The application for an interim injunction fails.

Result

[31]     Summary judgment is entered in favour of Mr Hair on the causes of action against him brought in this proceeding.

[32]     The  application  by  Mr  and  Mrs  Schmidt  for  an  interim  injunction  is dismissed.

[33]     Mr Hair‟s  applications  for orders striking out the Statement of Claim or

particularising the pleadings further are dismissed, on the basis that it is unnecessary to deal with either of them.

21 In reaching these conclusions I have applied the principles in Westpac Banking Corporation v M M Kembla NZ Ltd [2001] 2 NZLR 298 (CA) and Attorney-General v Jones (2003) 16 PRNZ 715 (PC) in relation to a defendant‟s summary judgment application.

22 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142 (Cooke P).

[34]     Costs must follow the event.  Costs are awarded in favour of Mr Hair against

Mr and Mrs Schmidt on a 2B basis, together with reasonable disbursements, both to be fixed by the Registrar.

P R Heath J

Delivered at 11.00am on 25 November 2011

Solicitors:
Smith & Partners, PO Box 104065, Lincoln North, Waitakere
Gibson Sheat, PO Box 2966, Wellington

Copy to:

Mr and Mrs Schmidt, PO Box 480, Drury