Madsen-Ries v Thompson [2012] NZHC 1260 (6 June 2012)

Last Updated: 14 June 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-007159 [2012] NZHC 1260

UNDER the Property Law Act 2007 and the

Companies Act 1993

IN THE MATTER OF the liquidation of Kiwi House Limited (in liquidation)

BETWEEN VIVIEN JUDITH MADSEN-RIES AND DAVID STUART VANCE

Plaintiffs

AND JOLYON BRENDAN GEORDIE THOMPSON

First Defendant

AND PHILIP IAN D'ATH Second Defendant

Hearing: on the papers

Counsel: NH Malarao and WN Fotherby for Plaintiffs

LFA Yaqub for First Defendant

Judgment: 6 June 2012

_{JUDGMENT (No 3) OF ASHER J}

This judgment was delivered by me on Wednesday, 6 June 2012 at 4.30-pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Meredith Connell, DX CP24063, Auckland 1140. Email: [e-mail]

_{Law & Associates, PO Box 76124, Manukau City. Email: [e-mail]}

Copy to:

_{JBG Thompson, 194 Lake Road, Northcote, Auckland 0627.}

MADSEN-RIES V THOMPSON HC AK CIV-2010-404-007159 [6 June 2012]

Introduction

[1] The plaintiffs in this case, Vivien Madsen-Ries and David Vance, are liquidators of a company Kiwi House Ltd. They seek judgment against Jolyon Thompson, the first defendant, by way of formal proof.

[2] The case now has something of a history, and I have already issued three judgments or rulings. In the first I declined to enter judgment by way of formal proof, in the second I recalled that judgment, and in the third I declined the first defendant leave to file a further affidavit.

[3] In this decision I draw on parts of my earlier decisions, in particular my recalled judgment of 22 February 2012.

Background

[4] The proceedings concern a residential property at 194 Lake Road, Northcote, Auckland (“the property”). It is presently registered in the name of the first defendant Jolyon Brendan Geordie Thompson, and the second defendant Philip Ian D’Ath.

[5] The property was transferred into the name of the defendants on 19 June

2008 by Kiwi House Ltd (in liquidation) (“Kiwi House”).

[6] The plaintiffs Vivien Madsen-Ries and David Vance are the liquidators of Kiwi House. They have issued these proceedings claiming that the transfer into the names of Messrs Thompson and D’Ath ought to be set aside under Part 6, Subpart 6, of the Property Law Act 2007. They claim that the company was insolvent at the time of the making of the disposition and that the disposition was made without reasonable exchange in value.

[7] The first cause of action seeks an order under s 348 of the Property Law Act vesting the property in the company. The other causes of action were not pursued as Mr Thompson is bankrupt.

[8] The plaintiffs’ claim against Mr D’Ath has been settled and Mr D’Ath has signed a transfer of the property back to the plaintiffs. This proceeding therefore only concerns the claim against Mr Thompson.

[9] Mr Thompson, although he has not filed a statement of defence, argues that he was not served and that he has a good defence to the claim.

Approach

[10] Under r 15.12 the Court has a discretion as to whether to enter judgment in a proceeding which is not for a liquidated demand, recovery of land or an unliquidated demand, if no statement of defence has been filed. Further, under r 15.13 a judgment obtained by default may be set aside or varied by the Court if it appears there has been or may have been a miscarriage of justice. In exercising my discretion I will only give judgment if the cause of action relied on is proved, and I am satisfied that there will not be a miscarriage of justice in entering judgment. Mr Thompson has raised and explained his defences by affidavit and submission. If a defence is reasonably arguable, then it may be a miscarriage of justice to enter summary judgment, and I will decline to enter formal proof and will direct that the matter proceed as a defended action with a statement of defence to be filed. I note that under the proposed amended High Court Rules a Judge may decline to give formal

proof if there will be or may be a miscarriage of justice if judgment is entered.1 I see

the proposed new rule as reflecting what less explicitly the existing rule requires.

[11] However first, as a preliminary issue, it is necessary to determine whether Mr Thompson was served with the proceeding. If service has not been proven then I will not enter judgment irrespective of the merits of the defence. Service is a

_{prerequisite to judgment by formal proof.}

1 Proposed r 15.9.

Has Mr Thompson been served?

Relevant facts

[12] Mr Thompson denies that he was properly served with the proceedings and for that reason has argued since this matter was first called that it cannot proceed by way of formal proof.

[13] The proceeding was filed on 1 November 2010. The second defendant initially defended the proceeding and a two day fixture was scheduled for 15 August

2011. No steps were taken by the first defendant. However, prior to that date the proceeding between the plaintiffs and the second defendant was settled. A formal proof hearing was then allocated for the claim in relation to the first defendant Mr Thompson for 24 November 2011.

[14] Two affidavits of service were filed by professional process server, Peter Lumsden Ward. He deposed that on Tuesday, 16 November 2010 at 12.38pm he served Mr Thompson with the statement of claim, notice of proceeding and notice of date of standard track first telephone conference at his address at 194 Lake Road, Northcote. He noted that a Toyota Surf four-wheel-drive vehicle with the registration plate “JOLYON” was parked in the driveway of the address and that Mr Thompson came to the door and acknowledged identity when served. He also deposed in a separate affidavit that he served the amended statement of claim and the covering letter on Mr Thompson on 26 March 2011. Again, he saw the four-wheel- drive with the registration “JOLYON” parked outside the address. He stated that he recognised Mr Thompson from an earlier occasion when he served him.

[15] Mr Thompson took no steps in the proceeding and made no contact with the plaintiffs. On the day before the call of the formal proof hearing on 24 November

2011, Mr Thompson contacted the plaintiffs’ solicitors indicating that he would seek to adjourn the formal proof hearing. When the formal proof hearing was called Ms Yaqub appeared and sought an adjournment. Through her, Mr Thompson denied being served by Mr Ward on either occasion.

[16] The hearing commenced, was adjourned part-heard, and concluded on

15 December 2011. Submissions focused on two issues: first, whether Mr Thompson had been served and secondly, whether there was an arguable defence to the claim.

[17] Mr Ward was cross-examined on his affidavits of service, and Mr Thompson also gave evidence and was cross-examined on the issue of service. Mr Thompson denied that he was served and he called a flatmate, Ann-Maree White, to give evidence supporting his claim that he was not served on the second occasion.

Approach to service

[18] It was common ground between the parties that personal service on Mr Thompson had to be established. Indeed, it is a specific requirement for an application under s 348.2 The methods of service, including personal service, are referred to in r 6.1 of the High Court Rules. Rule 6.10 provides that the service of a document may be proved on oath before the Court or by affidavit in Form G16. Rule 6.11 provides that a document may be personally served by leaving the

document with the person to be served, or, if that person does not accept it, by putting it down and bringing it to the notice of that person.

[19] There is an onus on a plaintiff to prove personal service. The issue to be determined is whether that onus has been discharged.

Mr Thompson’s evidence

[20] Mr Thompson in his evidence denied being served on 16 November 2010 by Mr Ward. He deposed that he was in Dunedin visiting his brother on that occasion. He stated that he flew down to Dunedin and, when asked in cross-examination whether he went down on Air New Zealand, he responded that he believed it was Jetstar. He was asked whether he had any receipts and he stated that he probably

_{did. He was asked to make them available, but did not do so at the hearing.}

2 Property Law Act 2007, s 347(3).

[21] When Mr Ward’s evidence about service was put to him, Mr Thompson denied being given the papers. He explained that on occasions couriers would turn up and ask for him, and that his flatmates would accept documents on his behalf and then leave the documents for him to collect. He put forward the names of some of his flatmates and associates and guessed that one of them could have received the papers. He stated that he did not always get documents that were left in that way. He confirmed that a business was run from the property by his flatmate, Ms White, which hired limousines. He also confirmed that he owned a vehicle with the name “JOLYON” on the number plate and said that it was not a car he normally drove.

[22] In relation to the second service on 26 March 2011, he stated that he visited

Hamilton on 25 March for his mother’s birthday and was down there all day on

26 March and came back on Sunday. He deposed that he went down there with Ms White and went to Valentines for lunch on 26 March. When cross-examined as to whether there was a receipt, he stated that he believed there would be a receipt. He did not go down to Hamilton in the vehicle with the number plate “JOLYON”. He denied seeing Mr Ward before.

[23] Ms White in her evidence stated that she left with Mr Thompson for

Hamilton on 26 March 2011 early in the morning, arriving in Hamilton at around

9.30am, and stayed until late afternoon on the Sunday, 27 March. She stated that they had lunch at Valentines on the Saturday and that they had two young children with them. She confirmed that one of Mr Thompson’s associates who was often at the house had similar features to him. In cross-examination she acknowledged a business association with Mr Thompson.

[24] In relation to court documents that had been sent by the court to his address in Northcote, Mr Thompson said that documents with that address were often sent to an address of the same street name in Takapuna.

[25] Following that hearing Mr Thompson filed an affidavit of 14 December 2011. One of the annexed documents related to the second alleged service. It was a transaction description from the Auckland Savings Bank showing that a company, Premiere Group Ltd, incurred a debit of $68.80 at Valentines in Hamilton on

26 March 2011. A Companies Office extract shows that Ms White is a director of Premiere Group Ltd. The receipt gives some support to what Mr Thompson and Ms White said in their evidence about going to Hamilton at about the time of service. I said this about the receipt in my judgment of 22 February 2012:3

This receipt is consistent with what Mr Thompson and Ms White said in their evidence. While Mr Thompson said that he went down to Hamilton on Friday 25 March, which conflicts with Ms White’s evidence that they went down on the morning of 26 [March], I do not consider that discrepancy to indicate that his evidence is necessarily false. Given the short notice of the hearing, a degree of inaccuracy in recalling exact dates could be expected.

[26] The other document annexed to Mr Thompson’s affidavit was an email and boarding pass from Jetstar that on their faces confirmed Mr Thompson’s reservation for a flight to Dunedin departing at 5.45pm on Tuesday, 15 November 2010. I said this of the document in my recalled judgment of 22 February 2012:4

It appears to be a genuine Jetstar boarding pass. This is strong corroboration

of Mr Thompson’s claim that he was in Dunedin on the following day, 16

November 2010. While it is also always possible that Mr Thompson did not go to Dunedin despite having made the booking, or that he came back early

the next morning, neither scenario is likely.

[27] In my judgment I further stated:5

When I heard Mr Ward give evidence I formed the view that he was a competent and truthful witness. That remains my view. However, the evidence that I have referred to, on its face shows that Mr Thompson was unlikely to be at Northcote on either of the days in question. There is a scenario which partially reconciles both Mr Ward’s evidence and that of Mr Thompson, whereby a rather careless flatmate or associate of Mr Thompson accepted the documents and then did not leave them in a place in a busy household where they were noticed by him. Mr Ward identified Mr Thompson as the person that he served, but he may be mistaken in that.

In the end the onus is on the plaintiff to prove service. The provision of this corroboration leaves me in a position where I am not satisfied that service was effected on Mr Thompson. I am therefore not prepared to allow this matter to proceed by way of formal proof. It should now proceed in the usual way of a defended civil action.

[28] I declined therefore to enter judgment by way of formal proof and made directions to progress the matter to hearing.

3 _{Madsen-Ries v Thompson [2012] NZHC 237 at [21].}

4 _{At [19].}

5 At [23]–[24].

[29] At the time I issued my first judgment unfortunately I had not been given an affidavit filed in reply to Mr Thompson’s affidavit of 14 December 2011 where the plaintiffs challenged the authenticity of the documents confirming the booking of Mr Thompson’s flight to Dunedin on 15 November 2010. An affidavit of Evgueni Serguevich Souslov of 22 December 2011 had been filed. In that affidavit Mr Souslov set out the background to his consideration of the documents as follows:

3. At paragraph 11 of Mr Thompson’s affidavit, he refers to a confirmation booking for his flight to Dunedin on 15 November 2010. Annexed to the affidavit (exhibit C) is an email confirmation (that appears to have been forwarded to Mr Thompson from his brother) which allegedly had attached a boarding pass for a Jetstar flight to Wellington. There was no boarding pass annexed to Exhibit C.

4. The email confirmation appears to have initially been sent to Mr Thompson’s brother’s email address, [e-mail]. The reservation number on the confirmation is listed as Z9SCSW. The date and time of the flight appears to be Tuesday 15 November 2010 at

5:45pm.

5. In fact, as the plaintiffs’ solicitors noted at the hearing, 15 November

2010 was a Monday, not a Tuesday. It was thus submitted that the email confirmation was not a genuine document as it was unlikely that the automated system of an airline like Jetstar would contain such an error.

[30] Mr Souslov then set out to investigate the authenticity of the information provided by Mr Thompson. He used the reservation number and email address provided to access the booking information on Jetstar’s website. He did this at approximately 4.30pm on 15 December 2011. He summarised his actions once he had accessed the website in this way:

(b) On the right side of the screen (under “My Jetstar” tab), I highlighted the “Manage Booking” button with my cursor which prompted a window requesting contact email and booking reference to access the booking information.

(c) I had initially entered Mr Thompson’s email address, [e-mail] (obtained during the course of the liquidation and proceedings) and reservation number Z9SCSW into the booking information. There were no results.

(d) Given that Exhibit C of Mr Thompson’s affidavit appears to have been forwarded from his brother’s email, I then entered [e-mail] as the email address and reservation number Z9SCSW into the booking information fields, and clicked on the button “Find Booking”.

(e) Doing so allowed me to access the data Jetstar held for the flight that

Mr Thompson had referred to in evidence.

(f) Jetstar’s records showed that the date and time of the flight was 30

November 2010 (and not the 15 November 2010 alleged by Mr

Thompson in his affidavit and Exhibit C). 30 November 2010 was a

Tuesday.

(g) I then clicked on the button “select my seat” to verify the seat number.

The left side of the screen showed that the passenger was Jolyon

Thompson at seat 26A.

(h) Thus, the information Jetstar holds matches the information contained in the boarding pass provided by Mr Thompson, except for the date of the flight.

(i) Printouts of the results from the above searches are annexed as exhibit

“B”.

[31] It was his conclusion having carried out these investigations that the email confirmation and the boarding pass produced in court by Mr Thompson had been altered by him. While it appeared that there had been a flight to Dunedin booked in the name of Mr Thompson, that flight was on Tuesday, 30 November 2010 and not Monday, 15 November 2010.

[32] Following the issue of my judgment of 22 February 2012 it came to my attention that I had not been given this affidavit and had issued my judgment in ignorance of it.

[33] I then held a telephone conference on 24 February 2012 to discuss this matter with counsel. Mr Malarao appeared for the plaintiffs and Ms Yaqub for the first defendant. Both counsel accepted that this was an appropriate situation in which to recall my judgment, which had not been drawn up and sealed. It was accepted that the judgment had been written without consideration by me of a significant affidavit which should have been before me. This had been a consequence of Registry error. It was accepted that it would be unjust for the judgment to stand. I therefore recalled

the judgment. I also observed:6

... Given the gravity of the allegations in the affidavit Mr Thompson must have an opportunity to reply. Any affidavit in reply by the defendant is to be filed by 5pm, 9 March 2012.

6 Madsen-Ries v Thompson [2012] NZHC 277 at [9].

I then proposed that there should be a telephone conference to determine the way forward.

[34] No affidavit was filed by or on behalf of Mr Thompson by 9 March 2012. There was a further telephone conference on 17 April 2012. Prior to that conference two further affidavits had been filed on 13 March 2012 of Messrs Goertz and Balmer. In my ruling of 17 April 2012 I recorded the position in this way:7

Mr Thompson did not file an affidavit. However, his solicitor has out of time on 13 March 2012 filed two further affidavits of Messrs Goertz and Balmer, which I understand are intended to show that, rather than Mr Thompson being in Dunedin on 16 November 2010 (his original assertion), he was “out of town”.

Ms Yaqub has accepted that Mr Thompson was wrong when he said he was in Dunedin on 16 November 2010. It was her oral submission that Mr Thompson would now assert that he was in Taupo on 16 November

2010. She advises that Mr Thompson wishes to file a further affidavit attesting to this and she seeks a further hearing. No explanation is offered as

to Mr Thompson’s change of evidence, save for a reference in her

submissions to memory problems following an accident. No explanation is given for his failure to file an affidavit since the direction was given on 24

February 2012.

[35] Mr Malarao had no objection to the affidavits of Messrs Goertz and Balmer being considered. However, he opposed the granting of leave to Mr Thompson to file a further affidavit. I considered that Mr Thompson should not be allowed that indulgence as he had provided no adequate excuse for his failure to comply with the timetable order. Against this background it is necessary to decide now whether the plaintiffs have proven service.

Decision as to whether Mr Thompson has been served

[36] It is necessary to determine first whether the affidavits in response to

Mr Souslov’s affidavit and the recall of the 22 February judgment assist.

[37] Mr Goertz says that he was living at Mr Thompson’s address at the relevant time and that Mr Thompson was away from 15 – 27 November 2010. He stated that

7 Madsen-Ries v Thompson (No 2) [2012] NZHC 790 at [3]–[4].

there was a white envelope taped to Mr Thompson’s door at some time during that

period, but it was gone later in the day.

[38] If this is intended to imply that the white envelope contained the served proceedings it is inconsistent with Mr Ward’s evidence that he personally gave documents to a man who identified himself as Jolyon Thompson, both on

16 November 2010 and 26 March 2011.

[39] Mr Goertz further stated that Mr Thompson rarely used the green Toyota Surf vehicle with the licence plate “JOLYON” and mainly used a white Toyota Corolla with a licence plate “TT3557” both for daily use and driving out of town.

[40] Mr Ward had said in his evidence that the Toyota Surf vehicle had been parked at Mr Thompson’s address on both occasions and that he served Mr Thompson.

[41] Mr Balmer was a mechanic who worked at the garage which serviced a

limousine that Mr Thompson had brought in. Mr Balmer’s evidence was that on

15 November 2010 he had a telephone conversation with Mr Thompson in which Mr Thompson had said he would be away from that day and that his friend Mr Goertz would collect the limousine. Mr Balmer’s diary entry confirms this and is annexed. Mr Balmer states that Mr Goertz collected the limousine from the garage on 16 November 2010 and that he invoiced the Premiere Group on 23 February 2011 for the work done. The invoice exhibited is blank.

[42] Neither of these affidavits provide any explanation as to the provision of what appears to be a false boarding pass. Nor do they provide corroboration in the form of third party documents. Such corroboration as they do provide is vague. Mr Thompson has, as I have outlined, not availed himself of the opportunity to respond, or inform the Court where he was on the day in question if he was not, as he had earlier deposed, in Dunedin.

[43] I accept Mr Souslov’s evidence that the boarding pass was forged. As I

recorded in my recall judgment of 24 February 2012, I found Mr Ward a competent

and truthful witness. As I set out in my judgment, the presence of what appeared to be a Jetstar boarding pass corroborating Mr Thompson’s assertion that he was not in Auckland on 15 November 2010 was a significant factor in my judgment. In the absence of that corroborating factor I accept Mr Ward’s evidence.

[44] Mr Thompson, when he gave his evidence, had not struck me as a particularly truthful witness, and now in the absence of any corroboration of his evidence or explanation for the false boarding pass, I reject it as being untrue. I consider that the plaintiffs have proven service on Mr Thompson on 16 November

2010. It is not necessary for me to consider the second service as the first was sufficient. However, I do record that the absence of corroboration of Mr Thompson’s story in relation to the first alleged service has led me to doubt his evidence in relation to the second service also. I consider him to be an untrustworthy witness.

[45] As I recorded earlier there was corroboration of his trip to Hamilton on 25 or

26 March 2011 in the evidence of Ms White. However, she is a close associate of Mr Thompson. My preference was always for the evidence of Mr Ward, and now that the key corroborating factor that was inconsistent with his evidence, namely the Jetstar boarding pass, has been shown to be a false document, and given my doubts about Mr Thompson’s evidence in relation to the first service, I feel comfortable in accepting Mr Ward’s evidence as to the second service. Ms White had an association with Mr Thompson, but the fact that she has a Visa receipt from Hamilton for the relevant day does not prove in any way that Mr Thompson was with her on the relevant occasion. Nor does the evidence show that the receipt is necessarily hers as distinct from another member of the company. I therefore reject her evidence and conclude that the second service also by Mr Ward is proven.

[46] I conclude therefore that Mr Thompson was properly served by Mr Ward. I must now turn to the question as to the merits of his claimed substantive defence. If seriously arguable then justice may well require a declinature of formal proof, and an adjournment and timetable with directions to enable him to defend the case. If on the other hand his defence appears to be without merit then I should enter formal proof.

The merits of the claim

Background facts

[47] The first defendant, Mr Thompson, was the sole director and shareholder of Kiwi House. Mr Thompson, along with the second defendant, Mr D’Ath, is also a trustee of the Swamp Lake Trust (“the Trust”). Mr Thompson is also a beneficiary of the Trust. On 22 April 2010, Mr Thompson was adjudicated bankrupt.

[48] Mr Thompson first purchased the property in his own name on 18 March

1997. Mr Thompson says he paid about $196,000 for the property and lived in it since 1997. He says he took out a fixed term loan of $176,400 from Trust Bank (later Westpac Trust), which registered a mortgage over the property. I note that Mr Thompson has not provided a copy of the term loan agreement.

The alleged 1999 transfer

[49] On 22 December 1999, the Trust was created. Mr Thompson was the settlor and Mr Thompson and Mr Phillip D’Ath (the second defendant) were the trustees. Mr Thompson says that he was advised by Davenports Lawyers to place the property into a trust.

[50] Mr Thompson says he then sold the property to the Trust for $180,000. He produced a copy of the deed of sale of the property which lists himself as the vendor, and himself and Mr D’Ath “as Trustees” as the purchasers. Mr D’Ath’s name was not registered on the title at this time. Mr Thompson says this was because it would have broken the fixed term loan and resulted in penalties and interest. Mr Thompson says he was advised to wait until the end of the fixed term loan to register Mr D’Ath’s name. He says Mr D’Ath’s name was recorded on the certificate of title in 2007, but the title register does not show any transfer to Mr D’Ath until 19 June

2008.

[51] Mr Thompson acknowledges the Trust did not pay him the sale price of

$180,000 and so was indebted to him. Mr Thompson produced a deed of

acknowledgement of this debt dated 22 December 1999. The deed records that the Trust agrees to purchase all but one of Mr Thompson’s shares in Rainbow Ventures Ltd for the sum of $100 and acknowledges its indebtedness to Mr Thompson for this

$100. The deed makes no mention of the 194 Lake Road property nor the alleged

$180,000 purchase price. So on the face of it, there is no evidence of a payment to the Trust for the property in 1999. This is consistent with the lack of any evidence of a payment for the later 2008 transfer to the Trust at issue in this proceeding. It indicates a willingness on the part of Mr Thompson to make or assert transfers when no money changes hands.

[52] Mr Thompson also produced a Trustee Resolution that he says shows the Trust acknowledging the Trust debt to him personally. This Resolution does appear to show the Trust acknowledging the debt in relation to the agreement for sale and purchase of the Lake Road property.

Mr Thompson’s accident

[53] Mr Thompson then says he was involved in a major car accident on 6 January

2000 where he suffered head injuries causing temporal memory loss. He has produced documents from ACC and Waikato Hospital relating to this injury. The Waikato Hospital document refers to a “Fracture through the nasal bones without depression”. An ACC letter advises that ACC will provide cover for the physical injuries Mr Thompson sustained and a schedule of his injuries is attached. There appear to be 4 injuries relating to his accident of 5 or 6 January 2000 (two injuries listed for 5 January, two listed for 6 January). The descriptions of those injuries are:

05/01/2000 Contusion, forehead; Face

05/01/2000 Open wound of nose; Nose

06/01/2000 Open wound of nose; Nose

06/01/2000 Closed #skull bse no intracranial injury, no loss of consc; Head (except Face)

The 2005 transfer

[54] Mr Thompson says that, because of the memory loss from his accident, he forgot about the alleged 1999 sale to the Trust and believed that he owned the property personally. He says he intended to develop the property and decided to incorporate a company to do so for tax purposes. Ms Madsen-Ries says the purpose of the 2005 transfer by him to Kiwi House was so that Kiwi House could receive a GST refund from the IRD. On 29 September 2005, Kiwi House was incorporated with Mr Thompson as the sole director and shareholder.

[55] On 6 October 2005, Kiwi House purchased the property from Mr Thompson for $483,000. On 14 October 2005, Mr Thompson transferred the property to Kiwi House (“the 2005 transfer”). The law firm O’Brien Law acted on the transfer. Mr Thompson says it was more convenient for him to use O’Brien Law because it was based in the North Shore closer to where he lived. Mr Thompson says that O’Brien Law was not aware the property was owned by the Trust because it had not acted on that transfer and that Mr D’Ath was not aware of the sale of the property to Kiwi House.

[56] Kiwi House did not pay the full purchase price and was indebted to Mr Thompson personally for $149,326.20. On 29 October 2005 Mr Thompson and Kiwi House entered into a deed of acknowledgement of this debt.

[57] Kiwi House claimed a GST refund in its GST return of $56,045.53 for the period ending 30 October 2005.

[58] During an audit in November 2005, the IRD discovered it should not have made this refund because Mr Thompson was an “associated person” for the purposes of the Goods and Services Tax Act 1985 and so Kiwi House was not entitled to the refund.

[59] Mr Thompson says that in early January 2007, his accountant, Alan Clarke, had discovered the sale of property from him (Mr Thompson) personally was not authorised by the independent trustee of the Trust and should not have occurred.

[60] On 26 January 2007 Mr Thompson met with the IRD along with Mr Clarke, and a tax specialist he had engaged, Norm Latimer, to discuss the GST tax refund. Mr Thompson says the agreement reached was that all of Kiwi House’s transactions would be unwound or cancelled and the GST claimed would be paid back to the IRD.

[61] In a letter from the IRD to the plaintiffs’ solicitors on 22 July 2010, the IRD says that before the meeting it was unaware of the alleged “errors” on the property title, and that when it learned of the errors they were of interest but not crucial, as the main interest was in correcting the GST return and recovering the refund. The IRD says that Mr Thompson’s suggestion that the IRD “agreed” to unwinding the sale is overstated, as it was not very important to them and that if there were defects in the title it was not for the IRD to correct it; at most, it was a “side issue” and the IRD’s agreement was not required for the “unwinding”.

[62] The GST refund claimed by Kiwi House was reversed on 30 January 2007. The Agreed Adjustments letter listed under “Adjustments Proposed”:

(1) Reassess all company GST returns filed to “nil” on the bases that

(a) Any taxable activity at 194 Lake Rd will not now be conducted by the

company as its purchase of 194 Lake Rd is to be “cancelled” and

(b) In any event the company’s purchase of 194 Lake Rd from the operator Mr Thompson was a “second hand good” acquired from an associate who himself did not incur any GST.

...

The agreement went on to say that the shortfall penalties remained in dispute.

[63] Ms Madsen-Ries said the IRD told her that after the reversal, Kiwi House was still indebted to the IRD for penalties and interest unpaid. Mr Thompson says that at the meeting with the IRD when the agreement to unwind or cancel Kiwi House’s transactions was reached, the subject of penalties was addressed. Mr Thompson’s position was that the penalties could not exist on a transaction that was deemed to not have occurred; he says the IRD said it would look into the

mechanism that would allow it to unwind the penalties. The agreement was to clarify the position in respect of penalties at a later date.

The 2008 transfer

[64] Mr Thompson said that in or around early March 2008 he made his lawyers, O’Brien Law, aware that the 2005 transfer had not been authorised by Mr D’Ath and should not have been carried out, and told them also of the agreement reached with the IRD. He says the lawyers recommended that the Trust pass a resolution confirming that the 2005 transfer was a nullity to be cancelled in accordance with the agreement with the IRD. The trustees passed such a resolution on 18 March 2008.

[65] On the same date, Kiwi House resolved that the 2005 transfer be reversed and that the property be transferred to Mr Thompson and Mr D’Ath as trustees. The resolution is signed by Mr Thompson as sole director. Mr Thompson signed an Authority and Instruction form for O’Brien Law to transfer the property from Kiwi House to Mr Thompson and Mr D’Ath as trustees.

[66] On 19 June 2008, the transfer was effected.

[67] Ms Madsen-Ries subsequently contacted O’Brien Law and deposed there was no evidence of an agreement for sale and purchase relating to the property and no consideration passing from Mr Thompson and Mr D’Ath to Kiwi House.

Liquidation of Kiwi House

[68] The IRD served a statutory demand on 4 July 2008, and applied to put Kiwi

House into liquidation on 29 August 2008. Kiwi House was put into liquidation on

6 March 2009.

[69] Mr Thompson says the IRD eventually determined it could not waive the penalties and that Kiwi House had no assets and no possibility of generating further income so was unable to pay the penalties.

[70] Ms Madsen-Ries deposed that in December 2007, the IRD informed Kiwi House, Mr Clarke, and Mr Latimer that the shortfall penalties would not be removed. (In Ms Madsen-Ries’ first affidavit, she stated that Kiwi House’s debt to the IRD was ascertained in early 2007, but without supporting evidence.) Ms Madsen-Ries deposed that she expects that between the ascertainment of debt and the service of the statutory demand, the IRD made a number of demands for payment. She says Mr Thompson would have been well aware Kiwi House was going to be put into liquidation at the time of the 2008 transfer.

[71] Mr Thompson says he only discovered Kiwi House had been liquidated in or about late March or early April 2009.

[72] Ms Madsen-Ries refers in her affidavit to a “pattern of conduct” by Mr Thompson in which his companies transfer properties to a related entity. In most instances, he resigns as director of both the “transferring” and “recipient” companies, and appoints one of several people, including his friend Ms White, as director instead. He also often transfers his shares in the “transferring” companies but retains his shareholding in the recipient “companies”. Ms Madsen-Ries is a liquidator in five out of eight of those other “transferring” companies (excluding Kiwi House).

Law

[73] Part 6, subpart 6 (ss 344–350) of the Property Law Act allows the Court to set aside dispositions of land made with the intent and effect of prejudicing shareholders, and to make other orders. In summary, the relevant scheme of subpart

6 is as follows:

(a) Sections 344 and 345 are general provisions explaining the purpose of the subpart and its interpretation respectively.

(b) The disposition in question must be one to which subpart 6 applies

(s 346). The disposition must have been made after 31 December

2007, with intent to prejudice a creditor, or by way of gift, or without receiving reasonably equivalent value in exchange. The debtor must

also meet the requirements of s 346(2), which is referred to later in this judgment.8

(c) Section 347 governs who has standing to apply for an order under s 348 and the requirements for the application (what it must specify and service).

(d) Section 348 gives the court the power to make a vesting order if it is satisfied that the applicant has been prejudiced by a disposition covered by s 346, subject to s 349. It may also order that property be physically restored.

(e) The court must not make an order against a person who acquired the property for valuable consideration, in good faith and without knowledge that it had been the subject of a disposition to which subpart 6 applies (s 349(1)).

(f) If the recipient acquired the property in good faith and without knowledge that it had been the subject of a disposition to which subpart 6 applies, but no valuable consideration was paid, the court may decline to make an order under s 348 or make a limited order if the recipient proves that his or her circumstances have so changed since the receipt of the property that it would be unjust to order that the property be restored or reasonable compensation be paid (s 349(2)).

(g) Section 350 specifies the persons in whom the property can be vested.

Key issues

[74] It is clear that the transfer to Mr Thompson and Mr D’Ath as trustees was a

_{“disposition”: the disposition occurred after 31 December 2007, the disposition was}

8 At [85]–[89].

of property and the plaintiffs have standing.9

[75] The key issues are:

(a) whether Kiwi House was a debtor subject to s 346(2);

(b) whether the transfer from Kiwi House to the Trust on 19 June 2008 was made without receiving reasonably equivalent value in exchange;10 and

(c) the effect, if any, of the documents and arguments put to the Court as

Mr Thompson’s defence.

Plaintiffs’ submissions

[76] The plaintiffs submitted that the transfer of the property from Kiwi House to the Trust occurred while Kiwi House was insolvent. Ms Madsen-Ries’ affidavit of

22 November 2011 confirms that the Commissioner of Inland Revenue had issued a statutory demand against Kiwi House on 4 July 2008 for its outstanding unsecured debt approximately two weeks after the disposition of property, 11 and applied for liquidation on 29 August 2008. The plaintiffs submit that in the circumstances it is safe to infer that Kiwi House was insolvent when the property was disposed of.

[77] The plaintiffs further submit that the transfer of the property from Kiwi House to Messrs Thompson and D’Ath took place without Kiwi House receiving reasonable value in exchange. The plaintiffs say that there was no consideration or sale and purchase agreement for this transfer and, given that the property was purchased by Kiwi House from Mr Thompson for $483,000 in October 2005, it is a

_{straightforward conclusion that this criterion is met on the facts.}

9 _{See [73] supra.}

10 The plaintiffs do not rely in their amended statement of claim on “intent to prejudice a creditor”,

_{even though they submit this was a feature of this case.}

11 Plaintiffs’ amended statement of claim at [19] and exhibit “F”.

[78] The plaintiffs further submit that Mr Thompson’s explanation for the transfer (that he had suffered memory loss) lacks credibility. In any event, without registration of the prior transfer, no transfer occurred.

[79] Finally, the plaintiffs argue that Mr Thompson’s defence of a constructive trust cannot succeed. The plaintiffs state that there can be no issue of knowing assistance or knowing receipt if Mr Thompson had forgotten the transfer. Conversely, if Mr Thompson did have knowledge of the earlier transfer, to allow his defence would allow him to profit from his own wrongdoing.

Mr Thompson’s submissions

[80] Mr Thompson says that the 1999 transfer to the Trust was valid, even though the title register does not show the transfer, because the sale of the property was recorded in a deed and is binding (under ss 9 and 10 of the Property Law Act).

[81] Mr Thompson says the 2005 transfer is null and void because the first defendant was not authorised by the Trust to make the transfer in non-compliance with cl 21.2 of the Trust Deed, which provides: “All Trustees’ decisions shall be required to be unanimous.”

[82] He says a constructive trust applies in favour of the Trust as beneficial owner of the property and Kiwi House must be taken to be fixed with the failure of himself (Mr Thompson) to secure the agreement of Mr D’Ath. Relying on Westdeutsche Landesbank Girozentrale v Islington London Borough Council,12 Mr Thompson says that Kiwi House is deemed to have knowledge that the Trust was the beneficial owner of the property. Mr Thompson says that accordingly, even though Kiwi

House had the legal interest in the property, the Trust continued to have a beneficial interest.

[83] Mr Thompson also says the transfer of the property was not made to prejudice creditors, specifically the IRD, because the IRD agreed that the 2005

_{transfer was to be cancelled so that the GST refund would be paid back.}

12 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL 12; [1996] AC 669 at

705.

Mr Thompson says that the expert opinions of both Mr Latimer and Mr Clews (a specialist tax barrister he engaged) are at odds with the recent position taken by the IRD and the plaintiff, with the IRD now suggesting that the 2008 transfer was unimportant.

[84] Mr Thompson submits that the principles relating to summary judgment provide guidance. He says the case is not appropriate for formal proof as matters of credibility are raised.

Was Kiwi House a debtor subject to s 346(2)?

[85] Section 346(2) provides as follows:

(2) This subsection applies only to a debtor who—

(a) was insolvent at the time, or became insolvent as a result, of making the disposition; or

(b) was engaged, or was about to engage, in a business or transaction for which the remaining assets of the debtor were, given the nature of the business or transaction, unreasonably small; or

(c) intended to incur, or believed, or reasonably should have believed, that the debtor would incur, debts beyond the debtor’s ability to pay.

[86] Section 345(1)(d) clarifies the meaning of “insolvent”:

(d) a debtor must be treated as insolvent if the debtor is unable to pay all his, her, or its debts, as they fall due, from assets other than the property disposed of.

[87] The Commissioner issued a statutory demand against Kiwi House on 4 July

2008 for its outstanding unsecured debt, and applied for liquidation on 29 August

2008.

[88] The disposition of property was made on 19 June 2008,13 around two weeks prior to the statutory demand being served. The plaintiffs submit that in the circumstances, and given the IRD background, it is safe to infer that Kiwi House was

_{insolvent and facing almost certain liquidation at this time.}

13 Plaintiffs’ amended statement of claim at [19] and exhibit “F”.

[89] I agree with the plaintiffs’ submission that the transfer of the property occurred whilst Kiwi House was insolvent. There is no evidence to show that anything significant changed between the transfer of the property (19 June 2008) and the liquidation of the company on 6 March 2009 rendering the company insolvent. It would be unreasonable to require the plaintiffs to adduce further evidence of Kiwi House’s insolvency as at 19 June 2008 in the absence of any evidence by Mr Thompson to the contrary. It can be inferred from the proximity of the demand to the transfer, and the subsequent liquidation, that the company was insolvent on

19 June 2008.

Whether the transfer was made without receiving reasonably equivalent value in exchange

[90] Ms Madsen-Ries deposes that, using her information-gathering powers, she obtained from Kiwi House’s solicitors all relevant documents relating to the transfer of 19 June 2008. There was no agreement for sale and purchase relating to the property, and no consideration passing from the trust to Kiwi House.14

[91] Kiwi House purchased the property from Mr Thompson for $483,000 in October 2005.15 I therefore accept the plaintiffs’ submission that the transfer was made without a reasonably equivalent value in exchange being received.

Assessment of Mr Thompson’s defences

[92] Given that this is an application for default judgment, and I am assessing whether it would be unjust to proceed, I approach the issues of the credibility of Mr Thompson’s assertions using the threshold of credibility applied in summary judgment cases, that threshold being originally set out in the decision of Eng Mee Yong v Letchumanan.16 I do not have to accept Mr Thompson’s assertions just because they are made. If they are plainly not credible or are singularly lacking in

_{the support that would be expected I may reject them.}

14 _Ibid.

15 _{Ibid, at [10].}

16 Eng Mee Yong v Letchumanan [1980] AC 331 (PC).

[93] I make the general observation that Mr Thompson’s explanations for the transfer and the preceding and following events lack precision and corroboration of supporting evidence. In general terms they lack credibility. I note the following:

(a) Mr Thompson’s claims that Mr D’Ath’s name was not registered on the title in 1999 because it would have required breaking an alleged low interest fixed-term loan. However:

(i) No evidence of the alleged loan is provided; and

(ii) O’Brien Law had earlier given a different reason: that Mr D’Ath did not want to go onto the title which had a mortgage.

(b) Mr Thompson claims memory loss to explain his transfer to Kiwi House Ltd. The medical records provided by Mr Thompson do not indicate that the accident caused memory loss, and the ACC schedule specifically said “[n]o intracranial injury, no loss of consc[iousness]”. There is no expert medical evidence supporting his claim. The evidence falls far short of that necessary to support what is at first blush a very unlikely explanation of mental disability caused by the accident which led him to put the ownership of a property into the wrong name five years later. I reject that explanation.

(c) In relation to the position with the IRD:

(i) There is no mention in the notes of the IRD meeting in January 2007 that Mr Thompson had forgotten he sold the property to the Trust in 1999 or that the Trust owned the property. Mr Latimer is recorded as suggesting the cancellation of the transaction and reclaiming one-ninth of

$195,000 under Mr Thompson’s personal GST number.

(ii) It seems more likely that Mr Thompson sought to unwind the transaction because it did not provide the tax benefit that it was intended to, and was looking for another way to get a tax benefit.

(iii) Nowhere else in correspondence with the IRD is it suggested that the Trust owned the property, although there is some mention of defects in the title.

(iv) The IRD’s letter of 22 July 2010 essentially says that the alleged defects in the title were of little interest to it and that its agreement was not required for “unwinding” the 2005 sale.

[94] With regard to the argument that from 2005–2008 Kiwi House held the property on constructive trust for the Trust:

(a) Kiwi House became the legal owner of the property. The indefeasibility provisions of the Land Transfer Act 1952 applied.

(b) There can be no question of knowing assistance or knowing receipt or any dishonesty on the part of Kiwi House if, according to the facts alleged by Mr Thompson, Mr Thompson did forget he had previously transferred the property to the Trust.

(c) If Mr Thompson did know that the Trust owned the property at the time of the 2005 transfer, as I consider that he must have, (if that was true), then to allow him a defence on this ground would be to allow him to profit from his own wrongdoing. A constructive trust therefore would be precluded.

(d) In any event, I find his story about the mistaken transfer in 2005 not credible.

[95] There are other inconsistencies or implausibilities in Mr Thompson’s

evidence. These include his claim that he went ahead with the 2005 transfer because

of the IRD’s advice when the IRD could not find in their system any record of his call; and his claim that the reason why he went into bankruptcy was because ACC did not pay the 80 per cent of his salary he was entitled to,17 when the Insolvency Trustee’s summary of the estimated claims against Mr Thompson totalled over

$1,300,000.

[96] The plaintiffs have not addressed Mr Thompson’s argument that the 2005 transfer was not made with intent to prejudice creditors, (in particular the IRD), because the IRD knew of the circumstances of the transfer (at [83] above). However, that is not the ground upon which the plaintiffs have relied for s 346(1)(b); they rely on “or without receiving reasonably equivalent value in exchange”.

[97] Mr Thompson’s argument may be that Kiwi House still owed $149,326.20 to Mr Thompson personally for the 2005 purchase, and Mr Thompson forgave that debt in consideration for the 2008 transfer to the Trust. However, that has not been argued here and there is no evidence of the debt being forgiven. Moreover,

$149,326.20 would not appear to be the reasonably equivalent value in exchange, since he purchased the property for $196,000 in 1999 (in an arm’s length transaction) and sold it to Kiwi House in 2005 for $483,000 (in a non-arm’s length transaction). The value was clearly far more than $149,326.

[98] Mr Thompson has raised a number of other matters in his evidence, which he did not refer to in submissions. None of them appear to be capable of supporting any defence to the assertion that the disposition was made without receiving reasonably equivalent value in exchange.

Conclusion

[99] I have had the benefit only of relatively short substantive submissions on the merits from the plaintiffs and Mr Thompson. Because of the unfocussed assertions of Mr Thompson I have taken some time to go through the background factual matters and his assertions. In the end, the transfer of the property to the Trust in

_{2008 was undoubtedly made without any reasonable exchange in value. The}

17 Accident Compensation Act 2001, sch 1, cl 32.

overwhelming impression that the evidence leaves is that Mr Thompson was juggling his assets because he saw profit in doing so without any regard to legal reality or substance. The 2008 transfer appears to have been made to suit Mr Thompson’s convenience, and to have not evidenced a genuine transaction.

[100] In 2008 he was living in a valuable property, and the two entities that appear from the title to have had an interest in the property, himself and Kiwi House, were to become bankrupt and go into liquidation respectively. He argues that by a transaction made for no apparent consideration he had legitimately moved the house property from the name of those two entities and the reach of creditors to a third entity, a trust. The evidence indicates that the trust is operated for his personal benefit. In justifying the trust’s claim he is unsupported by his co-trustee, and any document that proves the trust has made any contribution to the property.

[101] I am satisfied that there is no reason to defer the application for formal proof, and that judgment should be entered. I therefore enter judgment on the basis of the first cause of action in the statement of claim. I consider it proven.

[102] I make the following order:

An order under s 348 of the Property Law Act 2007 vesting the land at

194 Lake Road, Northcote, Auckland (Certificate of Title NA2A/495) in

Kiwi House Ltd (in liquidation).

[103] Because of the history of the file I reserve leave to the parties to apply for further elaboration or change to the terms of this order.

[104] The plaintiffs are entitled to costs which I direct should be paid by Mr Thompson on a 2B basis together with disbursements to be approved by the Registrar.

...................................

Asher J