Jacobs v Campbell [2012] NZHC 1425 (21 June 2012)

Last Updated: 20 August 2012

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2010-470-000881 [2012] NZHC 1425

BETWEEN HEATHER ANN JACOBS Plaintiff

AND JOHN GRAHAM CAMPBELL First Defendant

AND LEONA MAY CAMPBELL Second Defendant

Hearing: 11-14 June 2012

Appearances: R A B Barnsdale for Plaintiff

V Scott and S Scott for Defendants

Judgment: 21 June 2012

_{JUDGMENT OF VENNING J}

This judgment was delivered by me on 21 June 2012 at 5.00 pm, pursuant to Rule 11.5 of the High

_{Court Rules.}

Registrar/Deputy Registrar

Date...............

Solicitors: Brook Law, Hamilton

Clark & Gay, Waihi

Copy to: R Barnsdale, Hamilton

V Scott, Mt Maunganui

S Scott, Mt Maunganui

JACOBS V CAMPBELL HC TAU CIV-2010-470-000881 [21 June 2012]

Introduction

[1] The Campbells own a property at Seaforth Road, Waihi (the Waihi property). In 2003 they entered an agreement with Ms Jacobs to sell the Waihi property to her. The agreement provided for the Campbells to remain in occupation and provided a right for them to buy it back, on certain conditions.

[2] The Campbells remain in possession and are still the registered owners of the

Waihi property.

[3] Ms Jacobs issued these proceedings seeking specific performance of the agreement.

Background

[4] Although the general introduction may suggest the proceedings are straightforward, they are not. To explain why that is so, it is necessary to set out the background in more detail.

[5] The Campbells are an elderly couple in their seventies. They have lived at

Waihi Beach for over 35 years. Over the years they have struggled financially.

[6] In the 1990’s they met a finance broker by the name of Myles McKelvy. Mr McKelvy put in place a refinancing arrangement for them in 1998. It was a complicated arrangement which involved the incorporation of a company with Mrs Campbell being the sole shareholder of the company. The Waihi property was transferred to that company. The Campbells fell into arrears under the arrangement and, by 2001, needed to refinance again. They did not want to deal with Mr McKelvy because of their first experience with him. However, even though they approached a different broker, the broker they approached was associated with Mr McKelvy and ultimately Mr McKelvy became involved in their second refinancing arrangement.

[7] Mr McKelvy arranged short-term, bridging refinance with Provincial Finance Limited (Provincial) on the understanding that he would arrange more long-term finance at a lower interest rate in due course. That never occurred.

[8] The cost of the bridging finance was financially crippling for the Campbells. They again fell into arrears. Provincial was pushing for repayment. In early 2003 the Campbells approached another finance broker, a Mr Mike Parkes. Mr Parkes offered them a refinancing deal which they accepted on 25 February 2003. It included an additional $5,000 over and above the amount required to pay out Provincial. The Campbells were keen to obtain the additional funds to enable them to travel to their son’s wedding in Australia.

[9] However, before the Campbells could implement the refinancing through Mr Parkes, they received a fax from Mr McKelvy asking them to contact him about a refinancing offer. As will become apparent, Mr McKelvy was well aware of their situation, and the pressure they were under. Mr Campbell called Mr McKelvey as requested. The call would have been towards the end of the same week they had arranged the refinancing with Mr Parkes, probably Thursday or Friday, 27 or 28

February. Mr McKelvy told them that an associate of his, Heather Jacobs, could offer them a better deal than Mr Parkes. They were prevailed upon by Mr McKelvey not to proceed with refinancing through Mr Parkes and instead to come in and meet Ms Jacobs. Early the following week, on Tuesday 4 March, Mr and Mrs Campbell went to Mr McKelvy’s office. Ms Jacobs was present with Mr McKelvy and Arden Fatu, an associate of both Mr McKelvy and Ms Jacobs. At that time the Campbells were presented with the scheme proposed by Mr McKelvy and Ms Jacobs. Mr McKelvy and Ms Jacobs convinced them it was a good deal and was better for them than the refinancing they had arranged through Mr Parkes. They held out the prospect of an additional sum of cash (more than the $5,000 under the Parkes’ refinance) to enable Mr and Mrs Campbell to attend their son’s wedding.

[10] Although the arrangement was not a refinancing at all, and actually provided for the Campbells to sell the Waihi property to Ms Jacobs, ultimately Mr and Mrs Campbell agreed and the next day signed a document dated 5 March 2003 (the buyback agreement). The buyback agreement described the Campbells as “present

owner” and Ms Jacobs as “purchaser”. It recorded Mr and Mrs Campbell were to sell the Waihi property to Ms Jacobs and that Ms Jacobs agreed to enter an agreement to resell the Waihi property back to the Campbells on certain conditions.

[11] Under the buyback agreement Mr and Mrs Campbell could continue to occupy the property as licensees paying an occupation licence fee of $360.00 per week plus rates and insurance. The buyback agreement provided two dates, 5 March

2004 and 5 March 2005, on which the Campbells could buy the Waihi property back from Ms Jacobs on the terms set out. The buyback agreement also provided that, in the event of non payment of the occupation licence fee for a period of five weeks, Ms Jacobs was entitled to cancel both the licence to occupy and the repurchase agreement.

[12] The buyback agreement was a much more complicated document than a standard agreement for sale and purchase. It was not well drafted. It was heavily in favour of Ms Jacobs. Although the agreement recorded a sale price of $350,000, Ms Jacobs was only required to repay the Provincial debt of $190,000 (estimated). The balance of the purchase price Ms Jacobs was to pay was to be left in and/or credited off the buyback price. The particularly relevant terms of the agreement were:

1 That the present owners shall sell the property to the purchaser for the sum of $350,000 which sum shall be paid as follows:

a) as to the sum to repay the existing first mortgagee

(provincial Finance Limited) in cash (estimated to the

$190,000)

b) as to the sum of $35,000 by way of credit for the deposit on the resale referred to in clause

c) as to the balance (estimated to be $125,000) by the purchaser entering into a loan agreement to incorporate the terms set out in clause 3 hereof

2 That the purchaser shall enter into an agreement to resell the property to the present owners for the sum of $350,000 which sum shall be paid as follows:

a) as to the sum of $35,000 by way of offset credit as set out in clause 1(b) above

b) as to the sum of $315,000

i) by the purchaser giving credit for the balance due under the loan agreement referred to in clause 1 (c) above and as reduced by the credits against the loan as set out in clause 3 hereof

ii) as to the balance in cash

the present owners shall have two (2) settlement dates (time being of the essence) namely the 5th of March 2004 and the

5th March 2005 AND in the event that settlement is not completed on either of those days then the purchaser may

cancel the agreement

3 The amount of the loan as determined in clause 1(c) hereof shall be

a) the sum of $23,000 for each year (or part thereof) that the repurchase agreement runs

b) any rates, insurance premiums, loan fees, repair costs, solicitors fees, consultants fees, brokerage fees relating to the purchase and/or resale.

4 The present owner shall continue to occupy the property as licensee and shall pay to the purchaser an occupation licence fee of $360 per week plus rates and insurance. The Purchaser shall lodge $1440 into the H.A Jacobs account at Westpac and the present owner shall pay the licence fee to that account. In the event of non-payment totalling five (5) weeks, the purchaser shall be entitled to cancel both the licence to occupy and the repurchase agreement.

In addition to signing the buyback agreement the Campbells also executed a transfer of the Waihi property to Ms Jacobs.

[13] By the time the buyback agreement between Ms Jacobs and the Campbells was concluded on 5 March 2003, Ms Jacobs’ solicitor, Ms Carram held $280,000 which had previously been drawn down from BNZ Investment Management Ltd (BNZ). On 6 March Ms Jacobs instructed Ms Carram to repay the Provincial debt of

$191,927.57 and clear the mortgage to give effect to the buyback agreement.

[14] It is necessary to set out how Ms Jacobs came to have the $280,000 from BNZ. Ms Jacobs had obtained the $280,000 from BNZ on the basis of a prior agreement for sale and purchase for $350,000 relating to the Waihi property made between Rubenstein Group Limited as vendor and her as purchaser (the Rubenstein agreement).

[15] The background to the Rubenstein agreement is as follows. Mr McKelvy knew the Campbells were struggling to meet their commitments to Provincial. He was confident Provincial would move to a mortgagee sale as the Campbells would not be able to repay Provincial. Mr McKelvy identified the Campbells as vulnerable and saw an opportunity to purchase the Provincial debt and mortgage and then, in

breach of the mortgagees’ obligations to obtain the best price reasonable,1 Mr

McKelvy intended to deprive the Campbells of their equity in the Waihi property.

[16] To that end Mr McKelvy arranged for an agreement for sale and purchase to be made between Management Contractors International Limited (who were to purchase the mortgage from Provincial) as vendor, acting in exercise of the power of sale under the mortgage, and Rubenstein Group Ltd. The purchase price was to be

$200,000. Rubenstein Group Limited was then to sell the property to Ms Jacobs for

$350,000. Both Management Contractors International Ltd and Rubenstein Group Ltd were controlled by associates of Mr McKelvy. Ms Jacobs’ role in the scheme was to use the Rubenstein agreement to obtain $280,000 from a financier. After clearing the Provincial mortgage the parties were to share in the balance of approximately $90,000 and, ultimately, would have the benefit of the equity in the Waihi property. The Campbells would be left with nothing.

[17] On 13 February 2003, and using a mortgage consultant, Mr Posa of Property Pack, Ms Jacobs applied for finance from BNZ in the sum of $280,000 on the basis that she had a valid contract to purchase the Waihi property for $350,000 under the Rubenstein agreement, even though at that time, neither Management Contractors International Ltd nor Rubenstein Group Ltd had any rights in or to the Waihi property. On the same day BNZ conditionally approved mortgage finance of

$280,000. BNZ required a valuation. To that end Ms Jacobs arranged for a drive by valuation of the Waihi property on 19 February 2003, before the Campbells had even been approached by Mr McKelvy. As an aside, I note the valuation suggested the Waihi property was worth $365,000.

[18] The fraud to be perpetuated by Mr McKelvy and Ms Jacobs was dependent on Management Contractors International Limited purchasing the Provincial

1 Under s 103A of the then Property Law Act 1952.

mortgage over the property. It was anticipated Provincial would sell the mortgage because of the Campbells’ default. However, because the Campbells were arranging refinancing through Mr Parkes Provincial did not take any more steps in relation to the mortgage at that time. Further, some of the parties associated with Management Contractors International Ltd were given advice not to proceed with the scheme and refused to participate further.

[19] Mr McKelvy and Ms Jacobs then looked for alternative ways to obtain the Campbells’ property and give effect to their fraud. They ultimately struck on the buy-back arrangement with the Campbells as the means to achieve that end.

[20] Even though Ms Jacobs knew that the Rubenstein agreement was not proceeding, she instructed her solicitor, Ms Carram, to draw down the $280,000 advance from BNZ. Ms Carram wrote to the BNZ enclosing her solicitor’s certificate on 26 February 2003 seeking the draw down. BNZ was not told that the Rubenstein agreement was not proceeding and paid out the settlement moneys to Ms Carram for Ms Jacobs.

[21] Mr McKelvy and Ms Jacobs then turned their attention to the Campbells and pressured them into entering the buyback agreement. Once the Campbells had entered the buyback agreement on 5 March 2003 Ms Jacobs sought to implement it by repaying the Provincial debt ($191,927.57) and presenting the signed transfer to the District Land Registrar.

[22] Mr McKelvy was involved in a number of such frauds. Unknown to Mr McKelvy and Ms Jacobs the police had placed listening devices in Mr McKelvy’s office and telephone and had intercepted conversations between Mr McKelvy, Ms Jacobs and others. The police also had a record of the dealings between Mr McKelvy, Ms Jacobs and the Campbells at the office. The police advised the District Land Registrar about their investigation and about Ms Jacobs’ activities.

[23] As a result the District Land Registrar refused to register the transfer on the grounds of fraud. The title was caveated to that effect on 24 July 2003. Ms Jacobs has taken separate proceedings in Jacobs v Registrar General of Land CIV-2011-

470-286, in which she seeks orders requiring the District Land Registrar to register the transfer to her, a matter to which I shall return to later.

[24] In addition to drawing down the $191,927.57 to repay Provincial, Ms Jacobs instructed Ms Carram to pay her just under $50,000 and also to pay $28,000 for Mr Fatu’s legal fees. (Ms Jacobs expected to be repaid that $28,000). A further $8,000 was paid to Mr McKelvy as a brokerage fee.

[25] The Campbells paid the licence fee for eight weeks but, after being alerted to the fraud, ceased making payments.

[26] For her part in the fraud Ms Jacobs was charged with seven counts of using a document and two counts of money laundering. The fraud counts included charges relating to the Rubenstein and Management Contractors contracts as well as the buyback agreement with the Campbells. She was also charged with fraud in relation to the application for loan finance from the BNZ.

[27] Ms Jacobs ultimately pleaded guilty to the charge of fraud in relation to the BNZ loan. The Crown agreed not to pursue the other counts. The Crown prosecutor, Mr Douch, gave evidence that the plea and withdrawal of the other charges was negotiated with Ms Jacobs’ counsel, Mr Mabey QC, and was a pragmatic and realistic recognition of Ms Jacobs’ overall culpability compared to the other more serious offenders.

[28] Ms Jacobs was convicted on her guilty plea and, on 20 October 2006, was sentenced to 250 hours community work. In imposing community work instead of imprisonment Heath J took into account that Ms Jacobs had suffered, or would suffer, as a result of her fraudulent conduct, a loss in the vicinity of $400,000. That was apparently calculated on the basis of Ms Jacobs’ obligations to the BNZ of

$280,000 together with interest on that sum. The Judge was aware that $190,000 (approximately) had been applied to repay Provincial and, to that extent, the Campbells had benefited from Ms Jacobs’ actions.

[29] Ultimately Ms Jacobs repaid the full amount of the loan to the BNZ and, in addition, interest of just under $69,000. The total amount of principal and interest she repaid to the BNZ was approximately $349,000. However, as noted she and her co-offenders had received a benefit of close to $90,000 from the $280,000 drawn down from the bank. At the end of the day Ms Jacobs’ loss was approximately

$260,000 rather than $400,000 as had been submitted to the Judge on her behalf.

[30] After a delay of some years Ms Jacobs commenced these proceedings on 27

September 2010.

Preliminary points/procedural and limitation issues

[31] At the outset of the hearing the plaintiff sought to file a second amended statement of claim. Mrs Scott objected to leave being granted to file that amended claim. She referred to a minute issued on 15 May 2012 by Ellis J (after Mr Barnsdale had been instructed as new counsel just prior to trial):

[8] If after reviewing the file Mr Barnsdale decides that he wishes to apply for leave to file an amended statement of claim, he is to notify the Registrar (Mr Hewlett) as a matter of urgency so that another telephone conference can be organised to address that issue.

Mr Barnsdale did not invoke the leave reserved by the Judge prior to trial but rather sought to file the second amended statement of claim at the outset of the hearing. I reserved my decision on whether leave would be granted until completion of the hearing as counsel agreed the issues raised by the proposed amendments were legal and whether the amendment was permitted or not would not make any difference to the evidence that was led.

[32] In the first amended statement of claim the plaintiff pleads two causes of action:

Breach of contract. The relief sought is specific performance of the agreement or an order vesting the title to the Waihi property in Ms Jacobs.

Constructive trust. The relief sought is an order vesting 55.14% of the

Waihi property in Ms Jacobs or judgment for $193,000 (being money held on trust).

[33] In the proposed second amended statement of claim Ms Jacobs seeks to

_plead:

Specific performance.

In the alternative, that Ms Jacobs has sustained a loss of $193,000 and that the Campbells have sustained a benefit of the same amount. The

_{relief sought is damages of $193,000;}

Constructive trust. The relief sought is a declaration the Campbells

_{hold $193,000 on trust for Ms Jacobs.}

Contractual Remedies Act 1979. Relief is sought under s 9 of the

_{Contractual Remedies Act.}

[34] Despite the proposed amendments to the pleading, at the outset of the hearing Mr Barnsdale confirmed Ms Jacobs no longer pursued the application for specific performance in relation to the buyback agreement. Then, during the course of his closing submissions Mr Barnsdale confirmed that he accepted the Limitation Act

1950 applied so that the claim under the Contractual Remedies Act in the proposed second amended statement of claim was statute barred.

[35] Mr Barnsdale’s concession that the proposed claim under the Contractual Remedies Act was statute barred was properly made. The Campbells contractual obligation under the buyback agreement was to transfer the Waihi property to Ms Jacobs. Although the agreement did not specify a settlement date, performance would be required within a reasonable time of Ms Jacobs completing her obligation to repay the Provincial mortgage which she did on about 6 March 2003. That was the only payment required to be made under the terms of the agreement.

[36] If the buyback agreement was valid and binding the Campbells were required to provide title to Ms Jacobs at that time, or within a reasonable time thereafter. There can be no doubt Ms Jacobs was aware the Campbells were in breach of their obligations under the buyback agreement. By 24 July 2003 the District Land Registrar had refused to register the transfer. The Campbells had by then stopped paying the occupation licence fee. Ms Jacobs wrote to the Campbells on three occasions about their breach, the last on November 2003. In that letter Ms Jacobs referred to their failure to pay the occupation licence fee and gave them 14 days to remedy the situation. They did not. Clearly by November 2003 at the very latest Ms Jacobs was well aware of the Campbells’ breach of contract. All the elements of any contractual cause of action were present by November 2003 at the latest.

[37] As the initial proceedings were not filed and served until September 2010, any causes of action based on contract were barred by the provisions of the Limitation Act 1950 if the defence was invoked.2 The Campbells have pleaded the Limitation Act as a defence. Any claim based on breach of contract is time barred.

[38] As noted, Ms Jacobs no longer pursues specific performance. Once the cause of action under the Contractual Remedies Act (together with any other contractual claim) are set aside, there is little difference between the first amended statement of claim and the proposed second amended statement of claim.

[39] Ms Jacobs is left with causes of action based on Constructive Trust in both pleadings and, in the proposed second amended statement of claim, a claim which, although it seeks “damages” of $193,0003 seems to be a species of unjust enrichment based on the allegation that the Campbells have sustained a benefit of $193,000 at Ms Jacob’s expense. In his closing submissions, Mr Barnsdale confirmed Ms Jacobs sought equitable remedies.

[40] In substance then the proposed second amended statement of claim adds little, if anything to, the existing first amended statement of claim. I grant leave to

2 The Limitation Act 1950 applies: s 59 Limitation Act 2010 and s 2(a) of the Limitation Act

_1950.

3 As opposed to compensation or a declaration.

file it and propose to consider the claims for equitable relief advanced on behalf of

Ms Jacobs on the basis of constructive trust and unjust enrichment.

Ms Jacobs’ claim for an institutional constructive trust

[41] In his closing submissions Mr Barnsdale confirmed the principal remedy sought by Ms Jacobs was a declaration that the Campbells held a share of the Waihi property by way of constructive trust for her or, alternatively, that the Waihi property was impressed with a trust representing the $192,000 (approximately) paid by Ms Jacobs to Provincial which improved the Campbells’ equity in the Waihi property.

[42] Mr Barnsdale submitted generally, but without citing authority, that even a plaintiff who has been guilty of fraud, (which is hardly consistent with clean hands), may, under some circumstances, obtain equitable relief. He suggested that this was one of those situations where relief ought to be granted.

[43] Mr Barnsdale categorised the trust he argued for as an institutional constructive trust arising by operation of the principles of equity as established in Lankow v Rose,4 namely a trust that the Court will impose to thwart unconscionable behaviour. Two elements are required for such a trust, first that the plaintiff had contributed in more than a minor way to the acquisition, preservation or enhancement of the defendant's assets, whether directly or indirectly; and that in all

the circumstances the parties must be taken reasonably to have expected that the plaintiff would share in them as a result.

[44] Mr Barnsdale submitted that the payment of the $192,000 (approximately) to clear the Provincial debt was a sufficient contribution to the Campbells’ Waihi property and that, in the circumstances of the payment, the parties would have contemplated that Ms Jacobs would obtain an interest in the Waihi property.

[45] The repayment of the Provincial debt can be seen as a contribution to Mr and

Mrs Campbell’s interest in the Waihi property. It improved their equity in the property. But the difficulty with the analysis of the circumstances of this case as

4 Lankow v Rose [1995] 1 NZLR 277.

giving rise to an institutional constructive trust is the suggestion that the parties would have expected Ms Jacobs to receive a share in the property to reflect that contribution. At best from her point of view Ms Jacobs repaid the Provincial debt to give effect to her contractual obligation. She did not pay the Provincial debt to assist the Campbells in any way nor to obtain an interest in the Waihi property with them. The parties had set out their rights and obligations in the buyback agreement. There is no basis for an argument they contemplated any co-existing sharing of interests in the Waihi property.

[46] But more fundamentally, Ms Jacobs made the payment in the course of seeking to perfect a fraud on the Campbells by obtaining title to their property in circumstances, and pursuant to an agreement, which was intended to have the ultimate effect of depriving them of their equity in their property. Further, to repay the Provincial debt, Ms Jacobs applied part of the $280,000 which she had obtained by fraud from the BNZ.

[47] There is an absolute and immediate answer to Ms Jacobs’ claim for equitable relief from this Court. It is the principle that she who comes to equity must do equity and she who seeks equity must come with clean hands: Jones v Lenthal.5 A party seeking to invoke equitable relief such as the imposition of a constructive trust as a result of a transaction must not have acted improperly in relation to that transaction. The application of the maxim in New Zealand was confirmed by the Privy Council in NZ Netherlands Society “Oranje” Inc v Kuys.6

[48] Prima facie the maxim provides the answer to Ms Jacobs’ claims. There are, however, limitations to the application of the principle as a defence. The Laws of

_{New Zealand notes the following limitations:}7

the alleged wrong must be a depravity in both a legal and moral sense;

the alleged wrong must be directly related to the equitable claim pursued against the defendant;

5 _{Jones v Lenthal [1669] EngR 102; (1669) 1 Ch Cas 154; 22 ER 739.}

6 _{NZ Netherlands Society “Oranje” Inc v Kuys [1973] 2 NZLR 163 at 168 (PC)..}

7 Laws of New Zealand Equity (online ed) at [284].

the defence will not be available where the plaintiff merely takes advantage

of a defendant’s bad business judgment or failure to take proper precautions;

_and

the Court will take into account the consequences of refusing relief to a plaintiff in the wider context of the policies of equity as they may apply to the

_claim.

[49] Ms Jacobs’ actions in the present case were both morally and legally wrong. The conscious misuse of power by a mortgagee through the designed cheating of the mortgagor by sale at an undervalue is more than merely constructive or equitable fraud: Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq).8 The ultimate object of the Rubenstein agreement that Ms Jacobs was a party to was to cheat the Campbells of their equity by that means. When that scheme was frustrated Ms Jacobs, (together with Mr McKelvy and her co-accused), simply put in place a different mechanism, the buyback arrangement, to achieve the same end.

[50] In the course of the conversations intercepted by the police, Ms Jacobs was recorded as a willing and active participant in the scheme to defraud the Campbells of their equity. On 20 February the following exchange was recorded. It confirms that Ms Jacobs was aware the Rubenstein agreement could not proceed:

McKELVY You, you can’t go buying it direct now because the bank’s

got an agreement from RUBENSTEIN GROUP.

JACOBS Yes.

McKELVY You’d have to change the agreement. JACOBS Mmm, which would hold it all up again. McKELVY No, you could do it on settlement. JACOBS Okay, just do it contemporaneous.

McKELVY Yeah you could change the agreement, say no, we’ll get it

direct off someone else now.

_{JACOBS Well we need to do that eh.}

8 Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) [1965] HCA 17; (1965) 113 CLR 265.

McKELVY It’s a bit hairy but you might get away with that.

[51] Then, on 4 March and before the meeting with the Campbells, the following intercept confirms that by that stage Ms Jacobs had agreed to a new arrangement to ultimately defeat the Campbells’ interest in the Waihi property:

JACOBS Yeah, so they don’t own the house, they think they do and they’re actually renting it.

FATU Basically that’s what it, that’s the bottom line in’it.

JACOBS That keeps it, so they, I buy the house and they get to stay, and they loose all their.

FATU They won’t wear it I don’t think eh.

JACOBS No, It doesn’t sound

FATU It’s gotta be disclosed ...

McKELVY ... buy the house they have the right of purchase back in two years time.

JACOBS Okay. McKELVY ... pay rent. JACOBS Right.

McKELVY A sale and purchase to buy it back mate. JACOBS Right, deferred settlement.

[52] And then later the same day, the following discussion confirms that Ms Jacobs knew the buyback agreement was not in the Campbells’ best interest, but they would have to accept it as they were under pressure:

JACOBS ...I find it hard to, to believe that they’d wanna do that ya

know.

McKELVY Who, the CAMPBELL’s.

JACOBS Yeah. FATU ... McKELVY Why. JACOBS I dunno.

FATU No cos they said if that’s the case, they’re better off in

selling the whole thing and getting.

JACOBS Yeah.

FATU Three fifty or whatever.

JACOBS But they’re desperate now, they haven’t got time.

FATU Nah.

JACOBS They don’t have time to do it, that’s the only advantage really isn’t it, there’s no time for them to put it on the market and sell it.

[53] Quite apart from the moral turpitude associated with Ms Jacobs’ actions towards the Campbells, there is also her fraud on the BNZ, which played an integral part in the implementation of the buyback agreement.

[54] In the course of cross-examination Ms Jacobs conceded her knowledge of the fraud on the bank which confirms her guilty plea:9

Q. When you made your loan application to Steve Posa, you didn’t tell him or the bank that Rubenstein weren’t the owners of that property were you?

A. No I didn’t.

Q. And you didn’t [tell] the bank how Rubenstein Group were going to acquire the property for 200,000?

A. No I didn’t.

Q. But you knew that?

A. I came to know it yeah.

Q. You knew that before you gave this agreement to the bank? A. Yeah.

Q. So the bank gives you the money to buy the Campbells’ property based on a false agreement and you tell the bank that you’re buying it for 350?

A. Yeah.

Q. And you need 280,000 for finance? A. Mhm.

9 At notes of evidence, p 16-17.

[55] Ms Jacobs said that when the situation changed she gave a copy of the buyback agreement to Mr Posa and left it up to him as to whether he passed it onto the bank or not. I find that evidence unconvincing and inconsistent with the intercepted conversations that she was a party to. Ms Jacobs knew, from 20

February, that the Rubenstein agreement could not proceed. She did nothing to advise the bank of that fact but instead, instructed her solicitor to draw the funds down from the bank. Further, immediately after the buyback agreement was concluded on 5 March, she instructed Ms Carram to distribute the funds obtained from the BNZ. The BNZ advance was distributed, according to Ms Carram’s trust account records, on 5, 6 and 7 March. Such actions are inconsistent with Ms Jacobs’ belated suggestion in her evidence that she gave a copy of the buyback to Mr Posa and considered it sufficient to leave it up to him to advise the BNZ of the position. That is not credible. I do not accept her evidence that she gave the agreement to Mr Posa. She had no intention of disclosing the true situation to the BNZ.

[56] Mr Barnsdale sought to focus on the buyback agreement in isolation from the other arrangements involving the Rubenstein and Management Contractors agreements and the fraud on the BNZ. But it is not possible to isolate it in that way. Ms Jacobs was only in a position to repay the Provincial debt because she had obtained the $280,000 by fraud on the BNZ in reliance on the Rubenstein and Management Contractors agreements.

[57] Despite Mr Barnsdale’s submission, the buyback agreement cannot be looked at in isolation but must be seen in the context of the earlier agreements, particularly the objective of the earlier agreements, and the steps Ms Jacobs had taken to fraudulently obtain the $280,000 from the bank. The $280,000 obtained by fraud from the bank was fundamental to Ms Jacobs’ subsequent dealings with the Campbells.

[58] I am satisfied that Ms Jacobs’ fraudulent actions were directly related to the equitable claims she makes for an interest in the Waihi property or for a declaration that the Campbells hold $192,000 on trust for her.

[59] Next, this is not a case where Ms Jacobs merely took advantage of the Campbells’ bad business judgment or failure to take proper precautions. That might have been the case if Ms Jacobs had done no more than approach the Campbells and made a genuine agreement for sale and purchase at an advantageous price by taking advantage of the pressure they were under. That however, is not what she did. She engaged in a fraud on them as well as the BNZ.

[60] The buyback agreement was designed to set the Campbells up to fail and to ensure that they would never be in a position to exercise their right to buy the Waihi property back. The intercepts record that Ms Jacobs calculated the Campbells would need to pay $230,000 to buy back the Waihi property (in addition to, in the meantime, paying $360 a week occupation licence fees together with rates and insurance). There was no prospect of the Campbells being able to exercise the right to buy back. The intention throughout was that Ms Jacobs would obtain the Waihi property for the price of the Provincial finance debt.

[61] The last matter the Court must consider is the consequence of refusing relief to Ms Jacobs in the wider context of the policies of equity. In that regard it is relevant to take into account that when Ms Jacobs was sentenced by Heath J, the Judge was aware the Campbells had benefitted by $190,000 and that Ms Jacobs had lost, not only that sum, but in fact a substantially greater sum, which the Judge put at

$400,000 and took account of those factors in imposing the sentence of community work.

[62] Mr Barnsdale sought to suggest that given her circumstances Ms Jacobs would have received community work sentence in any event but that is not what the Judge said in his sentencing notes. At [27] of his sentencing notes the Judge recorded:

[27] I agree that, in general terms, a starting point for sentencing for this type of offending would be imprisonment. There are a series of unusual circumstances in your case that justify a different approach and, to put you out of your misery, I will indicate now that you will be sentenced to a community based sentence.

And then:

[29] In this case, while the bank suffered a large financial loss, you did not gain financially. Indeed you have ended up contractually bound to pay back the whole of the bank debt plus significant accumulated interest. For your fraudulent efforts you will have lost about $400,000. A significant sum of money to anyone. That is a significant financial loss and one which must be brought into account on sentencing. I do not see a need to imprison you to mark your offending.

[63] I note that the Judge did not impose any reparation, again no doubt because

of Ms Jacob’s existing obligation to the BNZ.

[64] As noted, the Judge was well aware that the Campbells had received the benefit of having the Provincial debt repaid. Earlier he had noted:

[12] In the event the fraudulent scheme devised by Mr McKelvy did not proceed. As a matter of some poetic justice, the Campbells ended up receiving an unencumbered property when the Provincial Finance mortgage was discharged and the Bank of New Zealand was left with a debt of

$280,000 for which it had no security. You, however, remain contractually obliged to meet that debt, an obligation that remains.

[65] Further, this Court has, on previous occasions, declined to recognise a claim to an interest in property or other relief where a party has been guilty of fraud or has come to the Court with unclean hands. In Angell v Morressey10 the plaintiff had contributed approximately $3,000 towards the purchase of a home by his de facto partner and had regularly contributed part of his pay towards household expenses. The parties had agreed that his name would not be included on the title so as not to

endanger his partner’s ability to claim Social Welfare payments and obtain a low interest loan. Hillyer J acknowledged that in normal circumstances the contribution the plaintiff had made would support the imposition of a constructive trust. However, the reason the plaintiff had to seek equitable relief was his absence from the register and that absence had been deliberately designed to facilitate the fraud. The plaintiff ’s hands were unclean and that lack of cleanliness was referable to the

property in which he sought an interest. Relief was declined.11

[66] In Banks v Downing12 part of the money applied by Ms Banks, which she relied upon as the contribution to support her claim to an equitable interest in Mr

10 _{Angell v Morressey HC New Plymouth A33/85, 1 April 1986.}

11 _{Angell v Morressey HC New Plymouth, A33/85, 1 April 1986.}

12 Banks v Downing HC Hamilton, CP36/89, 30 May 1990.

Downing’s property, had been sourced from frauds on the Social Welfare Department. Ms Banks had worked under false names while continuing to receive a domestic purposes benefit. In declining to assist or grant relief to Ms Banks Anderson J said:13

I have the greatest difficulty in perceiving the basis upon which a plaintiff seeking equity can come to this Court claiming an equitable remedy directly and ineluctably linked to a persistent deliberate criminal fraud.

And later:14

... to translate a resulting trust in favour of the Department into a separate proprietorial interest on the part of the plaintiff would be, figuratively speaking, laundering the proceeds of the social security fraud and this Court would be brought into disrepute if it countenanced relief in such circumstances.

[67] A very similar situation exists in the present case. The money Ms Jacobs applied towards repayment of the Provincial debt was part of the $280,000 she had obtained by her fraud on the BNZ. To grant Ms Jacobs equitable relief would be to effectively launder the proceeds of that fraud and to sanction her actions.

[68] In those circumstances I do not consider it unequitable that Ms Jacobs be denied relief by this Court.

[69] Ms Jacobs does not come to this Court with clean hands and is not entitled to equitable relief. She paid the $192,000 in the course of attempting to perfect a fraud.

Ms Jacobs’ claim based on unjust enrichment

[70] The alternative claim for “damages” of $193,000 must be a claim based on the proposition the Campbells have been unjustly enriched at the expense of Ms Jacobs. As noted damages for breach of contract are not available.

[71] If the Court was satisfied the Campbells were unjustly enriched by the

_{$192,000 Ms Jacobs had paid to discharge the mortgage the Court could provide}

13 _{At 13.}

14 At 14.

relief by the imposition of a remedial constructive trust. As Tipping J put it in Fortex Group Ltd (In Receivership and Liquidation) v MacIntosh a remedial construction trust is:15

... one which is imposed by the Court as a remedy in circumstances where, before the order of the Court, no trust of any kind existed.

[72] However, for the reasons given above, there is an absolute defence to Ms Jacobs’ claim for equitable relief by way of such a remedial construction trust. It is that she does not come to equity with clean hands. She paid the $192,000 in the course of giving effect to her fraud on the Campbells using the proceeds of her fraud on the BNZ. The fact that events overtook her and she was not able to complete the fraud has not cleansed her hands of the fraud.

The defences of laches

[73] Although it is strictly unnecessary to do so I briefly consider the defence of laches. In the present case laches would also be available as a defence to Ms Jacobs’ claim for equitable relief. The defence is preserved by s 31 Limitation Act 1950.

_{The Court will generally consider:}

the nature of the relief sought;

the position of the plaintiff;

prejudice to the defendant;

evidential difficulties created by delay;

the nature of the transaction;

_{the length of the delay including any explanation.}

15 Fortex Group Ltd (In Receivership and Liquidation) v MacIntosh [1998] 3 NZLR 171 (CA) per

Tipping J at p 172.

[74] In the present case the particularly material factors are that Ms Jacobs took no steps before September 2010 to assert any right. Further, the right asserted is contrary to the position she adopted before the High Court on sentence in 2006. Nor is there any adequate explanation for delay. Although Mr Barnsdale submitted the plaintiff was focusing on the criminal proceedings, they were completed and at an end following her sentence in October 2006. The current proceedings were not issued for a further four years thereafter.

[75] Next, given the submissions made on Ms Jacobs’ behalf at sentencing the Campbells had no reason to consider that she would be pursuing a claim against them or their property. On that basis it was not unreasonable for them to have gone ahead and spent the further money on the property that Mr Campbell gave evidence

of16 in reliance on the fact that the Provincial debt had been cleared and that there

was to be no claim by Ms Jacobs. They have altered their position in reliance on the fact Ms Jacobs had no claim.

[76] In summary, having regard to Ms Jacobs’ position, the potential prejudice to the Campbells and the unexplained delay, if necessary, I would have held that any equitable claim that Ms Jacobs may have had would be barred by laches in this particular case. The delay in asserting her claim has been unreasonable.

Result

[77] Any claim under contract the plaintiff may have had is barred by limitation. Nor is the plaintiff entitled to equitable relief. She does not come to equity with clean hands, and her claim would be barred by laches in any event.

_{[78] The plaintiff’s claim is dismissed. There will be judgment for the defendants.}

16. On renovations including sewage, cobblestones/driveway, back deck, renovated kitchen, retaining wall and replaced fences.

Costs

[79] I am advised that Ms Jacobs is in receipt of legal aid. I make an order in terms of s 45(5) of the Legal Services Act 2011 that, were it not for the fact Ms Jacobs was in receipt of legal aid, an order for costs on a 2B basis would have followed.

Consequential orders in CIV-2011-470-286

[80] The plaintiff cannot possibly succeed in the related proceedings CIV-2011-

470-286 given this Court’s findings and given that she has abandoned her application for specific performance. Those proceedings are dismissed with an order for costs

_{on the same basis as these proceedings.}

Venning J