IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV [2016] NZHC STUART WALTON HERRON Plaintiff

Transcription

1 IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV [2016] NZHC 1129 BETWEEN AND STUART WALTON HERRON Plaintiff WAYNE ANDREW WALLACE First Defendant SHADES OF AUTUMN LIMITED Second Defendant BELMONT LIFESTYLE VILLAGE LIMITED Third Defendant Hearing: 25 to 28 May 2015 and 4 to 8 April 2016 Counsel: CT Patterson and RA Dellow for plaintiff DA Towle for defendants at the 25 to 28 May 2015 hearing JE Hodder QC for defendants at the 4 to 8 April 2016 hearing Judgment: 27 May 2016 JUDGMENT OF FAIRE J This judgment was delivered by me on 27 May 2016 at 4:45 pm pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar Date Solicitors: Skeates Law, Auckland (G Skeates) Bruce Dell Law, Auckland Herron v Wallace [2016] NZHC 1129 [27 May 2016]

2 Contents The Claim... [1] Background Facts...[4] The October 2005 Documents [26] The Herron Bryers Settlement [32] Previous Proceedings [39] Procedural History... [41] Outline of Issues... [55] Assignment/Apartments...[56] The Parties Positions [59] The Queenstown Apartment [62] Was there an absolute assignment? [67] $1.037 Million...[92] Wallace Thesis [94] Herron Thesis [94] SH9 Agreement... [109] Amount Owing... [129] Oppression Defence...[138] Credit Contract and Consumer Finance Act 2003 ( CCCFA ) [140] Contents of the Sidmouth Settlement Deed [154] Inducement by Oppressive Means [160] Enforcement [164] Conclusion... [167] The Claim [1] The plaintiff, Mr Stuart Herron sues the first defendant, Mr Wayne Wallace. He alleges: (a) That the first defendant owes the sum of $2,555,537.50, being the unpaid balance due pursuant to a deed referred to as the Sidmouth Settlement Deed dated 20 October 2005, plus interest of $2,157,852 as at 6 August 2014 and thereafter at the rate of $1, per day, plus costs on a solicitor/client basis;

3 (b) That the first defendant owes the sum of $600,000 being the amount due under a deed of acknowledgement of debt dated 20 October 2005 ( SH9 ), 1 plus interest at the rate of 20 per cent per annum since 20 September 2011 totalling $345, as at 6 August 2014, and thereafter at the rate of $ per day, plus costs on a solicitor/client basis. [2] The plaintiff sues the second and third defendants, who the plaintiff alleges have guaranteed the above debts. The claim against the second defendant did not proceed for reasons which I set out below. [3] I note at the outset that this case serves as a warning on the dangers of poor drafting. Mr Herron, Mr Wallace and their associated entities amassed copious legal documents regulating their affairs. These documents, and in particular the agreements relied on in this proceeding, were frequently poorly drafted, lacking consistency and coherence both internally and with other agreements. The difficulty involved in untangling the morass of documents, conflicting narratives, and other evidence has made what should have been a simple exercise onerous for both the parties and the Court. Background Facts [4] Mr Herron and Mr Wallace met in early At that time, Mr Wallace was involved in a property development, in Sidmouth Street, Mairangi Bay ( the Sidmouth Development ). Mr Wallace was carrying out the property development through his company Georgian Properties Ltd ( Georgian ). He had secured first mortgage funding from Lombard Finance and Investment Ltd ( Lombard ). Mr Wallace advised Mr Herron that the cost to complete the development was more than Lombard was willing to lend him. What he needed, therefore, was second mortgage finance to complete the development. 1 The document was given the identifier SH9 during the summary judgment proceeding. I adopt the identifier here as to refer to it as the deed of acknowledgment of debt would be unhelpful given the number of deeds of acknowledgment of debt in existence between the parties.

4 [5] Mr Herron agreed to provide Georgian with that funding after the two had discussed the matter and agreed certain terms and conditions. Mr Herron and Mr Wallace entered into a series of agreements, including a shareholders agreement and a loan agreement. Pursuant to those agreements, Mr Herron provided development funding through a company which he incorporated for this purpose, Sidmouth Street Development Ltd ( Sidmouth ), by way of an interest free loan of $250,000 to Georgian Properties Ltd in return for acquiring a 50 per cent shareholding in Georgian. As already recorded, the majority of the development funds for the Sidmouth Development came from Lombard. These agreements, in simple terms, provided that at the conclusion of the development and after repaying Lombard and money advanced by Mr Herron s interests, the net profit from the Sidmouth Development would be split equally between the plaintiff and the first defendant. [6] In 2003, Mr Herron was working with Mark Bryers of the Blue Chip group of companies, then called Blue Sky. Over the period 2003 to 2006 Mr Herron, Mr Wallace and entities associated with and controlled by them were involved in a series of transactions involving proposed developments by companies in the Blue Chip group. Mr Wallace and Mr Herron s role was to identify opportunities to acquire land upon which apartments could be built. They were not paid a consultancy fee but, instead, would receive rights in the development. They identified a site which was suitable for development at Turner and Waverley Streets, near Queen Street in Central Auckland ( the Turner and Waverley Development ). In August 2003, Georgian entered into an agreement for sale and purchase for a portion of the land. On 11 December 2003, it nominated Rockfort Ltd ( Rockfort ), a Bryers company, as the purchaser of the property. [7] Also in December 2003, Georgian nominated SLA Properties Ltd ( SLAP ), another Bryers company, as purchaser of a property on the corner of Brisbane Street and Frankton Road in Queenstown ( the Queenstown Development ). That, again, was a site that Mr Herron and Mr Wallace considered had development potential.

5 [8] The original arrangement with Rockfort was that Mr Herron and Mr Wallace, or their interests, were to become 50 per cent shareholders. The property would then be developed as a joint venture. [9] By 2004, it became clear to Mr Herron and Mr Wallace that it was going to be difficult to fund both the Turner and Waverley Development and the Queenstown Development. They decided to effectively cash out their beneficial shareholdings in return for unconditional agreements to acquire apartments in the developments if and when it was completed by the Bryers interests. [10] In 2004, the plaintiff, first defendant, Mr Bryers, Rockfort and Lombard entered into an undated deed of agreement. That provided that in consideration for the development services provided by Mr Herron and Mr Wallace, Mr Bryers, Rockfort, and Lombard (the funder of SLAP s Queenstown Development) would transfer certain, as yet un-built, units in Turner and Waverley Development and Queenstown Development. Mr Wallace and Mr Herron were each to receive three apartments in the Turner and Waverley Development and half-shares in an apartment in the Queenstown Development. In addition, Rockfort and Lombard would pay $10,000 plus GST per month in cash to Mr Herron and Mr Wallace until the completion of the developments, together with an upfront payment of $200,000 plus GST and a payment of $100,000 plus GST by 28 February 2005 or [11] The agreement set the time for transfer as 10 working days after practical completion of the units. The price for the units was deemed to have been paid to reflect the value of the development services previously provided. [12] Mr Herron and Mr Wallace were also to acquire apartments in another development referred to as the Sexton Development arising from a similar arrangement. [13] Reverting back to 2003, Mr Wallace negotiated the purchase of a site at Coronation Street, Belmont, Auckland which was to be developed into a retirement village. Georgian entered into a sale and purchase agreement for that property. By 2 It is impossible to tell from the copy of the document produced whether the date is 2005 or 2006.

6 November 2003, Mr Wallace decided to proceed with the development through a new entity solely controlled by him which was Belmont Lifestyle Village Ltd ( Belmont ). That company was incorporated on 21 August [14] Mr Wallace used funds drawn from Georgian s facility for the Sidmouth Development to pay, on behalf of Belmont, the deposit for the Coronation Street site. It was paid in two instalments of $75,000 each on 16 June and 5 August Lombard acquiesced in that arrangement; however, Mr Herron had no knowledge of it. Mr Wallace also applied funds from Georgian s facility with Lombard to settle a relationship property claim with a former partner. These matters were in breach of the agreement made in respect of the Sidmouth Development. [15] Mr Wallace then obtained a new and separate facility from Lombard to support Belmont s development at Coronation Street ( the Belmont Facility ). On 20 April 2004, $268,695 was repaid to Georgian from the Belmont Facility. Mr Wallace asserts that the repayment was to address the breaches caused by the payments to his former partner and for the Belmont deposit. [16] Mr Herron did not become aware of the diversion of funds until He was very angry. He considered that Mr Wallace had betrayed him and had done the wrong thing by him and his family. He threatened to report Mr Wallace for criminal offences and indicated that he met a senior investigator at the Serious Fraud Office to discuss a formal complaint against Mr Wallace. A facsimile, apparently sent on 9 October 2005 from Mr Herron to Mr Wallace, outlines allegations of a significant loss having been incurred by Mr Herron as a result of the Mr Wallace s actions. There has, however, been no precise quantification of this loss. [17] At the same time Mr Wallace received advice from Lombard that Belmont was in default with its loan. Belmont was no longer a viable proposition for Lombard to be involved with as a lender. It had made a decision to sell the property at the earliest convenience and then to recover any shortfall by way of recourse against Mr Wallace s personal guarantee.

7 [18] Lombard advised that they were prepared to forebear from legal action if Mr Wallace was able to provide further security. Lombard referred to its knowledge of the four apartments due to Mr Wallace from Mr Bryers, in the Turner and Waverley, and Queenstown Developments. Lombard proposed that Mr Wallace assign those rights to it to cover any potential residual liabilities of Belmont. [19] Mr Wallace indicated that he was willing to assign the apartment purchase contracts to Lombard. That led to Lombard instructing its solicitors, Buddle Findlay, to begin drafting assignment and security agreements for Mr Wallace s apartments which, at that time, were held by his company Shades of Autumn Ltd ( SAL ). [20] In June 2005, Mr Herron incorporated Central Auckland Properties Ltd ( CAPL ). He nominated that company as the entity which would receive his apartments from Rockfort and SLAP when those developments were completed. Lombard indicated a desire to obtain Mr Herron s un-built apartments as further security for the Belmont Facility. Lombard instructed its solicitors to create documents which created security over the un-built apartments. [21] A series of settlement deeds for the un-built apartments were then executed. Those involving the Herron interests were executed by Mr Herron, his company CAPL, Rockfort and Mr Bryers. Similarly, those associated with Mr Wallace were executed by Mr Wallace, his company SAL, Rockfort and Mr Bryers. Each deed is dated 22 August A separate deed was executed for each of the apartments to be transferred to the interests of Mr Herron and Mr Wallace. [22] The deeds were in substantially similar terms providing for the Herron or Wallace interest, as appropriate, agreeing to release any rights they may have had to shares in Rockfort held in trust for them, or their nominees, released Lombard from any obligations it had relating to the applicable apartment, and committed Rockfort and SLAP to transfer the applicable apartment to the nominated interest of either Mr Herron or Mr Wallace, as appropriate, within 10 working days of completion. [23] Finally, Mr Bryers guaranteed the performance of the vendor entities, that is, Rockfort and SLAP, on each deed. Each deed was accompanied by a sale and

8 purchase contract for the applicable un-built apartment. CAPL was the purchaser of the three Herron apartments. SAL was the purchaser of the three Wallace apartments. [24] The agreements were on the standard ADLS form. They were modified by a number of additional terms. The additional terms contained the following: (a) The purchase price was deemed to be paid; and (b) The vendor would pay compensation to the purchaser if the vendor cancelled the agreement or, did not proceed with the development. [25] On 9 September 2005, Mr Wallace, Mr Herron, SAL, CAPL, Rockfort, SLAP and Mark Bryers entered into a deed of consideration and settlement in relation to Apartment 403 at the corner of Frankton Road and Brisbane Street, Queenstown. The deed followed substantially the same form as the deed previously referred to. It provided for a purchase price for Apartment 403 of $1.55 million, with a debt back to Rockfort, SLAP and Mr Bryers of $200,000. The October 2005 Documents [26] In, or just prior to, October 2005, the parties to this proceeding entered into a number of agreements. These agreements were a wash-up of the issues between Mr Herron and Mr Wallace. In particular, the parties wished to settle the alleged damages claim that Mr Herron had against Mr Wallace over misuse of the Georgian funds, and the use of the apartments belonging to Mr Herron and his interests as security for the Belmont Facility. Those documents were: (a) The Sidmouth Settlement Deed dated 20 October 2005; (b) An admission of claim under which Mr Wallace admitted liability to Mr Herron in the sum of $3,160,950, plus interest and solicitor/client costs;

9 (c) A Deed of Acknowledgement of Debt between Mr Herron and Mr Wallace, in which Mr Wallace acknowledged his indebtedness to Mr Herron in the sum of $3,160,950, plus interest at 15 per cent per annum if demanded; and (d) The second Deed of Acknowledgement of Debt also dated 20 October 2005 between the plaintiff and the first defendant, Belmont and SAL ( SH9 ). [27] The evidence shows that Mr Wallace signed the documents on 20 October They were then sent by his lawyers, Fortune Manning, to Mr Herron s lawyer, Mr Hucker, for Mr Herron to sign. [28] To provide an outline of the arrangements, the Sidmouth Settlement Deed is the contract on which Mr Herron bases most of his claim. It has not been made clear who drafted the agreement. The Sidmouth Settlement Deed contains an acknowledgment by Mr Wallace that he is indebted to Mr Herron in the amount of $3,160,950 and outlines circumstances in which Mr Wallace is entitled to a reduction or credit towards the total sum. The Sidmouth Settlement Deed provides that all amounts owing under the contract become due within three years and six months of the agreement being executed. The Sidmouth Settlement Deed and SH9 will be discussed in more detail below. [29] A further development occurred with the execution of the Lombard Revolving Advances Facility Agreement which is dated 28 October That document records Lombard as the lender and Belmont as the borrower. There are four guarantors of the facility namely, Mr Wallace, SAL, Georgian and CAPL. The facility was for $13,683,000. Its purpose was the development of the property at Coronation Street. [30] The lender had two concerns. First, it was concerned to see that the Sidmouth Street dispute had been resolved. Second, it needed confirmation that there was sufficient security available to meet its security ratio percentage, which was 80 per cent. That last matter was the reason why Mr Herron, on behalf of his

10 company CAPL, agreed to the use of his interests in four apartments as security, being the apartments referred to in cl 11 of the Sidmouth Settlement Deed; that is one apartment at Waverley Street, Auckland, two apartments at Turner Street, Auckland and the Queenstown property. [31] The Sidmouth Settlement Deed and the agreements relating to the Belmont Facility were held in escrow until all the documents had been signed and Lombard had agreed to the arrangements. What is clear is that Mr Wallace had signed each of the documents he was required to sign before they were sent to Mr Herron. The Herron Bryers Settlement [32] On or about 25 September 2006, Mr Bryers advised Mr Herron that he was about to publicly announce that he was unable to develop the Queenstown Development or the Turner and Waverley Development. [33] On 24 October 2006, CAPL and Phoenix Project Management Ltd (a company associated with Mr Herron) commenced proceedings in the High Court against Rockfort and Mr Bryers ( the CAPL v Rockfort Proceeding ). The plaintiffs alleged that Rockfort s cancellation or failure to proceed with the development of the Queenstown and Turner and Waverley Developments entitled CAPL to compensation under the applicable sale and purchase agreements. It sought damages against Rockfort and Mr Bryers for the unbuilt apartments in the amounts of: (a) $466,940 as compensation for the failure to deliver Apartment 1102 in the 18 Turner St development; (b) $504,680 as compensation for the failure to deliver Apartment 1107 in the Waverley St development; (c) $477,430 as compensation for the failure to deliver Apartment 1201 in the 18 Turner St development; and

11 (d) $800,000 being a half share of the $1.6 million purchase for Apartment 401 on the corner of Frankton Rd and Brisbane St, Queenstown. [34] CAPL also sought damages for unpaid management fees which it alleged Mr Bryers and Rockfort had improperly paid to Mr Wallace. The unpaid management fees, plus interest claimed totalled $77,500. [35] It is significant that on 14 September 2006 the fee simple title in respect of the Turner and Waverley Development was transferred by Monrad Ltd to Turn and Wave Ltd; a company owned and controlled by a party unconnected this proceeding. 3 [36] On 13 December 2006, counsel in the CAPL v Rockfort proceeding filed a joint memorandum with the High Court advising that the parties were engaged in constructive settlement negotiations and anticipated a formal settlement agreement being prepared and executed within seven days. They sought an adjournment of the mention call of the proceeding. [37] On 20 December 2006, Mr Herron and Mr Bryers entered into a heads of agreement which appears to discharge all of Rockfort, SLAP and Mr Bryers contractual obligations to CAPL and Mr Herron regarding the CAPL apartment agreements. It appears that that contract was declared unconditional. It was then followed by counsel for the parties in the CAPL v Rockfort proceeding signing a notice of discontinuance, which was dated 16 February [38] The settlement agreement which was produced provided specifically in cl 20.1 that it replaced all prior agreements between the parties relating to the matters it dealt with. Mr Wallace s case is that this agreement was a valid compromise of CAPL s and Mr Herron s rights under the apartment contracts. It was supported by a payment of a sum of money in exchange for a discontinuance of the proceeding in its entirety. It therefore seems that CAPL and Mr Herron could no longer enforce the 3 Turn and Wave Limited changed its name to Turner and Waverlry Limited and then later, Bianco Limited.

12 apartment contracts against Rockfort or the guarantee against Mr Bryers. The rights that they had under the agreements had been abrogated or extinguished and replaced with the rights under the December 2006 agreement. As an added consequence, there was no longer any prospect of CAPL being exposed to Lombard in the event of a Belmont default because CAPL s guarantee to Lombard was expressly limited to the value on sale of the apartments. Previous Proceedings [39] In December 2006, Mr Herron applied for summary judgment against Mr Wallace on the grounds that he had breached the Sidmouth Settlement Deed by collecting Mr Herron s half share of management fees from Mr Bryers and failing to account for those fees. Mr Wallace opposed the application. In his affidavit opposing summary judgment Mr Wallace stated: Pursuant to the Agreement, I acknowledged that I was indebted to Mr Herron in the sum of $3,160,950 which was payable in accordance with the Agreement. I executed an Admission of Claim in the amount of $3,160,950 reduced by $600,000 being a credit I was entitled to for a payment made by Lombard pursuant to the Agreement. Pursuant to the Agreement however, that amount only becomes immediately due and owing if I (and/or Shades of Autumn Limited, my company) breach the Agreement (otherwise such sum is not due and owing for 3½ years from the date of execution of the Agreement, being April 2009). [40] In April 2007, Mr Herron and Mr Wallace entered into a settlement agreement under which there was a payment of $300,000 which, inter alia, satisfie[d] the alleged specific breach referred to in the High Court proceedings Procedural History [41] Mr Towle, counsel for the defendants at the first hearing, sought leave to add a further brief of evidence from Michael Howard Reeves. Mr Patterson did not oppose. I granted leave accordingly. [42] Mr Towle sought leave to file a first amended statement of defence, the effect of which was to add an affirmative defence by the second defendant in the form of paragraphs 25 to 29 of the amended statement of defence. Mr Patterson did not oppose the amendment. As a result of the amendment he advised that the plaintiff no

13 longer sought judgment against the second defendant. Both counsel confirmed to me that no issue arose as to costs arising out of the amendment and the abandonment of the application for judgment against the second defendant. I proceed on the basis that the cause of action against the second defendant is struck out. [43] At the end of evidence and in the course of his final submissions, Mr Towle sought leave to amend paragraph 18 of the amended statement of defence. He made an oral application to amend the statement of defence by deleting the then paragraph 18 and replacing it with: They admit that the sale of the Queenstown property never settled. Save as expressly admitted, they deny paragraph 23 of the second amended statement of claim. [44] I declined the amendment as it did not comply with r 5.48 of the High Court Rules. It was evasive. Mr Towle sought leave to file a formal application and one which would comply with the High Court Rules. He sought time to do this. I made appropriate directions. This development, unfortunately, has led to a lengthy gap between the first hearing of this case, followed by a change of counsel for the defendants, then the second hearing. [45] At a conference on 16 June 2015, I was advised that issues relating to amendments had been resolved and could now proceed on an unopposed basis. This included amendments both to the statement of claim and the statement of defence. A timetable was set for the filing of the amended proceedings and an adjourned date of hearing for the trial itself was fixed for 28 October It was recognised that additional briefs of evidence would be required from Mr Herron and that there would be briefs from the defendants in answer also to be served. [46] The case took a new and significant development in September The defendants appointed new counsel. Advice was given of yet a further application to amend the statement of defence and, in particular, to include an affirmative defence. I gave directions for the disposal of that application with provision for a fixture on 2 October 2015 in the hope that the trial date that had been set for 28 October 2015 could be maintained. Unfortunately, the fixture date that I had allocated could not be utilised because of my involvement in a criminal trial. Accordingly, the trial date of

14 28 October was used for argument in relation to the amendment application. That meant that the trial itself had to be adjourned. [47] When the matter came before me on 28 October for the purpose of dealing with the application to amend the statement of defence, an issue arose as to whether there should be evidence placed before the Court which supported the affirmative defence raised in the proposed amended statement of defence. Counsel, who had then been instructed for the defendants, advised that such evidence was available. At that stage, counsel for the plaintiff indicated his instructions were to continue opposition to the application to amend but, from a practical and pragmatic point of view, he would not oppose time being allowed for the evidence supporting the affirmative defence to be placed before the Court so that the Court could rule on the amendment. [48] The amendment application could not be completed on 28 October Accordingly, the hearing was adjourned until 18 November and directions for that evidence to be filed in affidavit form were given. Prior to the hearing on 18 November, counsel for the plaintiff advised that the plaintiff no longer opposed the defendants application to amend. Directions were made for the filing of the amended pleadings and dealing with ancillary matters. In addition, the resumed substantive trial date was fixed for 4 April 2016 and directions were given for the service of evidence in relation to the new affirmative defence of oppression and the implied term issue, which had been raised by the fourth amended statement of claim. In particular, the directions specified that the hearing on 4 April 2016 would commence with the plaintiff presenting evidence on the implied term and oppression issue, followed by the defendants evidence on those two topics, followed in turn by closing submissions from the defendants and then the plaintiff. [49] At the resumed hearing, which commenced on 4 April 2016, Mr Patterson announced that the plaintiff discontinued the implied term causes of action covered in the fourth amended statement of claim. As a result, I struck out those provisions and reserved costs. Mr Patterson further announced that as a consequence Mr Herron would not be recalled to give the evidence in the supplementary brief which had been served. The result was that the plaintiff s additional evidence was

15 confined to expert witnesses, who the plaintiff called, principally directed at the oppression defence. [50] The defence had been supplied with Mr Herron s brief and anticipated that he would be called. That did cause a complication because the defence had anticipated putting certain documents to Mr Herron. That could not occur in view of the fact that he was not going to be called. [51] I gave directions for the experts to assemble again and to complete a report for the purposes of r Following that, I also discussed with counsel a process by which the experts would be examined using a hot tub format. [52] In the course of the new hearing Mr Patterson signalled an intention to object to the evidence to be led on behalf of the defendants. Both counsel conferred and advised me that they were content that I provisionally hear the evidence, but reserved the objection on the basis that it be determined on the papers. The case proceeded on that basis and I gave directions for the filing and service of submissions in support and opposition. The effect was to allow counsel time after the conclusion of the formal hearing to complete their respective memoranda on the objection. [53] I have issued a separate judgment on the evidence issue, in which I allowed the plaintiff s objection to admissibility in relation to one sentence in the first defendant s brief of evidence but dismissed all other objections. 4 [54] I have set out this background because it does serve to explain an unusual circumstance in this case whereby issues have been raised by the defence which could well have been dealt with by the plaintiff, had the plaintiff availed himself of the opportunity to give evidence, but determined not to do so. Outline of Issues [55] The issues that I am required to decide in this case are: 4 Herron v Wallace [2016] NZHC 1127.

16 (a) What sum is owing from the portion of the debt relating to the value of the apartments? (b) What sum is owing from the remaining portion of the debt? (c) Is there anything owing under the SH9 agreement? (d) Is there interest owing? (e) Should the contracts be reopened under the Credit Contract and Consumer Finance Act 2003? Assignment/Apartments [56] All parties to the case agree that the sum described as debt in the Sidmouth Settlement Deed was comprised of two parts: (a) $2,123,950 being the value given to the apartments; and (b) $1,037,000 being the remainder. [57] The $2,123,950 was a nominal value given to CAPL s interests in the four apartments; three in the Turner and Waverley Development and CAPL s half share in the Queenstown apartment. A key issue in this case is whether or not Mr Herron is able to enforce the portion of the debt which relates to the value of the CAPL apartments. [58] The relevant clauses provide: 6. Issues have arisen between Wayne Wallace and Stuart Herron in respect of which Wayne admits that Stuart would be entitled to claim damages as a result of his conduct with Lombard in securing earlier advances from Lombard. The parties have agreed to settle the foreshadowed proceedings claiming such damages on the following basis: (a) Wayne Wallace acknowledges that he is indebted to Stuart Herron in the amount of $3,160,950 (being $1,037,000 plus the value of the Turner and Waverley Street Apartments and Herron s half share of the Queenstown Apartment detailed in

17 clause 11 of this Agreement which are agreed to have a value of $2,123,950) which shall be payable in full without deduction as required by this Agreement provided that upon fulfilment of the obligations pursuant to clause 11 of this Agreement the total outstanding amount due to Stuart Herron shall be reduced by $2,123,950. In the event the Agreement for the Sale and Purchase for the Queenstown property referred to in clause 11(c) does not become unconditional the total outstanding amount due to Stuart Herron by Wayne Wallace shall reduce by $1,448,950 instead of $2,123,950 referred to in this clause upon the fulfilment of the obligations under clause 11(a) and (b) only of this Agreement. 9.1 All amounts due from Wayne Wallace to Stuart Herron shall become due and owing, within three years and six months of this Agreement being executed by Wayne Wallace and/or Stuart Herron. 9.2 Stuart Herron and Central Auckland Properties Limited shall grant an option to Wayne Wallace and/or nominee to purchase Stuart Herron and/or Central Auckland Properties Limited s interests in the properties listed at clause 11(a) (c) below (for the period Stuart Herron and/or Central Auckland Properties Limited hold an interest) for the purchase price of all amounts due from Wayne Wallace to Stuart Herron under this Agreement plus all penalty interest or costs owing ( Purchase Price ) and any payments made shall by Wayne Wallace shall be [sic] credited against the amounts due by Wayne Wallace to Stuart Herron pursuant to this Deed and the debt outstanding by Wayne Wallace under this Agreement shall be reduced by the net sale proceeds received by Stuart Herron or Central Auckland Properties Limited on a sale of its interest in any of the properties listed at clause 11(a) (c) below to any person or entity other than Wayne Wallace or his nominee. Nothing in this clause shall prevent Stuart Herron and Central Auckland Properties Limited from selling the properties listed at clauses 11(a) to (c) of this Agreement at any time after the expiration of 3.5 years from the date of this agreement. 11. Subject to clause 9.1 of this Agreement and as a condition of this Agreement, Wayne Wallace will also procure the release of any security interest and/or mortgages secured against the properties listed below: (a) (b) Apartment 1107 at Waverley Street, Auckland being an apartment in a proposed subdivision of all that land comprised in Certificate of Title NA 1949/81 and NZ 508/163 Apartments 1201 and 1102 at 18 Turner Street, Auckland being an apartment in a proposed subdivision of the land comprised in Certificate of Title 32D/971; and

18 (c) Apartment 403 as shown on the draft unit title plan attached to an Agreement for Sale and Purchase attached as Schedule C being an apartment in a proposed subdivision of Certificate of Title OT , Otago Registry. Wayne Wallace is to procure the release of such security interests and/or mortgagees and encumbrances at the same time he becomes liable to make payment of all amounts due from Wayne Wallace to Stuart Herron in accordance with clause 9.1 of this Agreement. In the event the releases are obtained the total indebtedness of Wayne Wallace to Stuart Herron shall be reduced by the sums set out in clause 6(a) of this Agreement to reflect the release of the securities over the properties owned by Central Auckland Properties Limited. The Parties Positions [59] The plaintiff submits that no releases have been obtained and therefore, the entire sum given for the value of the apartments is still owing. The plaintiff submits that it is irrelevant whether the CAPL apartments were or were not constructed, whether Lombard registered any interest, or took steps to enforce the securities. The plaintiff also submits, pursuant to cl 6(a), that as the sale and purchase agreement for the Queenstown apartment did not become unconditional, the defendants are not entitled to the credit for the value of that apartment. [60] The defendants deny that none of the releases have been obtained. The defendants plead that Mr Wallace did everything that was required in the circumstances to procure a release of the securities as required in terms of cl 11 of the Sidmouth Settlement Deed by virtue of the following: (a) None of the CAPL properties were ever constructed and neither Rockfort nor SLAP ever acquired title to the properties. (b) Lombard did not register either by way of caveat, charge or otherwise any security interest it may have had over the CAPL properties. (c) Lombard did not take any steps to enforce any of the securities over the CAPL properties. (d) Belmont fully repaid the Lombard loan on or about 4 November 2007.

19 (e) All security interests that Lombard had or may have had in respect of the CAPL properties were extinguished as a consequences of: (i) repayment of the Lombard loan; and (ii) the failure by Rockfort and SLAP to proceed with the apartment developments comprising, in part, the CAPL properties. [61] In summary, the defendants case is that long before Mr Wallace was required to release the securities, the contracts were worthless and this was clear to all parties. The Queenstown Apartment [62] The fourth apartment referred to in cl 11 is that referred to in cl 11(c), Apartment 403. It is the subject of a sale and purchase contract, undated, which describes the Vendor as SLAP and the purchasers as SAL and CAPL. It is in respect of a development to be constructed on the corner of Franklin Road and Brisbane Street, Queenstown, New Zealand. It relates to Apartment 403. The price is recorded as $1,550,000. It contains a similar cancellation provision providing that the vendor will pay compensation to the purchaser in the sum of $1,550,000 if the development does not proceed. Again, it is common ground that this contract did not become unconditional. [63] The interest of the plaintiff s company, CAPL, is a net $675,000 when the terms of a deed of consideration and settlement are taken into account. That deed recorded that Mr Wallace, his company SAL, Mr Herron and Mr Herron s company, CAPL, acknowledge that they must pay that portion of the sale price which exceeds $1.35 million to either Rockfort, SLAP or Mr Bryers. [64] The four apartments referred to in cl 11, therefore, have a total consideration in their respective contracts of $2,123,950 which is the figure referred to in cl 6(a) of the Sidmouth Settlement Deed.

20 [65] The Queenstown property differs from the others in that it was under a conditional contract. That would seem to explain the reference to this property in cl 6(a) of the Sidmouth Settlement Deed. Clause 6(a) states that should the sale and purchase agreement for the apartment in the Queenstown Development not become unconditional, Mr Wallace is not entitled to deduct the value of that apartment from the total sum owing. [66] The fact that the Queenstown Development was never completed, and that the sale and purchase agreement never became unconditional is agreed by all parties. Given the clear wording of the clause, I find that the defendant is unable to receive a credit for the value of the Queenstown Apartment, being $675,000. Was there an absolute assignment? [67] Having determined that no credit is available to the defendants for the value of the Queenstown apartment, I now consider the position in relation to the other three apartments. [68] Determining the nature and effect of the right that passed to Lombard is crucial in order to determine whether Mr Wallace had done everything necessary to procure the release of the security as required by cl 11 which provides: Wayne Wallace is to procure the release of such security interests and/or mortgages and encumbrances at the same time he becomes liable to make payment of all amounts due from Wayne Wallace to Stuart Herron in accordance with clause 9.1 of this Agreement [69] Also relevant to this point is cl 9.2 which provides: Stuart Herron and Central Auckland Properties Limited shall grant an option to Wayne Wallace and/or nominee to purchase Stuart Herron and/or Central Auckland Properties Limited s interest in the properties listed at clause 11(a) (c) below (for the period Stuart Herron and/or Central Auckland Properties Limited hold an interest) for the purchase price of all amounts due from Wayne Wallace to Stuart Herron under this Agreement plus all penalty interest or costs owing ( Purchase Price ) and any payments made shall by Wayne Wallace shall be [sic] credited against the amounts due by Wayne Wallace to Stuart Herron pursuant to this Deed and the debt outstanding by Wayne Wallace under this Agreement shall be reduced by the net sale proceeds received by Stuart Herron or Central Auckland Properties Limited on a sale of its interest in any of the properties listed at clause 11(a) (c) below to any person or entity other than Wayne Wallace or his nominee.

21 Nothing in this clause shall prevent Stuart Herron and Central Auckland Properties Limited from selling the properties listed at clauses 11(a) to (c) of this Agreement at any time after the expiration of 3.5 years from the date of this Agreement. [70] An absolute assignment can be distinguished from a conditional assignment and from an assignment by way of a charge. Some authorities consider that an assignment and a charge are distinct concepts, others that an assignment by way of charge is a limited type of assignment. 5 [71] The conventional approach to determining whether there has been an absolute assignment is by considering the nature of the instrument itself. In Hughes v Pump House Hotel Company Ltd Matthew LJ, in the context of determining in whose name the action should be brought, stated: 6 In every case of this kind, all the terms of the instrument must be considered; and, whatever may be the phraseology adopted in some particular part of it, if, on consideration of the whole instrument, it is clear that the intention was to give a charge only, then the action must be in the name of the assignor; while, on the other hand, if it is clear from the instrument as a whole that the intention was to pass all the rights of the assignor in the debt or chose in action to the assignee, then the case will come within s. 25, and the action must be brought in the name of the assignee. [72] In Otway v Head, Master Lang (as he then was) considered that the fact that the assignment instrument purported to be an assignment by way of security of leases was not determinative but did suggest that the purpose of the assignment was to provide security rather than an absolute assignment. 7 However, an assignment may be absolute even if it is by way of mortgage or security. 8 The test is whether the assignment unconditionally transfers all the rights of the assignor to the assignee. 9 [73] The plaintiff s case is that CAPL s rights in the sale and purchase agreements were transferred to Lombard by absolute assignment. I note that the instruments in favour of Lombard which must have been signed by Mr Herron were not produced Compare AG Guest and Ying Khai Liew Guest on the Law of Assignment (2 nd ed, Sweet & Maxwell, London, 2015) at [1 89] with John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (5 th ed, LexisNexis, Wellington, 2016) at 634. Hughes v Pump House Hotel Company Ltd [1902] 2 KB 190 (CA) at 193. Otway v Head (2004) 5 NZ ConvC 193,987 (HC) at [17]. Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724 (HC) at 732. Hughes v Pump House Hotel Company Ltd at 194; Commercial Factors Ltd v Maxwell Printing Ltd at 732.

22 in evidence. No reason for this was given. Only one notice of assignment to vendor has been produced. It is addressed to the vendor of the particular sale and purchase contract and it is stated to be from SAL and CAPL. After referring to the agreement it provides: We give you notice that by an Assignment by Way of Security ( the Assignment ) dated 12 October 2005 and granted by way of security in respect of advances made or to be made to Belmont Lifestyle Village Limited by Lombard Finance and Investments Limited ( the Assignee ) we have irrevocably and unconditionally assigned by way of security all of our right, title, and interest in the Agreement to the Assignee. We have also appointed the Assignee and any of its directors or managers severally to be our lawful attorney in connection with all matters arising out of or in connection with the Agreement. The Assignee is entitled to, and may in the future exercise all or any of the powers, and perform all or any of the obligations, of Shades of Autumn Limited and Central Auckland Properties Limited under or in relation to the Agreement as if it were Shades of Autumn Limited and Central Auckland Properties Limited. Despite the Assignment, the Assignee does not have any obligation or liability to you under the Agreements. We shall at all times remain responsible for the performance of all our obligations under the Agreements and for any failure to comply with our obligations under the Agreements. [74] The loan made pursuant to the Lombard Revolving Advances Facility Agreement was repaid on or about 4 November A statement confirming repayment and that a nil balance was due was issued on 5 November [75] Mr Reeves, who was formerly the chief executive officer and principal shareholder of Lombard Group Ltd whose subsidiary was Lombard Finance and Investment Ltd (now in receivership and in liquidation), gave evidence that no separate documents were signed, nor were any steps taken, to release the securities over the CAPL apartment contracts once Belmont had repaid the loan. His view was that once the loan was repaid nothing was, or needed to be done from Lombard s perspective to release its security interests. [76] The defendants case is that the assignment was conditional and was by way of a charge only and that it did not prevent CAPL and Mr Herron from continuing to deal with the CAPL apartments for the duration of the assignment. The defendants submit that the assignment must have been conditional as the documents do not

23 show any intention to effect an absolute assignment of CAPL s legal rights under, or title to, the sale and purchase agreements to Lombard. In particular, the defendants point to cl 9.2 which granted Mr Wallace an option to purchase the apartments from Mr Herron/CAPL. [77] Mr Herron maintained in cross examination that he had no knowledge of the outcome of the Turner and Waverley Development and was not able to exercise his rights under the guarantee by Mr Bryers because his rights had never been reassigned by him. Evidence provided to the Court shows that this was not the case. As set out above, Mr Herron and Phoenix Project Management Ltd issued proceedings against Mr Bryers and Rockfort on the basis of the guarantee. [78] On 20 October 2006, Mr Herron signed an affidavit in support of an interlocutory application for summary judgment against Rockfort and Mr Bryers. In the affidavit, Mr Herron states: 46. On or about 25 September 2006 Mark Bryers told me that he was publically announcing that he was unable to develop Apartments 401, 1102, 1107, and Therefore, Mark Bryers notification to me constituted a cancellation and/or failure to development [sic] Apartments 401, 1102, 1107 and 1201 in accordance with clause 35 of the further terms of sale for each respective sale and purchase agreements for Apartments 401, 1102, 1107 and This was also effectively repeated in the Statement of Claim which then further pleaded that: As at 16 October 2006 the first and second defendants are liable to the first and second plaintiffs in the sum of $2,557, in respect of clause 35 of the further terms of sale of the Apartment 401, 1102, 1107 and 1201 DoCs and S&Ps and the DoA and the invoices (1, 3, 4, 5, 6, 7, 8, 9, and 10). [79] Mr Herron and Mr Bryers, along with their respective companies, entered into a settlement agreement to resolve the dispute and discontinue the proceedings. The settlement contract was declared unconditional. The proceedings were discontinued by CAPL and Phoenix Project Management Ltd on or about 16 February 2007.

24 [80] The defendants submit that the settlement agreement was a valid compromise of CAPL s and Mr Herron s rights under the apartment contracts. They point to the fact that a binding agreement involving payment of a settlement sum in exchange for the notice of discontinuance, plus the forbearance to sue which provided the appropriate consideration, created a position where the plaintiff and CAPL could no longer enforce the apartment contracts against Rockfort or the guarantee against Mr Bryers. Any rights that existed had been extinguished and replaced with the rights under the settlement agreement. [81] Two specific consequences arise from the settlement involving Mr Herron and his company s interests, namely: (a) There was no prospect of Lombard ever exercising its rights to call on the agreements for security as the vendor s performance had been discharged or ended by the compromise; and (b) There was no longer any prospect of CAPL s potential liability to Lombard in the event of a default by the principal borrower (Belmont). The reason for that is because CAPL s guarantee to Lombard was expressly limited to the value of the apartments on sale. [82] The defendants say that well before Mr Wallace was obliged to procure the release of any Lombard interests in the CAPL apartment contracts, those contracts had no value as a result of the settlement entered into between Mr Herron and Mr Bryers. [83] What is apparent is that Mr Herron proceeded on the basis that the assignment did not bar him from dealing with the apartment contracts. The defendants say that the assignment was conditional and was by way of charge only. In particular, they say it did not preclude Mr Herron or CAPL from dealing with the apartment contracts. [84] I was not provided with the actual assignments, which the documents suggest were made on 12 October What is apparent, however, is that Lombard

25 proceeded on the basis that it had no rights to the contracts once the loan had been repaid. Mr Herron obviously proceeded on the basis that he was able to honour the contracts and did so and settled his and CAPL s entitlements under the contracts so that the interests with the vendors were discharged by accord and satisfaction. [85] Perhaps not surprisingly as this has developed, other relevant documents on this question were not provided to me. I mention in passing the fact that the CAPL apartment agreements had provision for assignment by the CAPL interests in the property prior to settlement and that provision required a deed of covenant to be given by CAPL in favour of the vendor. There is no evidence that such deeds were given. [86] Perhaps of some significance also, nothing has been put before the Court to suggest Mr Herron s position in the 2006 proceeding was met by the proposition that it no longer had any interest in the contracts by virtue of an assignment to Lombard. [87] I should add that Mr Wallace, in the evidence given this year, claimed that he had contacted the plaintiff in November 2007 to tell him that Lombard had been fully repaid. While the plaintiff denies that this occurred, he does not dispute that the Belmont Facility was in fact repaid. [88] It is a well established principle that when determining the nature of an assignment, the primary consideration will be the nature of the instrument itself considered against the commercial background. 10 The construction of the assignment is used to determine the intentions of the parties. As an analysis of the instrument is not available in this case, I have considered the documents which are available to the Court, the parties subsequent conduct, and the practical realities of the situation. [89] Overall, Mr Herron s position that he was barred from dealing with the apartments because of the absolute nature of the assignment is entirely undermined by the evidence. The Sidmouth Settlement Deed does not demonstrate an intention of an absolute assignment, Mr Herron and CAPL retained rights in the apartments. In particular, I note that the Sidmouth Settlement Deed granted Mr Wallace an option 10 Bexhill UK Ltd v Razzaq [2012] EWCA Civ 1376 (CA) at [43].