Churchill Group Holdings Limited v Aral Property Holdings Limited HC Auckland CIV 2001 404 2302 [2009] NZHC 2605 (22 December 2009)

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A The defendants are entitled to an order for increased or indemnity costs against the plaintiffs jointly and Mr Fava severally which are fixed in the sum of $2m.

B The sum lodged by the plaintiffs for security for the defendants’ costs and interest accrued thereon (currently about $115,000) is to be paid by the Registrar to the defendants’ solicitors in partial satisfaction of Order A.

C The $300,000 received from Mr Thomas is to be taken in partial satisfaction of Order A.

E Within 42 days from delivery of this judgment the defendants are to advise if they intend to continue to seek an order for increased or indemnity costs against Mr Yee and Murdoch Price. If they do, a conference will be convened to make timetable arrangements concerning that matter.

and procedural matters [10] Jurisdiction and the Law [21] Facts prior to October 1998 meetings:

(2) Jet Set Centre [35] (3) Joint Venture Agreement [38] (4) 22 February 1998 [45] (5) April-October 1998 [49]

(3) Defendants’ Evidence [74] Between October 1998 and April/May 1999 meetings:

(2) 16 October 1998-21 March 1999 [85] (3) 21 March 1999 letter [93] (4) 21 March 1999-10 April 1999 [104] (5) Mr Noel Fava’s enforcement [117]

(1) Pleading	[127]
(2) Plaintiffs’ evidence	[129]
(3) Defendants’ evidence	[164]
Events after 10 April 1999		[176]
Submissions: Defendants
(i) General	[215]
(ii) Interlocutory Applications	[230]
(iii)“Zero” answer	[238]
(iv) Mr Fava	[245]
(v) Defendants’ Submissions in reply	[278]

(2) Witnesses: [281] (a) General [281] (b) Mr Fava [284] (c) Mr Harris [299] (d) Mr Chong [307] (e) Mr Leung [320] (f) Summary of views on witnesses [330]

(a) General [370] (b) Liquidations and Anton Piller Orders [372] (c) Mr Chong’s evidence and Mr Simpson’s objections

(i) Mr Chong’s evidence [388] (ii) Defendants’ submissions in reply [406] (iii) Discussion [412] (iv) Mr Simpson’s response [418] (v) Discussion [422]

r 14.7(g) [458] (2) Rules 14.6 and 14.7 [479] (3) Conclusions [492]

[1] This judgment deals with an application by the defendants, Aral Property Holdings and Mr Leung, for increased or indemnity costs against the plaintiffs, Churchill, Cachinal, Matam and Cleveland, their former director Mr Philip Fava, and Mr Fava’s solicitor and accountant, Messrs Yee and Thomas (“the costs application”).

25 October 2006 the plaintiffs’ first claim was for more than $25m against both defendants for what was essentially loss of opportunity for them to buy Aral’s share of a shopping centre at Whangaparaoa in North Shore City known as Pacific Plaza. That claim alleged breach of the Fair Trading Act 1986.

[3] In a second cause of action against both defendants in deceit, all plaintiffs (though the losses were alleged only to have been incurred by Churchill, Matam and Cleveland) sought the same damages plus exemplary damages of $25m.

[4] As the litigation proceeded through its multiple interlocutory phases and through trial to the point where judgment was entered, it became, on any measure, very detailed and complex. It covered a huge spectrum of detail, many thousands of pages of documents and thousands of pages of evidence. Of the four main witnesses, Mr Fava’s evidence-in-chief was 355 pages in extent with cross-examination extending over 451 pages of transcript; the briefs of the plaintiffs’ two other main witnesses, Messrs Harris and Chong, were 52 and 40 pages respectively, with 145 and 153 transcript pages of respective cross-examination and Mr Leung’s brief extended over 224 pages followed by 188 pages of cross-examination. The plaintiffs called 14 witnesses other than Messrs Fava, Harris and Chong – one by videolink – and their evidence and cross-examination was also extensive. And Mr Ronald of Hong Kong Shanghai Banking Corporation (“HSBC”) had just finished reading his

69 page brief of evidence for the defendants when the hearing ended. The principal documents were assembled into two series of Eastlight folders, nearly 19,000 pages

in one 33 volume series and nearly 5,500 pages in another 12 volumes. Additionally, there were 21 volumes comprising 68 affidavits filed during interlocutory stages of the claim, another five Eastlight folders relating to the dispute between Mr Philip Fava and a brother, Mr Noel Fava. Another 11 Eastlight files contained miscellaneous ancillary documents.

13 December 2006, Day 31, the hearing was well on the way to completion. Extensive evidence of all four main witnesses had been given, the plaintiffs’ case was complete, and the defendants’ case was within what would probably have been a day or so of completion.

[6] However, on 13 December 2006 the case came to an abrupt halt and judgment under the then r 485 was entered for both defendants against all plaintiffs on the basis that the plaintiffs were not, in formal terms, “appearing”.

[7] The reason? On 6 December 2006 Mr Fava withdrew his opposition to an order of adjudication in bankruptcy based on his inability to meet a debt of some

$7,000. In 2007 he characterized that as a “bad judgment call” stemming from his collapse through exhaustion from the strain of this case.

[8] As a result of adjudication he was automatically disqualified from continuing as director of the plaintiffs and his shares in them passed to the Official Assignee. As a result of that, neither Mr Judd QC, senior counsel for the plaintiffs, nor his instructing solicitors, were able to continue to get instructions. As a result of that, on

13 December 2006 Mr Judd was granted leave to withdraw. As a result of that, the r 485 judgment was entered.

[9] On the third anniversary of his adjudication, 6 December 2009, Mr Fava was automatically discharged from bankruptcy. He immediately set about regaining his shares and directorships in the plaintiffs and, in an affidavit sworn in support of his application for the Court not to deliver this judgment until determination of his appeal, he made clear that as soon as he has completed that exercise the plaintiffs

would appoint solicitors and counsel and apply under r 10.9 to set aside the judgment of 13 December 2006.

[11] In meeting this claim the defendants incurred some $3.158m in legal fees and disbursements and because of that, the way in which the litigation had been conducted and having been deprived of a judgment which – they hoped – would vindicate their actions, they were determined to seek redress, principally by the route of applying for increased or indemnity costs.

[12] In early 2007 they applied for such costs against the plaintiffs, Mr Fava personally and Messrs Yee and Thomas in their capacities as mentioned and as trustees of the Philip Joseph Fava No.1 Trust. They also sought increased or indemnity costs against Mr Yee’s legal firm, Murdoch Price, for opposing three interlocutory applications.

[13] That application – amended on 16 December 2008 – took a regrettably long time to come to hearing but, after a further flurry of interlocutory applications were dealt with, it was heard over the 6-day period appearing in the frontispiece. The parties also produced a considerable volume of documentation during the hearing.

[14] This judgment stems from that hearing, but it is important to note that, at the fixture, the defendants only sought judgment against the plaintiffs and Mr Fava. Depending on the result, their application against Messrs Yee and Murdoch Price may require a further hearing. Since the hearing, the claim against Mr Thomas has been settled and discontinued.

[15] The course of dealing with the costs application has not been straightforward in that, during the hearing, the Court dismissed an application by Mr Fava under r 9.75 for leave to issue subpoenas and have witnesses – especially Mr Simpson, a partner in Bell Gully, the defendants’ solicitors - give evidence and produce

documents. After the hearing concluded Mr Fava sought re-call of that judgment. That matter was dealt with in further hearings over the following two months, and a separate judgment was in due course issued dismissing the re-call application. Mr Fava then lodged a notice of appeal against that dismissal. That has made almost no progress towards a fixture and, as noted, on 7 December 2009 Mr Fava applied for an order that delivery of this judgment be delayed until the appeal was heard. That has been dealt with in a separate judgment delivered contemporaneously.

[16] It is also to be noted that, as has been commented on in a number of judgments, the claim has been “characterized since its commencement with allegations of bad faith, misleading and deceptive conduct, deceit and fraud” (judgment of 14 December 2006 para [4]). Mutual and vitriolic pleadings and assertions were commonplace. Parties – especially Mr Fava – did not shrink from repeatedly asserting improper motives by opponents. Assertions of professional misconduct were frequently made. The allegations not infrequently included assertions of criminal conduct such as attempts to pervert the course of justice. Though Mr Fava and his solicitors – and, at times, counsel – were the main source of such assertions, they were not alone.

[17] As a result, the way the parties proceeded on the costs application resulted in a hearing where submissions were somewhat out of kilter with the application. To explain, though nominally aimed at the requirements of rr 14.6 and 14.7, the parties felt free to deal extensively with the whole of the evidence at the substantive hearing and the strengths and weaknesses of the plaintiffs’ and defendants’ cases, notwithstanding that the substantive hearing never concluded and thus was never the subject of full submissions and a reasoned judgment on the merits. Further, because one of the defendants’ principal grounds of the costs application was that the plaintiffs’ case had been without merit and they improperly pursued a hopeless case, and because Mr Fava denied that and alleged the defendants had engaged in improper behaviour of their own, both groups of parties felt fully justified in continuing their assertions of improper, unprofessional, even criminal, conduct on the others’ part.

[18] Despite the thousands of pages of documents and evidence in the case, as has been noted in a number of judgments, the questions at the core of this claim, and critical to the costs application and opposition, are what took place at two series of meetings – in Singapore in October 1998 and in Auckland in March/April 1999 – and, of the four participants, Messrs Fava, Harris, Chong and Leung, who said what to whom and what was agreed at those meetings. In respect of those meetings, there were, surprisingly in view of the way all other aspects of the relationship between the parties were managed, comparatively few documents.

[19] Because the Court’s evaluation as to what took place at those meetings and the credibility and veracity of the participants would have been vital to any judgment on the merits of this case and is also of significant importance in assessing the costs application and Mr Fava’s response, the approach adopted has been to assess the evidence of those four witnesses. As will be seen, cross-examination was of vital importance in assessing merits and is of similar importance in assessing such matters as whether the parties contributed unnecessarily to the time or expense of the claim or whether they may be said to have acted “vexatiously, frivolously, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding”. Those issues are also relevant to whether there is “some other reason” to refuse or reduce the costs sought by the defendants.

[20] The approach to costs and the broad, complex spectrum of the substantive proceeding (to say nothing of the time elapsed since it occurred) necessitated lengthy re-reading and summarizing almost the whole of the extensive evidence and reference to large numbers of documents as a prelude to and part of the preparation of this judgment. Reflection on that material has led to the view that not all needs to be incorporated or referred to in this judgment: only the more salient issues seem necessary to be covered. As a result the parties – Mr Fava in particular – will take the view some aspects of the evidence and their submissions have been incorrectly excluded or have been occasioned undue or insufficient prominence and, in a judgment of this length, there may well be minor factual errors, but, at the end of the day, the task has been to review the evidence, the documents and the submissions within the confines of rr 14.6 and 14.7 and deal with them accordingly.

[21] Jurisdiction to award increased or indemnity costs is now in r 14.6 (formerly r 48C) which reads:

(b) that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

(2) The court may make the order at any stage of a proceeding and in relation to any step in it.

(a) the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or

(b) the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(iii) failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

(c) the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or

(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

(b) the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or

(c) costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or

(d) the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or

(e) the party claiming costs is entitled to indemnity costs under a contract or deed; or

(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

[22] Mr Fava asserts there are factors affecting the defendants – particularly the actions of Bell Gully and Mr Simpson – which should lead the Court to decline the application, wholly or in part. He rests that opposition on r 14.7(g) which reads:

Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if –

...	(g)	some other reason exists which justifies the court refusing
		costs or reducing costs despite the principle that the
		determination of costs should be predictable and
		expeditious.

[23] The principal indemnity costs decisions relied on were those of Three Rivers District Council v Bank of England [2006] EWHC 816 and Bradbury v Westpac Banking Corporation [2008] NZHC 751; (2008) 18 PRNZ 859, [2009] 3 NZLR 300 (CA).

[24] Mr Miles QC, senior counsel for the defendants, submitted that, with the necessary change in detail, the description by Tomlinson J in Three Rivers in granting an application for indemnity costs could aptly apply to this litigation. The Judge held:

1. On 2 November 2005, Day 256 of the trial, the English liquidators of Bank of Credit and Commerce International SA, “BCCI SA”, the claimants in this action, to whom I shall refer as “the liquidators,” finally abandoned their attempt to prove that in its supervisory regulation of the activities of BCCI SA in the United Kingdom between 1980 and 1991 the Bank of England, “the Bank”, acted in a knowingly unlawful and in important respects wholly dishonest manner.

2. Over the course of twelve years of litigation the Bank, through its officers, was accused by the liquidators of an immense catalogue of outrageous behaviour. ... officials of the Bank were also accused of dishonestly misleading a number of persons and institutions, including even Parliament itself.

6. The accusations of dishonesty did not stop there. Officials of the Bank were alleged by the liquidators to have created, on a vast scale, documents which dishonestly misrepresented the position or their contemporary understanding of it so as to create a false and misleading paper trail to cover their tracks. ...

7. By the time that the liquidators’ case had closed after first Mr Gordon Pollock QC and then Lord Neill of Bladen QC had addressed me on their behalf, at least 42 of the Bank’s officials stood accused of dishonesty, a substantial uplift on the 22 identified in the liquidators’ statements of case as having been dishonest. As Mr Nicholas Stadlen QC for the Bank has observed, keeping a tally of those whose names were to be added to the roll of dishonour became during the trial something of a parlour game. That notwithstanding, I do not overlook the distress which must have been caused to those who found themselves publicly accused of dishonesty in this manner, and particularly the distress caused to the families of those who were so accused after their death. Mr Pollock had already conceded before the trial began that the basis for alleging dishonesty against quite a few of the initial 22 officials was slender. It must have been apparent that the more names were added to this list the more implausible the allegations became.

8. Perhaps unsurprisingly given the scale of the Bank’s alleged wrongdoing and turpitude the liquidators in December 2002 added to their statements of case a contention that the Bank should, in addition to paying normal damages and interest, be condemned to pay exemplary damages on the basis that its conduct throughout the entire period with which the claim was concerned was “oppressive, arbitrary and unconstitutional” and was conduct “meriting an award of exemplary damages.”

10. I have probably already said enough to indicate that this was extraordinary litigation which came to an abrupt albeit long overdue conclusion in unusual circumstances. ...

11. The liquidators did not withdraw their allegations nor proffer any apology. They can be compelled to do neither and they may not wish to do so. However the position in which the Bank and the impugned officials are left is unsatisfactory, as is likewise the position of the families of those impugned officials who are now dead. ...

[25] In Bradbury a claim for $13.5m plus aggravated and punitive damages shrunk before trial and was, on the seventh day, abandoned. Harrison J discussed the principles applicable to indemnity costs in the following passage (at 862-863 paras [8]-[12]):

[8] Mr Stephen Kos QC for Westpac submits that indemnity costs should be awarded, being “the actual costs, disbursements and witnesses expenses reasonably incurred”; r 48C(1)(b). He submits that B & M acted “vexatiously, frivolously, improperly, or unnecessarily in commencing or continuing [this] proceeding or a step in the proceeding”; r 48C(4)(a). Messrs Kos and Gedye acknowledge that the threshold is high — both refer to a standard approaching egregious conduct.

606; [2004] NZCA 10; (2004) 16 PRNZ 1047 (CA) gives guidance on the approach to be applied. The starting-point in any assessment is objective, not subjective, and is to be applied by reference to rules and not to actual costs. The integrity of the scale, with its associated value of predictability and certainty, is not to be lightly discarded. Nevertheless, Judges of this Court retain an overriding discretion to depart from the scale and “if satisfied that it is appropriate to do so they ought not to hesitate to resort [to it]”; at para 28. That exercise must, of course, like the exercise of all discretionary powers, be considered and particularised.

[10] The current costs scheme is underpinned by the premise that a successful party should receive a reasonable contribution towards its costs: Glaister, at para 14; see also Elias CJ in Prebble v Huata [2005] 2 NZLR

467; [2005] NZSC 18; (2005) 17 PRNZ 581 (SC), endorsing this statement by Cooke P in

[The costs scheme] reflects a philosophy that litigation is often an uncertain process in which the unsuccessful party has not acted unreasonably and should not be penalised by having to bear the full party-and-party costs of his adversary as well as his own solicitor- and-client costs. If a party has acted unreasonably — for instance by

pursuing a wholly unmeritorious and hopeless claim or defence — a more liberal award may well be made in the discretion of the Judge, but there is no invariable practice. [P 460; P 574] (Emphasis added)

[11] The philosophy underlying the highlighted passage from Cooke P's judgment is now recognised by r 48C. The practical test for determining a claim for indemnity costs remains whether the losing party has pursued a wholly unmeritorious or hopeless case. In Lewis v Cotton [2001] 2 NZLR

21; [2000] NZCA 399; (2000) 20 FRNZ 86 (CA), at paras 65-72 the Court of Appeal upheld an award of indemnity costs in this Court where it was satisfied a claim “border[ing] on the hopeless” (at para 67) and “indicating a lack of focus on the essential ingredients of [a] claim” (at para 68) fell within the realm of vexatious, querulous, improper or unnecessary conduct in commencing or continuing a proceeding.

[12] It has been said that costs have not been awarded in New Zealand to indemnify successful litigants for actual solicitor and client costs “except in rare cases generally entailing breach of confidence or flagrant misconduct”; Prebble, at para 6. This Court has required proof of exceptional circumstances such as where allegations of fraud are made without foundation; or where proceedings are commenced for an ulterior motive or in wilful disregard of known facts or clearly established law; or where allegations are made that ought never have been made: Hedley v Kiwi Co- operative Dairies Ltd (2002) 16 PRNZ 694 (HC), applying Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 118 ALR 248, (1993) 46 FCR 225; Paper Reclaim Ltd v Aotearoa International Ltd 22/4/05, Harrison J, HC Auckland CIV-2004-404-4728.

3 NZLR 400, 409-410 reviewed overseas authority in dismissing the appeal, holding:

[25] This Court in Holdfast NZ Ltd v Selleys Pty Ltd [2005] NZCA 302; (2005) 17 PRNZ 897 considered the topic of increased costs and at [40]—[42] emphasised the reasons for employing as their starting point the rates set by the Rules Committee rather than the costs charged by counsel for the successful party to their client. The considerations include the risk of disparate approaches due to different judicial experience and perceptions, which is a rule of law point: [11] above.

[26] Although r 48C(4)(a) (now r 14.6(4)(a), governing indemnity costs, employs the adverb “unnecessarily” of the same word “unnecessary” as is used in r 48C(3)(b)(ii) (r 14.6(3)(b)(ii)) dealing with increased costs, their respective contexts differ. The latter is an element of simple unreasonableness; the former of distinctly bad behaviour. As this Court held recently in Saunders v Winton Stock Feed Ltd [2009] NZCA 148, “unnecessarily” in r 48C(4)(a) takes its meaning and flavour from the adverbs which precede it: “vexatiously, frivolously, improperly”.

(a) standard scale applies by default where cause is not shown to depart from it;

(b) increased costs may be ordered where there is failure by the paying party to act reasonably; and

[28] ... the starting point of our rules, which gives a one-third or thereabouts deduction from a set figure is comfortably in the modern main stream. It affords recognition of the access to justice factor that prevails in the United States and should not lightly be departed from. Clear cause must be shown to justify an increase. Our three stage classification, with a discretion in each class as to where the order should be pitched, accords with that approach. Indemnity costs, which depart from the predictability of the Rules Committee's regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be “flagrant”: Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467 at [6] (SC).

[29] We therefore endorse Goddard J's adoption in Hedley v Kiwi Co- Operative Dairies Ltd (2002) 16 PRNZ 694 at [11] (HC) of Sheppard J's summary in Colgate v Cussons at [24]. While recognising that the categories in respect of which the discretion may be exercised are not closed (see r 14.6(4)(f)), it listed the following circumstances in which indemnity costs have been ordered:

(a) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b) particular misconduct that causes loss of time to the court and to other parties;

(e) making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J's “hopeless case” test. [in J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WÄ Branch) (No 2) (1993) 46 IR 301 at 303.

[27] As noted, the defendants seek increased or indemnity costs against Mr Fava, even though he was a non-party. He was sole director of the plaintiffs at most material times and the driving force behind the litigation. Mr Miles submitted he and his interests would have been the prime beneficiaries had it run its full course and the plaintiffs been successful. He submitted Mr Fava manipulated much of the evidence. The defendants relied on the jurisdiction to order costs against a non-party

[9] The jurisdiction to order costs against a non-party was first recognised in New Zealand in Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757, and confirmed by the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2005] 1 NZLR 145. The reason for the development of the jurisdiction was summarised by Tompkins J in Carborundum at 765, quoted in Dymocks Franchise Systems at 156:

Where proceedings are initiated and controlled by a person who, although not a party to the proceedings, has a direct personal financial interest in their result, such as a receiver or manager appointed by a secured creditor, a substantial unsecured creditor or a substantial shareholder, it would rarely be just for such a person pursuing his own interests, to be able to do so with no risk to himself should the proceedings fail or be discontinued. That will be so whether or not the person is acting improperly or fraudulently.

[10] The Privy Council described costs orders against non-parties as “exceptional”, in that context meaning “no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense”: at [25](1). The jurisdiction is in the end fact specific. It will not be exercised against pure funders, but where a party does not merely fund the proceedings but substantially controls them and is to benefit from them, justice will ordinarily require that if the proceedings fail that non-party will pay the successful party’s costs. As was stated in Dymocks Franchise Systems at [23](3):

The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is “the real party” to the litigation.

[11] The Privy Council discussed the specific position of non-party directors and liquidators of party companies at [29]:

In the light of these authorities their Lordships would hold that generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails. As explained in the cases, however, that is not to say that orders will invariably be made in such cases, particularly, say, where the non-party is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests.

[12] The Privy Council quoted with apparent approval at [28] the cautionary statement of Millett LJ in Metalloy Supplies Limited (In liquidation) v MA (UK) Limited [1997] 1 All ER 418 (CA):

It is not, however, sufficient to render a director liable for costs that he was a director of the company and caused it to bring or defend

proceedings which he funded and which ultimately failed. Where such proceedings were brought bona fide to the benefit of the company, the company is the real plaintiff. If in such a case an order for costs could be made against a director in the absence of some impropriety or bad faith on his part, the doctrine of the separate liability of the company would be eroded and the principle that such order should be exceptional would be nullified.

[13] It is therefore clear that costs will not be ordered against a non-party director or a liquidator who can realistically be regarded as acting in the interests of the company rather than his or her own interests. The non-party must have promoted and funded the proceedings by an insolvent company solely or substantially for that non-party’s own financial benefit.

[16] While a wide range of matters may be relevant to the exercise of the discretion, the following features can be usefully considered in this case:

d) The merits of the litigation under the control or influence of the non-party; and

[28] Mr Miles submitted the claim for costs against Mr Fava personally satisfied those requirements, and indeed his lengthy affidavits and many exhibits which he filed both generally and in relation to this application underlined his status as the “alter ego” of the plaintiffs.

[29] He particularly relied on Mr Fava’s affidavit sworn on 16 July 2004, saying:

9. In late 2002 I assembled the plaintiff’s case for Anton Piller and Preservation Orders in this litigation. I drafted all the relevant court documents. The applications were granted. No steps were taken to set the orders aside. The orders secured documents of considerable benefit to the plaintiff.

10. In late 2002/early 2003 I assembled the plaintiff’s case in opposition to the defendants interlocutory applications in this litigation argued in June

2003. I drafted the reply affidavits of Mr Harris and myself. I researched matters for counsel and assisted counsel extensively prior to/throughout the hearing. I drafted counsel’s submissions submitted after the hearing.

[30] Mr Fava was, at all material times director of some of the plaintiffs. Mr Harris was Cachinal’s sole director for much of the material period. Messrs Leung and Chong were, at all times relevant to this claim, employees of Aral, though indirectly.

[31] Aral was a property investor incorporated in the early 1990s in the British Virgin Islands. It owns valuable commercial and retail buildings in New Zealand. Mr Leung was not a director, shareholder or employee of Aral but was managing director of the ASO Group which managed Aral’s New Zealand portfolio through ASO Property Management (NZ) Ltd. Mr Leung said his role for Aral was to identify appropriate investments, negotiate terms and then make a presentation to Aral’s board which had to approve any transaction prior to entry into binding agreements. He said Aral and ASO seldom invest in properties not fully developed and tenanted. Even where they do, they invest only where full tenancy is imminent or rental guarantees obtained.

[32] Mr Leung relied on local advisers and Aral employees to supervise its investments, including a number in New Zealand. Its New Zealand advisers were principally BDO Spicers and Bell Gully. He said:

53. “Our relationships with our advisers are based on confidence, honesty, understanding and respect. While I am cost-conscious, I am also aware of the importance of looking after these relationships. A business relationship is like a marriage. There will be good times and bad times. Everyone should be committed to working through the bad times. You cannot walk away from someone at the first sign of difficulty or trouble. You need to work together and help each other. This is how I like to do business.”

[33] ASO is ultimately owned by, and acts as agent for, the owners of World Wide Shipping, the Sohmen family. The founder of World Wide Shipping was a Sir Y K Pao. His eldest daughter married a Dr Sohmen. World Wide diversified into property investment in the early 1990s through ASO Property Services.

[34] Aral’s only bank is HSBC. It has a long-standing relationship with that bank and the bank in its turn has a lengthy relationship with World Wide Shipping. Dr Sohmen was a non-executive director and deputy chairman of HSBC but not a director of Aral or ASO. Mr Leung said the connection means that “I have to be careful when asking the bank to finance an investment” because of the embarrassment that could result if Aral were unable to meet its obligations to HSBC.

[36] Aral sold the Jet Set Centre in January 1997 shortly after, according to Mr Fava, Mr Leung told him it had no intention of doing so. Mr Fava was annoyed at the sale as Churchill paid Aral $30,000 not long beforehand to be released from its rent guarantee.

[37] Mr Leung said Aral received an unsolicited offer for the building in October

1996 and sold it at a significant profit. Mr Leung disputed Mr Fava’s assertion that the sale was concealed because Aral wished to settle Churchill’s rental guarantee with a cash payment to Aral before selling. He said Mr Fava’s assertion he was shown a false agreement for sale and purchase was untrue. The sale and purchase agreement contained a confidentiality clause. Mr Fava was critical of Mr Leung and disbelieved his explanation the sale only recently came about.

[38] In about March 1996 Mr Fava enquired through Mr Chong whether Aral could be interested in investing in Pacific Plaza.

[39] A 50/50 joint venture was attractive to Aral if due diligence supported the proposal. The purchase price was expected to be about $30m, which would be funded with $5.1m from each party and the balance from the bank. That would give

Aral about its normal 10.5% yield. Aral’s shareholders were interested and ultimately a “Heads of Agreement (non-binding)” (“HoA”) was prepared.

[40] Churchill pleaded that Aral and a nominee incorporated to hold the shares in Pacific Plaza were to enter into an agreement with Churchill to develop land owned by it adjoining Pacific Plaza (the “Superstore” land) and that Aral and Cachinal would each buy half the Superstore from Churchill. Churchill also pleaded that Aral agreed that Churchill could develop land adjacent to Pacific Plaza as an extension to the shopping centre (the “expansion development land” or “ELD”) which Aral and Cachinal would have an option to purchase at market value.

[41] Mr Fava later nominated Cachinal to own Pacific Plaza with Aral under a joint venture agreement dated 14 March 1997. It is noteworthy the agreement said:

4.3 The Joint Venturers undertake to act in good faith towards each other and to use all reasonable endeavours to conduct the activities of the Joint Venture in a way which is likely to secure the objectives set out in this clause.

[42] The joint venture agreement contemplated the parties would negotiate together to enter into loan agreements to buy their share in Pacific Plaza. HSBC was Aral’s first choice but others were considered. Mr Leung was not involved in detailed negotiations. He refuted Mr Fava’s assertion he was pressured into accepting HSBC and, even more vigorously, refuted Mr Fava’s assertions that Dr Sohmen was involved in the financing. Mr Leung said Dr Sohmen “never arranged loans for Aral” and described as “absurd” Mr Fava’s suggestion of loss of face if HSBC were not selected as the joint venture financiers. In any event, HSBC’s terms bettered those from other banks.

20 March 1997. On 5 March 1998 Matam contracted to buy the ELD for $1.65m with settlement on 4 October 1998. Matam appointed Churchill as manager of the ELD

[44] Under agreements dated 19 July 1996, Churchill was required to lease all vacant shops in Pacific Plaza so Aral and Cachinal acquired a fully tenanted

shopping centre. Churchill was to be released as lessee once other tenants were found.

[45] On 22 February 1998 Messrs Fava and Leung dined at Sails restaurant. Churchill had been in arrears with its rent for some time. Mr Leung raised the issue of the arrears.

[47] Mr Fava said he told Mr Leung “it was only commerce” and “no one is going to die” if the arrears were not met, at which he said Mr Leung exploded into rage and he, Mr Fava, realised he had caused him to “lose face”.

[48] Mr Leung said Mr Fava was dismissive about paying Churchill’s rental arrears and made the quoted statements but denied in cross-examination that he was affronted or “lost face”. He was just trying to get Mr Fava to agree to Churchill honouring its obligations.

[49] When pressure was applied to Mr Fava for Churchill to meet its obligations, on 8 April 1988 he wrote to BDO Spicers (who paid Aral’s accounts and in whose premises Aral had its office) complaining payment was being withheld. He said :

We are gravely concerned that BDO have acted unprofessionally here and have perhaps conspired with Aral to perpetrate a deliberate deception upon Churchill.

We regard this matter most seriously. We invite any further submission you may care to make on the matter. We will consider the same upon receipt and to take action as appropriate.

[50] Cross-examined about that, Mr Fava said his employees had promised joint venture creditors they would be paid but BDO withheld payments and as a result:

“They ended up with egg all over their face. They were so brassed off about it they appeared in my office, together, with smoke coming out of their ears and insisted I do something about it. That is what gave rise to this letter”.

[51] Mr Fava said the Churchill arrears were discussed on other occasions about that time with both Messrs Leung and Chong. Those measures and other financial action taken at the time meant, Mr Fava suggested, that by a 13 April 1998 meeting Mr Leung must have known Churchill was under financial pressure. It now appears it was probably insolvent and had been for some time. He said Mr Leung addressed a range of options available to Aral including action to wind up Churchill. But he, Mr Fava, told the meeting that because his interests held debentures over Churchill, liquidation would produce nothing for Aral and Cachinal. Mr Fava told them Churchill could not pay its arrears. Any judgment would be barren. That produced the following exchange in cross-examination (p 102):

Q. Can I put it to you that one of your standard strategies in any of your companies that commits itself to financial obligations is to slip in a debenture to one of your interests?

Q. The purpose, of course, being that in the event the company can’t pay the obligations that it’s entered into the 1st or 2nd debentureholder will always mop up what assets there are?

A. Absolutely. It is very intelligent. You pay legal advice, and you pay lots of money to lawyers, you structure your business intelligently.

Q. I suppose it enables you to enter into any financial commitment you wish, regardless of whether you can repay it or not, always knowing that your interests are protected under the debenture?

It is well known that I am a person who structures his affairs very carefully. Had I not structured my affairs carefully I would not have made it as far as getting here today.

[52] At a meeting in Auckland on 13 September 1998 Mr Fava said Mr Chong told them that to proceed with the ELD Aral would need a valuation, 10.5% return for four years, HSBC finance and “prospective tenants for all areas”. Mr Harris and he accepted and all agreed a meeting with Mr Leung in Singapore in mid October was appropriate to move the matter forward.

[53] By 23 September 1998 Mr Fava was proposing the ELD would comprise four floors of offices with four tenancies each, a retail area comprising about

leased to The Warehouse on a turnover rent, a medical centre or library of about

600m2 below The Warehouse and a carpark underneath. But Pacific Plaza itself still lacked tenants, The Warehouse proposal was promising but they were not secured as an “anchor tenant”. The specialty retail shops were attractive but only if tenants were found. Any library would be slow to occur.

[54] The Warehouse signed an agreement to lease on 8 October 1998 for a turnover-only rent with no minimum. In addition, prior to the mid-October 1998 meetings, Deka continued to show interest.

[55] Those matters led Mr Fava to take the view immediately prior to the Singapore meetings that he was in a very strong commercial position at Pacific Plaza and Aral’s position was very weak because if Aral declined to move on the ELD Mr Fava’s interests would cause a sale notice to be issued by Cachinal and Aral would have to buy Cachinal out. That would have provided Mr Fava’s interests with funds to develop the ELD. That would have “provided me with an opportunity to poach some Pacific Plaza tenants ... as soon as Aral had paid out Cachinal for its

50% of Pacific Plaza”. That would diminish Pacific Plaza’s value. All of that, Mr Fava reasoned, would “amount to Aral arming me with the commercial means to do them commercial harm”. But in evidence, Mr Fava refuted the “poaching tenants” comment as being in breach of “my fiduciary obligations as manager of Pacific Plaza”. That was “impossible” and he “absolutely” denied giving any indications on those lines to Mr Harris.

[56] Mr Harris said he was “shocked” at Mr Fava saying his interests might poach tenants from Pacific Plaza. He said he knew by that stage that if there was a conflict between the joint venture and the owners of Pacific Plaza and the adjacent land, Mr Fava would “act however he chose and that would be bad for the joint venture” He, Mr Harris, would then be in an “impossible position” as director of Cachinal.

[57] Important meetings took place in Singapore between 12-16 October 1998. The participants were Mr Fava, Mr Leung, Mr Harris and Mr Chong. At the conclusion the parties signed a “Memorandum of Understanding non-legal binding” (“MoU”) which could have led to the acquisition of the ELD by Aral and Cachinal.

[58] The pleading by the plaintiffs was that at those meetings Churchill told the defendants The Warehouse would lease part of the ELD, it had an unconditional offer from Elders to finance the purchase of the expansion land and had resource consents in place for that land. Churchill said it had arranged additional funding to enable Matam to settle the purchase and meet resource management, valuation and professional fees. Churchill pleaded that at the October 1998 meetings, Matam, Cachinal and Aral signed the MoU for acquisition of the ELD from Matam after a market valuation with Aral using its endeavours to obtain finance from HSBC for settlement.

(a) It was headed “Memorandum of Understanding (Non-Legal Binding)” and was for the acquisition of the expansion land by Aral and Cachinal as joint venturers from Matam.

(b) Clause 1 required the joint venturers to appoint a valuer to assess market rental and the value of the expansion land with Matam appointing its own valuer and the valuations “produced by both the valuers shall be used as a reference for negotiation” with cl 2 requiring a net return of 10.5% against purchase price and Matam guaranteeing that return for four years from date of sale (cl 3).

(c) Aral was to approach HSBC on behalf of the joint venturers to use its “best endeavor” [sic] to secure a loan to finance the purchase (cl 4).

(d) Churchill was to retire as manager of the Pacific Plaza and was not to be appointed for the expansion land (cl 5).

(e) The MoU recorded Mr Leung‘s agreement to Mr Chong continuing to “co-ordinate/administrating [sic] all matters pertaining to the operation of Pacific Plaza and the acquisition of the expansion land and report to the JV’s”.

(f) The MoU contained other provisions requiring Aral and Cachinal’s prior consent to expenditure for professional fees, division of costs, postponing preparation of leases and the like.

[60] The plaintiffs further claimed that on 16 October Mr Leung told Mr Fava that:

(a) Once there was a contract in place for sale and purchase of the development there would be no difficulty in arranging finance for construction.

(b) He realised there were significant legal, valuation, architectural fees and other expenses with proceeding with the expansion.

(d) In particular, in relation to the expansion project, Aral would be able to acquire with Cachinal the expansion project for an amount broadly in line with the valuation advice to be obtained.

[61] Aral pleaded that on 16 October 1998 “Mr Leung stated that he expected Mr Fava and his companies to act in good faith when negotiating the sale price for the expansion development” and that Matam’s contracting to sell the ELD to the joint venture would facilitate its obtaining construction finance.

All of us present at these negotiations during October 1998 clearly understood that Matam needed a contract from the Aral/Cachinal JV for the sale and purchase of the completed development at a price that enabled development finance to be arranged. I was confident the valuation mechanism would come out such that a sale and purchase agreement could

be negotiated in good faith with the Aral/Cachinal JV and the development finance could be easily arranged.

At the time the MOU was being signed up Mr Leung specifically said in front of all present that he wanted the sale and purchase agreement negotiated in good faith and he wanted it in place asap so that the whole development could proceed. He specifically said that with the sale and purchase agreement in place construction finance would be easily arranged. We discussed how Matam was to finance the land purchase and initial development costs by way of borrowing from external sources and from Churchill and Mr Leung encouraged me to move ahead with all this.

We also talked about the need for the new premises for The Warehouse to be open by 30 September 1999 as per the Agreement to Lease. We discussed the need for full working drawings so that construction could commence as soon as the Sale and Purchase Agreement was in place. Mr Leung encouraged me to move ahead and get these prepared forthwith.

In essence the talk in my Singapore hotel suite at the time the MOU was being signed up was Mr Leung being upbeat over the expansion and encouraging me to get on and make it all a reality for the benefit of all present. ...

Once the MOU was agreed Mr Leung told me to go and tell Deka that the expansion land development would be definitely going ahead anchored by The Warehouse. He told me to tell Deka that Aral and Cachinal would be buying the completed development so that the whole expanded complex was integrated into one.

[63] A second meeting on 14 October 1998 ended after Mr Leung told those present that he had nine points to form the basis of a letter of instruction. Mr Fava’s notes made at the meeting reflect those matters.

[64] Mr Leung’s nine points were tabled at a third meeting on 15 October. They included overall, as opposed to individual, Churchill rental guarantees, joint venture control, the guaranteed income being supplemented by Matam if necessary, division of any excess rental above the 10.5% return on the final price, termination of the guarantee on sale, local body rates, commission, rent holidays and the like being taken into account, and a letter of credit to support the rent guarantee in accordance with a formula Mr Chong put forward. Mr Fava agreed with all those points and Mr Leung said to him “you have to work very fast to fill it [the ELD] up fast”.

16 October. Mr Fava’s evidence included discussion of detail such as where the document was signed and what suit and tie he wore. More importantly, he said

Mr Leung said it was “very important that all parties acted in good faith over the ... negotiations for the ELD”. Mr Fava’s evidence continued:

621. Mr Leung then said good faith in the price negotiation process was essential. I assured Mr Leung I would be negotiating the ELD price for Matam in good faith and Mr Leung said that he would be doing the same for Aral. I made some positive comment about this.

622. Mr Leung then said he wanted the sale and purchase agreement negotiated in good faith as soon as possible so that the whole development could proceed. ... This led to talk about the need for construction to commence as soon as the sale and purchase agreement and consequent finance was in place so as to meet the 30 September 1999 deadline. This led to talk about working drawings for construction which I said were under way but with a cloud around the integration until I had a deal in place with Aral. Mr Leung said I now had a deal in place with Aral so I should therefore go ahead and get the plans completed and be ready to start building as soon as the sale and purchase agreement and consequent finance was in place.

Mr Leung made a point to Mr Fava and the meeting that once there was a contract for sale and purchase between Matam and the Joint Venture in place, obtaining finance for construction would be straightforward and that Mr Fava should proceed.

I also remember Mr Leung pointing out to Mr Fava that the purchase price was to be set by reference to two valuers and he did not want to go through that exercise to find that Mr Fava was holding his hand out for some other figure which bore no resemblance to that valuation - he said he expected Mr Fava to act in good faith in relation to the purchase price determination process. He would be doing so for Aral.

Mr Leung seemed to be persuaded that the expansion land development anchored by The Warehouse was a good idea. After four days of on and off discussion we agreed all the terms of the MOU. Mr Chong and I drafted up the MOU at the hotel business centre.

[67] Mr Harris’ brief’s version of the representations made at the 16 October meeting was:

172 It was at this meeting that the issue of good faith arose. Mr Leung raised this. Mr Leung did not want to go through the valuation process where the Joint Venture got a valuation and Matam got a valuation and Mr Fava then asked for a purchase price that bore no resemblance to those two figures. Mr Leung said that the parties needed to act in good faith. Both Mr Fava and Mr Leung said that they would be negotiating in good faith.

173 Mr Leung said that with an unconditional sale and purchase agreement in place Mr Fava would be able to arrange construction finance.

[68] On the following day of his evidence at the substantive hearing after further elaboration on the manner of preparation of his brief, the contradiction was put to Mr Harris that he had said several times in evidence that there was no pre-leasing discussion preceding the MoU but his brief said such a discussion did take place. He endeavoured to explain the contradiction by pointing to his brief saying “no further leasing of the ELD would take place” between the Singapore discussions and execution of any contract to buy the ELD. He then withdrew that passage.

[69] He also agreed that the statement in his brief that it was discussed that “Aral and Cachinal would enter into an unconditional agreement” to buy the ELD should have read “might enter into a binding agreement”. “Would” was misleading.

[70] He then accepted his description of the matters discussed at the Singapore meetings was very similarly expressed to Mr Fava’s description but said the form of his brief was not because Mr Fava had told him to phrase it that way. It was a mistake for him to adopt any comments Mr Fava made.

[71] Of the execution of the MoU when, it is claimed, the representations were made, Mr Chong’s brief said:

72. Execution of the MoU took place in Mr Fava’s hotel suite. At this time Mr Leung made an issue about the parties acting in good faith and in particular said that when the valuation was out Mr Fava must not ask for some figure that bore no resemblance to valuation. Mr Fava committed to acting in good faith and Mr Leung said he would be acting in good faith for Aral. The words “good faith” were used. Mr Leung said he wanted the sale and purchase agreement negotiated in good faith and he wanted it in place as soon as possible. Mr Leung said that as soon as there was a sale and purchase agreement in place Mr Fava could arrange construction finance easily. I recall the words “easily” or “easy” in respect of arranging finance being used by Mr Leung.

74. When the MOU was being signed up Mr Leung told Mr Fava to go and tell Deka the expansion land development would be definitely going ahead anchored by The Warehouse. He told Mr Fava to tell

Deka that Aral and Cachinal would be buying the completed expansion land development so that the whole complex was integrated into one. ...

1998 meetings. He said the MoU reflected all the agreements reached at the meeting. He accepted, however, that his comment in the brief about construction finance was just “normal chatting, normal talking, what we say casually” and it is “not something serious to record the MoU”. Similarly, the comment that the joint venture would be “buying the completed” ELD was made “quite casually to me”. Neither comment appear in any notes of the meeting.

[73] There was a similar response to the suggestion in Mr Fava’s affidavit that all present knew Matam needed a contract from the joint venture for the sale and purchase for it to obtain construction finance. That comment, Mr Chong said, was at a time when they were “talking casual and some time they are just like friends”.

[74] Concerning the October 1998 meetings, Mr Leung said they were quite pleasant, those present talked about the ELD as a good idea and Mr Fava said he had a lease with The Warehouse and Deka wanted to come in. That is what they called the “Golden Triangle” with Woolworths already in Pacific Plaza. That notwithstanding, he said he stressed to everyone that Aral was not committed at that stage and any deal would be subject to due diligence and board approval – as Mr Fava’s notes confirm. HSBC financing was agreed as crucial.

[75] Mr Leung told the meeting Aral would only consider joining in buying the ELD after construction and when fully tenanted and producing an acceptable return. He said he expressed interest on Aral’s part after being told Matam had bought the expansion land. He said he received satisfactory assurances as to demand for office space and continued :

Mr Fava endeavoured to persuade me to allow Aral and Cachinal to commit to a conditional agreement to purchase the Expansion Development immediately, with settlement to occur when it was completed. I told him and Mr Harris that I wanted a detailed proposal finalised before any

commitment could be made by Aral. This would include completed plans, a construction contract and an offer of construction finance, leasing commitments for the development space, finance to fund the acquisition of the development on completion and valuations. In other words Matam would need to demonstrate that the development was feasible and that it could undertake and complete it. It also needed to demonstrate that it would produce an adequate return for Aral.

I was firm about this. If I was to entertain this proposal ahead of it being completed, I wanted to be assured of Matam’s ability to perform. I stressed the need for liquid, readily enforceable, rental guarantees from Matam. ...

On that basis, I went along with the proposal that Matam, Cachinal and Aral signed a “non legal binding” Memorandum of Understanding. This recorded the existing intentions of the parties at that time and set out a procedure for taking negotiations forward. ...

When I executed the Memorandum of Understanding, I made it clear that it was a record of our common understanding, not a contract. That is why it was stated to be “non legal binding”. Nevertheless, when I signed the Memorandum of Understanding on Aral’s behalf on 16 October 1998, I did so because I considered that Aral had a genuine interest in acquiring the completed Expansion Development in conjunction with Cachinal. There was no attempt on my part to mislead Mr Fava and Mr Harris. If it could be made to work, I was prepared to recommend it to Aral’s Board for its approval. ...

1998 clearly understood that Matam needed a contract from Aral and Cachinal for the sale and purchase of the completed Expansion Development at a price that enabled development finance to be arranged by Matam. That was not my understanding. ...

At our meeting in October 1998, I made it clear to Mr Fava and to Mr Harris that Aral was not making any commitment to enter into an agreement to purchase the completed development. Although the existence of such an agreement would no doubt have facilitated Matam’s endeavours to raise construction finance, that was not Aral’s responsibility. If we were able to negotiate a conditional agreement for sale and purchase of the completed development in a timely manner and if that agreement was approved by the Board of Aral, then all well and good. However, I made no commitment to Mr Fava and Mr Harris that this outcome would be achieved. Matam was responsible for arranging its own development finance without assistance from Aral. ...

Mr Fava alleges that I specifically stated that I wanted the sale and purchase agreement negotiated in good faith as soon as possible so that the whole development could proceed and that I expressed the opinion that with the agreement in place, construction finance would be easily arranged.

That is not an accurate representation of what happened. I did tell Mr Fava that I expected him to negotiate the sale price in good faith, once we had obtained valuations from the valuers. I did not want him to have unrealistic expectations of the development’s worth and demand a sale price that was materially higher than valuation. I did not mean that the parties should pay

I may have expressed the view that, with a sale and purchase agreement in place, this would assist Matam in arranging finance and I still believe that this is the case. It is obvious commercial sense that a bank would be more likely to lend to a developer that has a contract for sale of the completed development than to one without.

However, I did not state that the agreement would make the raising of such construction finance easy. I had no details regarding the financial position of Matam. I did not know what security Mr Fava was prepared to offer its financiers. I was therefore not in a position to express any opinion as to the ease with which Matam could raise finance. ...

[76] Mr Leung said the oral representations against the defendants were not, as pleaded, deliberately false. He told everyone they needed to act in good faith, which was no more than expecting everyone to behave properly, despite his earlier difficulties with Mr Fava. He denied he was trying to trick Mr Fava into thinking he had a deal. Mr Fava’s evidence as to representations to that effect was untrue. He would not have told Mr Fava he had a deal when any arrangement was subject to approval by the Aral board and HSBC. The MoU’s “non-legal binding” status correctly represented the position. He had no intention of getting Mr Fava’s interests to over-commit to the ELD in order that Aral could buy out Cachinal. Whilst they discussed the Deka lease and Mr Fava’s representations of additional tenants, that was all it was and Mr Leung was not trying to defraud Mr Fava’s interests in that regard. He was genuinely interested in seeing whether they could do a deal on the ELD in order to turn Pacific Plaza into the hoped-for success. But he needed details and commitments to be assured the proposition made good commercial sense.

[77] He wanted a detailed proposal to submit to his board, together with plans, a construction contract, construction finance commitment, and leasing commitments. He also insisted on rental guarantees from Matam. He said Messrs Fava and Harris were both aware of the limits of his authority from the Aral board.

[78] The ELD proposition was fundamentally different from the HoA because Pacific Plaza had been built before it was signed. A considerable amount of investigation had been done and approval had been obtained. The ELD was still in the planning stage, not built, and with no tenants (other than The Warehouse which

would account for only one-third of the required rental stream). With the MoU they were just talking about a piece of land with no construction in progress. All the MoU did was to prescribe a process “for the parties to move forward in their negotiation of a proposed agreement for sale and purchase”.

[79] Mr Leung said he told Mr Fava he expected him to negotiate the sale price in good faith once valuations were obtained, free of unrealistic expectations of the development’s worth. There was no commitment to buy at valuation: the MoU said valuations were for reference.

[80] Mr Leung did not state that the MoU would make the raising of construction finance by Matam easier, though he expected this to be the case. He knew nothing of Matam’s financial position or the security it could offer. Construction finance was a separate matter, solely in Mr Fava’s hands.

[81] Mr Leung disputed the truth of the assertion that the parties in Singapore understood there would be no leasing of the ELD before construction commenced, other than The Warehouse. He would never agree to such a proposal. Indeed, there was much discussion in Singapore about prospective tenants Mr Fava claimed to have ready to sign. The understanding was that he would work hard to tenant the ELD. He agreed he told Mr Fava he would have to “work very fast” to fill the ELD with tenants.

[82] There was no mention of pre-leasing but “this one has got an implication that in my mind at that time we need to have a certain amount of leasing to be taking place” but, when taxed as to why such an important matter was not included, he referred to Mr Fava’s assurance that he had many prospective tenants and some secured but then said:

“MoU is a non-binding agreement ... to set up a process for us to assess and this (pre-leasing) will be one of the areas that we will go into”.

[83] After the MoU was signed they had a drink and Mr Leung said “this is the way to do business”. They all had to work hard to turn things round to make Pacific Plaza successful. He agreed he told everybody they had to act in good faith. Then the following cross-examination took place:

Q. “... the true position was that you never had any intention of ever having Aral buy the ELD?

Q. Hadn’t you decided that here was your chance to put Mr Fava in his place once and for all?

On various dates on or between 16 October 1998 and March 1999, the Defendants made the following representations by telephone from the Second Defendant in Singapore and in person by the First Defendant’s agent, Chong Wai Sum in person at meetings in Auckland, to the Plaintiff by its agent, Philip Fava in New Zealand:

(a) That as soon as a valuation of the expansion project was available, they would arrange an agreement for the purchase by the First Defendant of a 50% interest in the expansion project; and

(b) That it would be easy to arrange construction finance once the agreement for sale and purchase was executed; and

(c) That they would act in good faith and use their best endeavours to obtain finance from the Hong Kong Bank to enable the First Defendant and Cachinal to settle the acquisition of the expansion project.

[85] On his return Mr Fava arranged for Matam to settle the expansion land purchase and re-instructed consultants. As required by the MoU, valuers were instructed on 12 November 1998. On 18 November 1998 during a conference call Mr Fava said both Mr Leung and he repeated they would be negotiating the ELD price in good faith for their respective principals and Mr Leung again said that with the sale and purchase agreement to Aral and Cachinal in place Matam would be able to arrange construction finance.

[86] HSBC sent a draft indicative offer of finance on 11 November 1998 for the purchase of the ELD conditional on 75% minimum pre-leasing by net value of the property with a guarantee for the balance. Mr Leung thought the 75% leasing condition was likely to be difficult to achieve given lack of progress to date.

[87] Mainzeal’s construction price received on 23 November 1998 significantly exceeded budget so, in order to cut construction costs, Mr Fava deleted the office tower component which was to be leased and then sold to the joint venture and substituted an apartment tower to be sold as unit titles. He also decided the library would be sold to Rodney District on unit title rather than Council leasing the space. The MoU did not prevent Mr Fava from changing the concept. All that would be left to be sold to Aral and Cachinal was the retail component which, Mr Fava said, was all the joint venture “required to enhance their existing Pacific Plaza investment”. Mr Fava did not tell Mr Chong of the changes until they spoke between Christmas

1998 and New Year 1999. Mr Leung was surprised at the lack of consultation before the changes and regarded this as a lack of good faith on Mr Fava’s part.

[88] An updated valuation from CB Richard Ellis (including the library) was received on 5 March 1999 valuing the ELD at $12.42m.

[89] A Robertson Young Telfer valuation on 8 March 1999 valued the completed ELD at $12.18m but was uneasy about the lack of leases and the strata title development. The valuation was based on “achieving a minimum of 60% leasing of specialty shops by rental value”.

[90] On 11 March 1999 Messrs Fava, Harris and Chong met to discuss acquisition of the ELD by Aral and Cachinal. Mr Chong’s minutes record the change of office space to apartments and the change of the laboratory to a library. HSBC’s requirement for 75% leasing at settlement was noted, as was Mr Fava’s response that achieving that “may not be practical”. The ELD was defined as The Warehouse area, retail areas and mezzanine. The minutes then said that under the MoU the “parties were to discuss the purchase price in good faith once the valuation ... was obtained” and note Mr Fava saying Matam would accept the $12.42m if “matters were moved ahead quickly and that other terms of the agreement between the parties

were acceptable”. The minutes said Mr Harris was to discuss purchase price with Mr Leung. The minutes then set out at length what were said to be advantages and disadvantages of an Aral/Cachinal purchase of the ELD, all of which Mr Harris was to discuss with Mr Leung by letter.

[91] Mr Harris initially sent those minutes to Mr Leung with a covering letter mentioning delays since the MoU which largely arose from changes to the proposed construction and saying that “unfortunately (and through no fault of Aral) time has become an issue as for Philip to advance matters with the joint venture requires a commitment at the earliest opportunity”.

[92] On 17 March 1999 Deka advised it would definitely make the move to Pacific Plaza and on the following day Messrs Fava and Chong went to HSBC seeking finance for the joint venture to buy the ELD.

[93] On 21 March 1999 Mr Harris wrote to Mr Leung on Cachinal’s behalf. The drafting of the letter and its tone became contentious. Whilst laudatory concerning the ELD, the letter said “Matam must have a deal with Aral and Cachinal right now to enable its construction finance to be arranged”. Matam could finance the ELD without commitment from Aral and Cachinal though it would then be “in a full competitive situation with Aral and Cachinal seeking to secure for the expansion land development whoever Matam can source in the market place”. Mr Harris expressed concern this “could include existing Pacific Plaza tenants”.

[94] The letter set out four options: the joint venture buying the ELD; HSBC lending against the percentage of the space let overall; Cachinal buying Aral’s share at $30m with Aral paying $11m for the apartments; or the “full competitive Aral and Cachinal versus Matam scenario”. Options 2 and 3 involved Aral buying residential property which it did not do. Option 1 was the best, and Option 4 would have “disastrous consequences for Aral and Cachinal because Pacific Plaza would collapse and be worth far less than $20m and Mr Fava’s investment in Cachinal would be “worthless” and Aral and HSBC would be “left with the consequences”.

Philip tells me that time is up. It is some six months since we all signed up the MoU in Singapore. The delays have been no fault of yours David. Philip recognises that and even accepts that the delays have been caused by him. Nevertheless he needs commitment from Aral and Cachinal right now or come this Tuesday Churchill will immediately resign as manager of Pacific Plaza and Matam will have no choice but to be out in the market place securing every available tenant for the expansion land development.

Philip is serious that in an absence of an indication from Aral that they will do a sensible deal along the MoU lines discussed in Singapore together with firm arrangements to meet in London, Singapore or Auckland on Wednesday or Thursday this coming week to finalise a deal then the full competitive and inevitable disastrous scenario will eventuate. It would be against his wishes but he has no choice in the matter.

[96] Of some note, Mr Harris’ brief did not discuss the contents of his letter of

[97] Concerning the letter, Mr Harris accepted it was jointly prepared by Mr Fava and himself and designed to convince Aral of the need to commit to buying into the ELD. The statement that for Matam to fulfil its obligation to complete the building for The Warehouse by 30 September 1999 “Matam must have a deal with Aral and Cachinal right now to enable its construction finance to be arranged” was Mr Harris speaking on behalf of Matam rather than Cachinal. “Matam can finance the expansion land development without commitments from Aral and Cachinal but it would need other tenants” was based entirely on what Mr Fava told him. The statement that if Matam acted independently it would be in a “full competitive situation with Aral and Cachinal” was, he accepted, written with Mr Fava’s express approval. He then accepted that his statements as to the serious reduction in the parties’ equity was “overstated”. He didn’t believe it and it was a “lie”. The statement that Mr Fava was “prepared on a worst case scenario to write off the existing Pacific Plaza investment and make a profit on the Matam investment” was again his repeating what Mr Fava told him.

[98] In making those statements he was not, he accepted, speaking independently as Cachinal’s director and he could not explain how as director of a joint venture company committed to good faith conduct, he could write to his joint venture partner

making statements designed to commit the joint venture to enter into a contract not knowing whether the statements were true. Seeking a commitment within 48 hours was, he accepted, a “disgraceful threat” from a joint venture partner. The following exchange took place:

[99] An offer of opportunity to take independent legal advice followed that exchange. Section 240 of the Crimes Act 1961 was mentioned. After a brief adjournment, Mr Harris decided to accept the offer and the hearing was adjourned for that purpose.

[100] Mr Fava accepted that Mr Harris’ comment that unless Aral committed by “Tuesday” Churchill would immediately resign as manager of Pacific Plaza came from him. By saying that it would have to do something “other or different” might have meant he was in breach of his fiduciary obligations as manager of Pacific Plaza. Although that was Mr Harris’ view of matters “he had got that view from me”. Mr Fava saw the letter before it went but the assertions Mr Harris made about Mr Fava’s actions were not in the latter’s head.

[101] Mr Leung expressed a different view. The Cachinal letter, though signed by Mr Harris, was, Mr Leung believed, written by Mr Fava. Mr Leung said the letter had “a negative impact on my interest” in the ELD. He said he “did not appreciate the veiled threats” to the joint venture, or the pressure on Aral to enter the transaction. Mr Fava’s intentions reflected in the letter “undermined my trust and confidence in him”.

[102] Mr Leung took the letter to mean he was being told that if he did not immediately agree to a deal Mr Fava would wreck Pacific Plaza by stealing tenants for his own development, Churchill would resign as Centre Manager and Matam would be out trying to procure every available tenant for its ELD.

[103] Mr Leung said “it is difficult to express just how angry this letter made me”. Aral had been a good joint venture partner with Cachinal and had assisted Mr Fava’s interests but “here I was being told that if I did not do what Philip Fava wanted, he would wreck Aral’s investment”. He went on to say: “The letter also ruined any sense of trust I might have had in Philip Harris” and that he was “nothing more than Philip Fava’s spokesman”. Mr Fava, he thought, was not behaving in a manner “based on trust and good faith”. Mr Harris was “advocating that we buy the ELD to stop Philip Fava destroying everything”, even though it could not be financed:

Other than the commitment to The Warehouse, I had no idea what pressures Philip Fava was under. I had no idea why Philip Harris was writing to me in such an aggressive and desperate manner. I understood that The Warehouse wanted a building, but beyond that I really did not understand why – after months of delays on Philip Fava’s part – matters had become so urgent that I was now being given just one day to decide what to do.

[104] Mr Leung said he then started to think about whether Aral or the joint venture might assist Mr Fava’s interests by offering to buy just The Warehouse and any leased shops with purchase of the balance rejected as too speculative or to be negotiated later. That proposition firmed in his mind by about the third week in March 1999. But Mr Chong took the contrary view. He wanted the joint venture to buy all the retail components of the ELD, let or unlet. The conversation became “quite heated”. Mr Leung told Mr Chong he was prepared to recommend Aral buy The Warehouse and perhaps another shop to give Mr Fava some cash flow to commence construction and time to contract other tenants to satisfy HSBC’s requirement for pre-leasing. Mr Chong disagreed, and the next day faxed Mr Leung six months notice of his resignation.

[105] Mr Leung said this was not the first time Mr Chong had resigned and, having dissuaded him previously from that course of action, he tried again in a friendly handwritten note sent on 23 March 1999. This time it did not change Mr Chong’s mind and on 24 March 1999 he faxed Mr Leung a note referring to Mr Leung’s preparedness to buy The Warehouse and the Lotto shop but noted his “keen decision” not to buy the ELD. He suggested Mr Leung make that plain to Messrs Fava and Harris.

[106] Mr Harris said he was unable to recall the contents of a telephone conversation on 24 March 1999 during which Mr Leung said he told him that Aral was prepared to consider buying The Warehouse area but not the retail area, but he did remember a similar comment being made by Mr Chong at a meeting on 1 April.

[107] After some difficulty in establishing contact, Messrs Fava and Leung spoke over the telephone for nearly an hour on 27 March 1999. Mr Fava said Mr Leung focussed more on financing than on commitment to constructing the ELD. He said he explained to Mr Leung how he calculated the rents from Pacific Plaza and the prospective rents from Deka and The Warehouse. They already had 70.8% of the total combined rent roll. Thus, 75% was easily realizable. When Mr Leung expressed doubt, Mr Fava said on several occasions that if Mr Leung “was not going to perform the MoU then I would do something other or different” and demanded Mr Leung’s commitment “right there and then”.

[108] A deal of evidence focused on when Aral decided it might participate in the ELD by the joint venture buying The Warehouse space outright and entering into a conditional contract for the balance, when that became known to Messrs Fava and Harris, and whether they were made aware of that before the crucial 10 April 1999 meeting. Because Mr Fava ultimately accepted he (and Mr Harris) became aware of Aral’s view by early April at the latest, it is pertinent to recount only the salient features of the exchanges:

“I am now given the following understanding of the meeting to be held ... as follows:

(a) That Aral in principle agree the JVs to purchase The Warehouse. The purchase price etc. to be discussed. A contract to be signed, subject to due diligence.

contract for the purchase of the retail space. (Mr Fava, Harris and Mr Storey are aware of the above).”

“... I would like you to proceed/advance the matter on the following approaches:

(1) I am interested in The Warehouse as a separate unit title deal; this could either be solely purchased by Aral or by the JOINT VENTURE negotiating on those basic terms proposed by you ...

(2) I am not, at this juncture, dealing with the purchase of the balance expansion land, if anything at all, I might only be willing to look at a very conditional contract later on with the means of an absolute “exit” clause which allows for Board’s approval to be required, solely on the part of Aral, even though the contract is on a JOINT VENTURE basis. But before doing so, I would like to see those projections of cash flow ...

Land together leased out (based on rental [?] not area according to him) and not the existing Pacific Plaza being

“By this stage, late March 1999, it was clear that Philip was absolutely desperate to do a deal with us. I did not know what was driving him on this, other than his unconditional commitment to The Warehouse. It was a difficult situation, given the very serious threats that he was continuing to make to us.”

d) On 31 March 1999 Mr Chong faxed Mr Leung a memo saying that “I have today informed Fava that you are interested for the JV’s or Aral solely to purchase The Warehouse” and that Messrs Fava and Harris would discuss the proposal Mr Fava accepted that was what Mr Chong told him that day.

“... if it was acceptable for Philip Fava to remove components from the MoU that did not work for him ... then it would presumably be acceptable for me to indicate that we were only interested in buying The Warehouse store. I would consider the rest later.”.

[109] On 1 April Messrs Fava, Harris and Chong met in Auckland. Mr Chong suggested either Aral or the joint venture would buy only The Warehouse store. Mr Fava said in his brief that was “fleetingly discussed and discarded” and in cross- examination said that was “rubbish, commercial rubbish” as the proposition “possessed no prospect of ever coming to fruition. ... It died a sudden death, Mr Miles. Instantaneously”.

[110] Mr Chong’s minutes (erroneously dated 31 March) show Mr Fava saying Matam was not prepared to sell “just The Warehouse to the JV or just Aral” with Mr Harris saying that was inconsistent with the MoU. The minutes also record Mr Chong asking Mr Fava to explain how he achieved the “70.8% leased by value” and Mr Fava saying that he “probably confused the matter and he now officially withdraws the comment of 70.8% leased by value” but he was of the opinion that “if Pacific Plaza and the expansion land can be 75% pre-leased ... there is a good chance for him to negotiate with the bank for construction loan”.

[111] Mr Fava sent those minutes to Mr Leung on 3 April and on the same day had a lengthy discussion with Mr Chong making clear, he said, that without a contract for Aral and Cachinal to buy the whole of the ELD, Churchill and Matam would fail.

[112] On 7 April 1999 HSBC sent an indicative proposal to fund the joint venture to buy the completed ELD. The offer was an additional $7.8m above the existing Aral and Cachinal loan and was conditional upon minimum annual rental exceeding

16 October 1998, that [Mr Leung] had made a representation, a binding representation, that there would be good faith negotiations.

Q. Well, you considered you had every right to make fundamental changes to the ELD proposition that you advanced in October 1998, correct?

Q. Am I right in saying in October 1998 you were suggesting that the joint venture should purchase The Warehouse development, the retail development, the library space and the office space?

A. All correct ... except for the library. It should be library/medical space. Yes. ...

Q. By March 1999 you’d removed the library area as well as the office area from the development being offered to the joint venture?

Q. My question though: you considered you had a right? A. There was no contract for sale and purchase.

Q. But you seem to be saying that while you had the right to effectively halve the proposition that was now being offered to the joint venture, Aral was not entitled to say “Well, we’ve looked at the new proposals and we only want The Warehouse”?

1998 I advised Aral in relation to the switch from offices to apartments. No objection was raised in January or in February.

Look at the meeting Minutes ... for 11 March 1999. They specifically record what we were all talking about at that stage. It is

for the retail component – not the apartment, not the library. Plenty of time, Mr Miles, between 11 March and the 1st of April to send us a fax saying: “You’ve fundamentally changed it”. No such fax exists, Mr Miles.

[114] Mr Fava accepted that by 31 March or 1 April 1999 at the latest, Mr Harris and he were aware of Aral agreeing in principle to the purchase of The Warehouse subject to due diligence and the possibility of it entering into a conditional contract to buy the retail space but again said that proposal was discussed “fleetingly” and rejected in discussions about that time with Mr Chong. He strongly denied Mr Harris and he were aware of that before 31 March or 1 April. He particularly

relied on Mr Chong’s comments to Mr Leung in his memo of 24 March 1999 of the latter’s “keen decision” not to purchase the ELD

[115] The suggestion all the documents in late March/early April were consistent with Aral only offering for the joint venture or it to buy The Warehouse with a conditional contract to buy the balance was met with the comment that they were all internal ASO/Aral communications, none of which were sent to Messrs Fava and Harris, and they were “all consistent, Mr Miles, with your client, Mr Leung, perpetrating a fraud upon us. One story for his staff and a different story for me and Mr Harris”. He again emphasised the “keen decision” comment of 24 March. He accepted, however, that Mr Chong was correct in his memo to Mr Leung on 5 April referring to the meeting on 1 April that he had “told Fava and Harris that it was very unlikely that you would purchase the EL project at valuation” but said that comment related to the amount of the valuations not a reluctance to purchase the whole.

[116] Similarly, the memo did not detail the report to Messrs Leung, Fava and Storey (then a Bell Gully commercial partner) of 25 March 1999 of his telephone discussion the previous evening with Mr Leung proposing a meeting. The purpose of the meeting was said to be “to reach final agreement and bring to contract the arrangements between the parties in respect of the expansion development land on the terms he set out including the agreement protecting the joint venture as to leasing purchase price and related matters”.

[117] It is pertinent here to say a little about the dispute between Messrs Philip and

[118] They had undertaken the original Pacific Plaza development together but had fallen out. Settlement was finally achieved between them. That required that in April 1999 – an earlier settlement date having been missed - a company owned by Mr Philip Fava called Imatra would be due to pay what it owed, $2m, to Facility Finance, a company owned by Mr Noel Fava. That debt was secured by a mortgage over Imatra’s shares in Cachinal and fell due for repayment on 30 March 1999.

[119] Messrs Noel and Philip Fava had an acrimonious meeting on 25 March 1999 which left Mr Philip Fava in no doubt that in the event of default by Imatra on

31 March in payment of the $2m owing to Facility, enforcement proceedings for that and a further $250,000 due on the day of the meeting would swiftly follow.

[121] Mr Fava said Cachinal shares and thus the share mortgage were worthless. That notwithstanding, he “considered some deal with Noel Fava would be able to be negotiated over the $2m debt”.

[122] Cachinal was therefore at least potentially in default of the joint venture agreement by 10 April so the only possible way out would have been to do a deal with Mr Noel Fava – and Mr Fava accepted nothing in the documents indicated that as being likely – or pressuring Aral into an unconditional purchase.

[123] On 13 April Facility (and Fava SportsCar World) appointed a Mr Meltzer director of Cachinal under the share mortgage. (He resigned on 26 April because the company’s financial position was “significantly more precarious than ... I understood”).

[124] Mr Leung said he would have expected Mr Harris to alert him to all of that in March 1999 if not earlier. He noted that, whilst pressuring Aral to commit to purchasing the ELD or for the joint venture to do so, Cachinal and its shareholder were insolvent.

[125] On 27 April Mr Harris telephoned Mr Fava – then in Singapore - to say Facility (and Fava SportsCar World) were threatening to place Cachinal in liquidation. Mr Fava decided to ignore the threat.

[126] Cachinal’s shareholder put the company into liquidation on 28 April 1999. It remained in that state until 22 July 1999.

[127] The four participants in the Singapore meeting met in Auckland on 10 April

1999. By that date Matam had bought the expansion land, signed an unconditional agreement to lease with The Warehouse and obtained the letter from Deka indicating interest in leasing space within Pacific Plaza. But Mr Leung said that issues still at large included the condition relating to rental in the Bank’s offer to Aral and Cachinal to provide expansion development finance and his doubts as to Cachinal’s ability to fund its share of the purchase.

[128] The claim asserted that at a meeting on 10 April 1999 in Auckland, Mr Leung refused to have Aral perform in accordance with the “representation ... to negotiate a sale and purchase agreement in relation to the expansion project in good faith”. The claim asserted Mr Leung proposed that Aral and Churchill enter into a contract with Matam for the sale and purchase of the ELD to enable Matam to raise construction finance to embark on the development but there “would have to be a side letter between Aral and Matam in which Matam acknowledged it had no right to call upon Aral to perform the contract”. This proposition was described as a “fiction contract”.

977. Mr Leung said Aral would be buying the ELD and Aral would be entering into a sale and purchase agreement and the sale and purchase agreement would be a proper sale and purchase agreement but this deal would be a bit different.

979. Mr Leung said the sale and purchase agreement would be a proper sale and purchase agreement so I could take it to ANZ Bank and use it to borrow the construction finance for the ELD ... and if ANZ checked with HSBC they would again learn that the contract was a real deal because they were going to provide Aral/Cachinal with the finance to perform it ...

980. Mr Leung said that what would be different about this deal was that there would be a side letter. There would only ever be one copy of this side letter. It would be signed by me for Matam. It would say that the contract

was not a real contract and that Matam could never call upon Aral to perform the contract. Mr Leung said Aral would never perform the contract. Aral would never do the due diligence. Aral would not be negotiating at all to convert the MOU to a sale and purchase agreement.

981. Mr Leung said the sale and purchase agreement would be a proper sale and purchase agreement and the side letter recording it was not a real contract was to be top secret and the one copy would be held by him and Mr Storey was never to be told about this and Matam’s lawyer was never to be told about this.

982. I expressed surprise. I said we had an MOU. I said there was to be good faith negotiations to convert the MOU to a sale and purchase agreement. Now I was being told there would be no negotiations at all.

[130] After Mr Leung repeated that, he said he asked Mr Chong to explain and was told “Mr Leung will give you a contract that is not real contract the contract is fiction contract for you to take to ANZ Bank and use the credit to build”.

[131] Mr Fava said he expostulated, telling Mr Leung that what he was proposing was criminal and he was not intending to jeopardise his position in life by using a false document to raise money.

[132] Mr Fava’s version of the “fiction contract” in an affidavit he swore on

16 October 2002 in support of the plaintiffs’ ex parte Anton Piller application read:

90 Next Mr Leung explained Aral would not be buying into the expansion land development with Cachinal at any price. Mr Leung said Aral would enter into a contract between Aral and Cachinal as buyer and Matam as seller with a due diligence clause and Matam could use that contract to go to its Banker ANZ to borrow $10m for construction but there would have to be a side letter between Aral and Matam in which Matam acknowledged it had no right to call upon Aral to perform the contract. Indeed Aral would never perform the contract. Indeed Aral would never even do the due diligence. Aral would not be moving from MOU to contract as agreed under the MOU. No reason was given.

91 I expressed surprise at this. I asked Mr Leung to explain what he meant but his explanation was unclear. I turned to Mr Chong and I asked him to explain to Mr Harris and I in words of one syllable what Mr Leung meant. Mr Chong said it was like this. Mr Leung would give me a contract that “is not a real contract”. Mr Leung would give me, to use his words, a “fiction contract” for me to “take to ANZ Bank and use to obtain the credit to build”. Mr Chong appeared to me to be extremely embarrassed to be saying this.

I said I would be doing no such thing. I said I expected Aral to honour the MOU just as Churchill and Matam had.

[133] Concerning the “fiction contract” Mr Fava accepted that in both Churchill’s first and second statements of claim filed on 12 December 2001 and 12 December

2003 respectively, there was no allegation of Aral resiling from the MoU. Mr Fava acknowledged a draft amended claim dated 4 February 2004 was the first pleading reference to a “fiction contract”, an allegation that was particularised in the third draft claim dated 17 December 2004. But he pointed to supporting comments in his affidavits, beginning in October 2002 and Mr Harris’ affidavit of the same date in support of the Anton Piller application. At the substantive hearing, Mr Fava said nothing in the affidavit was inaccurate.

[134] He accepted his interests required an unconditional contract to raise construction finance and claimed that what Mr Leung proposed was a fraud on the ANZ Bank. Mr Fava claimed it was “generally understood between October 1998 and the time we got around to good faith negotiations that there would be a due diligence clause, a narrow due diligence clause” but was unable to remember whether Mr Leung said the clause would be narrow. And there was nothing in his brief, nor any reference in the documents, describing the type of due diligence clause Mr Leung would have accepted. The following exchange then ensued (p293):

“Q. Can you point to a single reference in any document, including your brief, that indicates any description of the due diligence clause Mr Leung referred to?

Q. So the suggestion of a particularly narrow one is something you’ve simply made up today?

A. No. Clearly understood between Oct 1998 and the time we were going to have but did not have the good faith negotiations in April of

Q. Why, on such an important issue is today the first time you have referred to this further description?

A. Which “description” Mr Miles?. The word “narrow” or the “due diligence clause”?

Q. Why was that NEVER mentioned by you in ANY document, affidavit, statement of claim or brief of evidence?

A. Clearly understood Mr Miles - it’s an omission or an error. That’s unfortunate. But it’s the facts.

Q. Well I’m bound to put to you, Mr Fava, that you had realised the conceptual problem you were faced with, namely the admission that the contract was a conditional contract, and that this is a last minute add-on to your evidence today to get around that fundamental flaw in your argument?

Q. And that any suggestion to the contrary is a blatant lie? A. WRONG, Mr Miles.”

[135] After the offer of the “fiction contract” Mr Fava’s brief said Messrs Harris and Chong drafted an agreement for sale and purchase. It provided for Aral and Cachinal to buy The Warehouse and retail tenancies on the same level when the development was undertaken plus the mezzanine and carparking for $12m and it was conditional on the joint venture completing due diligence within 14 days of receipt of documents and said they “may in their discretion resolve not to proceed if they are not satisfied with it”

[136] Mr Fava disputed that form of due diligence may have been what Mr Leung intended. He said the document was “damage control”.

[137] Mr Fava admitted he made no note of the 10 April meeting – in particular the

[138] As to the terms in any contract for the sale and purchase of the ELD which might have been negotiated on 10 April 1999, he said he would have expected a due diligence clause, warranties and agreement as to price. Due diligence that resource consent had been obtained and complied with was one example, as were that plans and specifications had been complied with and building consent obtained with settlement a certain number of days after the certificate of practical completion.

[139] Mr Fava strongly denied a contract with a due diligence clause was a conditional contract because he said the due diligence requirement was a term of the contract. Asked why, if the contract contained a due diligence clause, Aral would have needed a side letter to opt out, Mr Fava said that the “due diligence that was anticipated under the good faith negotiations ... was always intended to be narrow” and limited to satisfaction that the ELD was built in accordance with the resource consent and the plans and specifications and The Warehouse had entered into an agreement to lease.

[140] He was asked whether the plaintiffs’ case was that the representation was that there would be good faith negotiations necessarily resulting in an agreement for sale and purchase or, good faith negotiations, one of the outcomes which might be an agreement for sale and purchase. He said it was number two.

[141] That notwithstanding, after the proposition was put to him on a number of occasions, he said “Yes” to the question “Is your evidence that Aral never intended to buy any part of the ELD?”.

[142] Mr Harris’ version of critical events at the 10 April 1999 meeting was initially:

237 Mr Fava then talked about Aral and Cachinal purchasing the ELD and he gave a brief recital of events in Singapore and subsequently relating to the MOU and the ELD.

238 Mr Leung said that Aral would enter into a contract to buy the ELD but with a twist. Mr Leung provided an explanation of what he was prepared to do. Mr Leung said he was prepared to have Aral enter into a normal contract for Aral and Cachinal to buy the ELD from Matam and Matam could take that normal contract to its banker ANZ Bank and use it to borrow the construction finance but this contract would be a bit different. There would be a side letter. That side letter which only he would hold a copy of would record that Aral was not bound under that contract and Matam could therefore not enforce it. He said that Aral would not be doing any due diligence in respect of the sale and purchase contract. In other words, the “normal” sale and purchase contract was a sham.

Mr Chong replied that Mr Leung was offering a “fiction contract”. I remember Mr Chong being animated when he said this. Mr Fava said he would not be entering into such an arrangement. I remember that he stood up and left the room.

240 I spoke to Mr Leung further but he would not budge from his position. I can recall that I did not want anything to do with such an arrangement. Mr Leung had himself suggested that Mr Fava take the “fiction contract” to ANZ Bank and use it to arrange Matam’s construction finance. I remember all of this because I considered my position as the director of Cachinal. Cachinal would also be entering into that deal. It would have amounted to fraud on Matam’s lender of construction finance ANZ Bank. McCaw Lewis Chapman banked with ANZ Bank and I had undertaken commercial work for ANZ Bank in the Waikato area. I was not going to be part of this conduct.

[143] He said his comment about the offer being inconsistent with the MoU was because the MoU was for more than just The Warehouse, even though he accepted that under the MoU Mr Fava could change the components of the ELD to be offered to the joint venture and there was no legal commitment by the joint venture to make any offer.

[144] That notwithstanding, he took the view that Aral’s offer to buy just The Warehouse was not made in good faith, even though buying The Warehouse only would have been consistent with Aral’s investment policy.

Q. Was there anything to suggest that the offer by Aral to buy that part of the development was not in good faith?

A. I don’t know the answer to that, Mr Miles. It’s just inconsistent with the MOU.

Q. When the MOU was signed the parties anticipated the joint venture being offered The Warehouse area, the retail area, the library area, and the office block. Correct?

Q. By the time March and April had been reached, Mr Fava was offering ONLY The Warehouse and the retail elements?

Q. If Mr Fava is able to fundamentally change the development that was being discussed in October, why is the joint venture not entitled to pick and choose what, if any, parts of the development it would buy?

A. It could do that. It could do that. It could raise that, and it could be discussed – which it was.

Q. The REAL: problem, I suggest, for Mr Fava was that buying The Warehouse part of the development would not assist him in getting funding for the rest of the development?

Q. And, without funding for the rest of the development, he was never going to get funding for The Warehouse?

Q. And the reason YOU were rejecting the proposition was because you knew it didn’t work for Mr Fava?

Q. Once again, you were wearing Fava’s hat, weren’t you? A. Not necessarily, Mr Miles.

[146] He was referred to his Anton Piller affidavit and accepted it was a deponent’s obligation in ex parte matters to provide the Court with all appropriate information. After initially saying he read that affidavit before preparing his brief, he then said he only read it afterwards.

[147] Paragraph [238] of Mr Harris’ brief was earlier cited. He accepted in cross- examination there was no reference in his Anton Piller affidavit to the incident. That said:

53. Next Mr Leung explained he would not be buying the expansion land at any price. Mr Fava seemed visibly surprised by what Mr Leung said. I was too. Mr Fava asked Mr Leung to explain but his explanation was also unclear. Mr Fava then asked Mr Chong to explain and Mr Chong said Mr Leung would give Matam a contract but the contract would be a fiction contract and there would have to be a side letter that Aral would never have to perform the contract but Matam could use the contract to go to its bank ANZ and borrow $10m for construction.

54. Mr Fava said he would be doing no such thing. He expected Aral to honour the MOU he said. Mr Leung seemed completely unfazed by the concept of Mr Fava taking this so-called contract to the bank to borrow $10m. Mr Leung seemed to think this was acceptable commercial practice.

[148] Mr Harris had to accept there was no counterpart in his brief to the affidavit statement that Mr Leung said he would not be buying the expansion land at any price.

[149] He accepted that in his affidavit he said it was Mr Chong who explained about the fiction contract but his brief attributed that statement to Mr Leung. He said that discrepancy was not material.

[150] Mr Harris was unable to recall why his brief omitted reference to those matters, accepting his memory of events when swearing the 2002 affidavit would have been better than when preparing his brief in 2006. Because of that, he agreed the 2002 version would be more reliable.

“Q. What has been fundamental in Mr Fava’s case as presented at this hearing is that it was Mr Leung that stated that Aral would enter into a conditional contract and it was Mr Leung who offered the side letter?

A. No, because it says: “Mr Fava then asked Mr Chong to explain” and “Mr Chong said Mr Leung would give us this”. That is the explanation to what has already taken place.

Q. What took place prior to that, according to your affidavit, was a statement by Mr Leung that he would NOT buy the expansion land at any price?

Q. And that you couldn’t understand his explanation! A. Mr Fava asked him to explain.

Q. Well, how do you say those 4-5 lines of yours in that affidavit confirm that it was Mr Leung that offered the side letter?

A. Mr Leung offered it. Mr Fava asked Mr Chong to explain what he was doing, and Mr Chong said “It’s a fiction contract”. That was his explanation.

Q. There is NO indication in your brief that that is how those statements were made, is there?

[152] Mr Harris confirmed that - despite his professional training - he took no notes at the 10 April meeting. He said his brief was compiled from his recollection and

discussions with Mr Fava. He changed his brief after seeing Mr Fava’s. He was unable to recall if he altered his brief as a result of suggestions from Mr Fava although it was possible. Any alterations were not to make the two briefs mutually consistent. The form of his brief followed sending the entire draft to Mr Fava and discussing it with him. He then said he did not recall whether he had looked at the affidavit before or after drafting his brief but any discrepancies between the two did not occur to him. He denied that he had “twisted [his] evidence in favour of Mr Fava” accepting that, had he done so, it might amount to perjury. This aspect of the evidence is further detailed elsewhere.

[153] That notwithstanding, he was unable to recall if Mr Leung offered a conditional contract or offered to buy The Warehouse, even though there would have been nothing unexpected on that score. He accepted the contract would have been conditional on Aral undertaking due diligence and it could accordingly have declared itself unsatisfied and walked away. He knew such a contract would be useless for Matam to raise construction finance.

[154] He was unable to provide any commercial or legal rationale for a side letter alongside a conditional contract.

[155] Mr Harris accepted he never wrote to Aral complaining of Mr Leung’s conduct at the 10 April meeting, either then or later. When it was put to him that Mr Leung’s denial of ever using the phrase “fiction contract” and suggesting a side letter was more likely given his acceptance of Mr Leung’s attitude in the lead up to the meeting, his lack of contemporary notes, and his immediate decision to prepare a conditional contract and the failure by Mr Fava himself to refer to the claimed fraud for a lengthy period, Mr Harris simply denied that probability (at p546):

Q. On several occasion you have told me today that on several occasions between, I think, the 24th of March and the 10th of April, Mr Leung indicated to you that Aral would be prepared to buy The Warehouse part of the Expansion Land Development?

Q. And would it not have been a whole lot more honest to have said in this affidavit: “Yes, Mr Leung DID make several offers to buy The Warehouse but not of the whole development?

[156] He was unable to recall why he did not write a letter on Cachinal’s behalf to Aral expressing his shock that a joint venture partner would offer a fraudulent deal. He accepted it was almost inevitable the fraud would be discovered, Police action against Mr Leung would follow and, at the least, Mr Leung would lose his job.

[157] The draft agreement Mr Chong and he prepared later on 10 April was to see if there was still some opportunity to finalize a deal. He accepted the broad due diligence clause the draft contained was the type of clause to which Mr Leung had been referring. But he denied the draft was in line with what Mr Leung had offered because it was conditional and Mr Leung had offered an unconditional contract.

[158] He accepted Aral had the perfect opportunity to buy Cachinal out once it was in liquidation but in fact did everything it could to free Cachinal from that status, even co-operating to ensure Mr Harris’ long outstanding directors’ fees were paid.

[159] In the run up to the 10 April meeting, Mr Chong accepted Mr Leung and he knew there had been no work done on the ELD as the hotel was still standing; Mr Fava had failed to get a construction loan to proceed with the development; the bank wanted at least 75% pre-leasing; Aral was not interested in buying retail space other than The Warehouse, and then on a conditional contract; Pacific Plaza was performing badly; Mr Fava had failed to get the tenancies hoped for in the Pacific Plaza and none for the ELD apart from The Warehouse; Churchill had defaulted on its rental guarantees; and the Superstore had no tenants. All of that notwithstanding he said Mr Leung said Aral “was not buying the project at all”. The proposition that Aral bought The Warehouse alone was mentioned but “The Warehouse subject stop at that because quite clearly the other party don’t want to sell Warehouse”. In fact he went as far as to say The Warehouse was not discussed on 10 April.

[160] That notwithstanding, he asserted Mr Leung made no offer for a conditional contract to buy the retail area and in fact there was no “contract offer” at all. Due

diligence was never mentioned at the meeting, nor was a contract between Aral, Cachinal and Matam.

[161] When asked why Mr Leung might offer a fraudulent “side letter” advantaging Mr Fava, Mr Chong said “it stop at my level to ask [Mr Leung] questions”. He elaborated on what would seem to have been a slightly earlier incident when Mr Leung was angry because Mr Fava was not respecting him and said he might give him a contract but “definitely with a side letter Aral would walk away”. Mr Chong said “he always use the word ‘side letter’” but immediately had to accept he had never given such evidence before.

[162] He explained the lack of detail in his brief as to occurrences at the principal meetings by saying he was just the joint venture administrator who was “very much doing a statement for the counsel [sic.] to read” and that “once I put in my statement I just simply want to strike it out ... if they think that being an issue for everybody I strike it out now”.

[163] He was then taken through the statements in Mr Fava’s 16 October 2002 affidavit which he had confirmed as truthful. Discrepancies between that and his brief were pointed out to him. As an example, he acknowledged Mr Leung did offer a contract between Aral and Cachinal and Matam on 10 April despite his trial evidence that a “contract” was never mentioned. The discrepancy between Mr Fava saying the contract would have a due diligence clause in it and Mr Chong’s saying there was no mention of due diligence produced the response “I remember wrongly again”. Had there been a discussion on due diligence and the contract was thus unconditional, he agreed there was no rationale for a side letter.

“Q. Why would anyone describe such a contract as a “fictional contract”? A. To me, if Mr Leung mention he want a side letter I then, in my own

English language, I say it is a fiction contract. It only come to my mind in my language that it say it don’t mean any impact on that.

Like you say, you have all the contract to do it. To me any contract that need a side letter, it is a fiction contract in my own

[164] Mr Leung said Mr Fava pushed for an unconditional agreement for the joint venture to purchase the whole of the ELD and, even though the meeting became heated, Mr Leung adhered to an offer to buy The Warehouse space and enter into a conditional contract for the balance. Mr Leung said :

694. Philip Fava and Philip Harris also allege that during the meeting I suggest that Aral and Cachinal enter into a fictitious agreement with Matam to purchase the Expansion Land Development and that Matam could then use this fictitious agreement to obtain construction finance. Once again, I deny this allegation. I made it clear to Philip Fava and Philip Harris that I was only prepared to recommend to the Aral Board that Aral and Cachinal purchase the department store to be leased to The Warehouse. Any other agreement would have been very conditional.

Aral had no incentive to participate in such an agreement. This would have been entirely for the benefit of Matam. Furthermore, any provider of construction finance would inevitably discover the fraudulent nature of such an arrangement, if Aral and Cachinal later refused to purchase the Expansion Development.

696. I also note that the allegation is that it was Chong, not me, that used the words “fiction contract”. I do not believe he said that. I would recall any suggestion by Chong that I was prepared to enter into a fraudulent contract. My memory is that Chong said very little at this meeting, while Philip Harris and Philip Fava got very angry with me.

697. A possible explanation for the “fiction contract” allegation is that Philip Fava and Philip Harris misunderstood or misinterpreted what I was saying when I suggested we enter into a conditional deal. ...

699. I am certain that there is no way I would have offered to assist with a fraud on a bank to enable Philip to build his ELD. It is completely contrary to my business ethics and principles. HSBC would have found out and told everyone in the HSBC Group, including Dr Sohmen and my former colleagues at World-Wide Shipping. My career would be ruined.

702. Finally, I note that there would have been no benefit to me or Aral from this so-called fiction contract. I would have been risking everything for nothing. The allegation is nonsense.

704. As I have already explained, an unconditional deal was just impossible. I don’t know why they wouldn’t consider the proposal of a conditional contract. It was a genuine offer. I even offered to have just Aral purchase The Warehouse if Cachinal could not afford it. These offers were refused. I can remember telling everyone at the meeting that if they thought it was such a great development, they should go ahead and build it without the assistance of the JV. I can remember being told that this was not an option for Matam, or words like that.

705. It has also been alleged that my conduct at this 10 April meeting meant that I “resiled” from the MOU. I do not understand this allegation. Philip Fava and Philip Harris had known for two weeks that we were only interested in buying The Warehouse at this stage.

... I am sure that Philip Fava and Philip Harris knew well in advance of this Saturday morning meeting that I did not want to buy the

October 1998. I understood that we were all trying to negotiate a deal that made commercial sense to everyone. That is exactly what I was trying to do.

[165] Mr Leung said he made clear to Mr Fava the concept he was offering was quite different from that in contemplation when the MoU was signed, and reiterated Aral was an investor and was not interested in a proposition that was not generating acceptable income.

[166] He denied any mention of a side letter, of which there would only be one copy, and that it would not be a real contact and Matam could never call on Aral to perform. He not only denied that: he never said it.

[167] He denied saying Aral would not be negotiating at all to convert the MoU to a sale and purchase agreement.

[168] He said Mr Fava was wrong to say that there were to be good faith negotiations to convert the MoU to a sale and purchase agreement but on 10 April he told him were there would be no negotiations at all. Aral had offered and repeated The Warehouse deal and the conditional contract and Mr Fava was well aware of it. He did not recall Mr Fava asking Mr Chong to explain the proposition in words of one syllable. He vehemently disagreed with Mr Chong’s evidence about the “side letter” and the “fiction contract”. That was Mr Chong’s phrase. Mr Leung had said that if they continued to put pressure on him he would stop doing any negotiations.

He said he was right and the other three were wrong in their recollections of what transpired at the meeting.

[169] The suggestion Matam would come to Aral on completion for settlement but would be met by the side letter saying the agreement for sale and purchase would not be enforced, produced Mr Leung’s response:

“It would NEVER go to that stage because the bank would do their due diligence first before they lent the money to Matam”.

“I’m sure here in New Zealand I think that all banks would have to do their due diligence to ensure everything is proper rather than just based on a piece of paper which on the surface was a contract”.

[171] The fact that these were hypothetical circumstances was put to him and he again said the bank would –

“do their utmost due diligence to check through all the papers, disregarding the side letter, to ensure the position was that before they lent the money out.”

[172] When it was put to him he would have had Mr Fava at his mercy because he would not have been able to reveal the side letter, he said:

“This would never occur to my mind. But since you have asked me on your assumption, based on your assumption, I can only tell you that this would never happen here in New Zealand. No, No, today. Final stage.”

[173] Finally it was put to him that this was what he had in mind and that those would be the consequences “if Mr Fava was silly enough to accept the fiction contract which you advanced” he answered “Never in my mind, no”. He then said he did not accept he never had any intention of engaging in good faith negotiations.

[174] Mr Leung’s evidence was that after he had said Aral and Churchill might assist Matam by agreeing to buy the department store component alone and look at other tenanted components in the future :

[Mr Fava] insisted that Aral should do more to ensure the success of the Expansion Development by entering into an unconditional agreement to purchase all of the retail components of the development to enable Matam to raise construction finance. I said that this was totally unacceptable and I would not recommend this to the Aral Board. I told Mr Fava that the best that I could do would be to consider a very conditional contract for the joint venture to purchase the development. I said that amongst other conditions any agreement would be conditional on approval by Aral’s board. I said I would look at any proposal they wanted to prepare but that they must understanding Aral’s position. I warned Mr Fava that if he continued to pressure and threaten Aral, then we would terminate negotiations altogether.

The meeting became quite heated as Mr Fava reacted to my response. Both he and Mr Harris continued to pressure Aral to enter into an unconditional agreement to purchase the entire development, other than the residential apartments. They told me that this was essential to enable Matam to secure construction finance. I was unmoved. ...

Mr Fava and Mr Harris ... allege that during the meeting, I suggested that Aral and Cachinal enter into a fictitious agreement with Matam to purchase the Expansion Development and that Matam could then use this fictitious agreement to obtain construction finance. Once again, I deny this allegation. I made it clear to Mr Fava and Mr Harris that I was only prepared to recommend to the Aral Board that Aral and Cachinal purchase the department store to be leased to The Warehouse. Any other agreement would have been very conditional.

To enter into such a fictitious contact would have been fraudulent. Aral had no incentive to participate in such an arrangement. This would have been entirely for the benefit of Matam.

[175] Later that day Messrs Harris and Chong produced a draft for the joint venture to buy the ELD from Matam for $12m and on 12 April Mr Fava sent Mr Leung notes detailing his proposals for the contract and the future of the joint venture. Neither document even hinted at the suggested “fiction contract”. Mr Fava said his proposal was “damage control”. Indeed, he applied that label to all the plaintiffs’ negotiations with the defendants over the period until about March 2000. Of importance, he accepted there was no mention whatever of the “fiction contract” or “side letter” in any document or, apart from Mr Leung’s brief of a Singapore meeting in late April 1999, in any of the evidence concerning what occurred throughout this period. Similarly, there was no hint in the documents of what the

plaintiffs pleaded, namely that Aral wholly resiled from the MoU in the 10 April

[176] On 21 April, Mr Fava went to see Mr Ronald of HSBC which led to an indicative construction finance proposal on 22 April. Mr Fava said nothing to Mr Ronald about the “fiction contract”, side letter or about Aral resiling from the MoU. The HSBC offer was conditional on the joint venture buying the whole ELD other than the library for at least $10m.

[177] Mr Fava flew to Singapore on 24 April. He gave Mr Leung no prior notice but spoke with him, appealing to him to do “some kind of deal that was highly advantageous to Aral but still allowed me to arrange the finance necessary to get the ELD under way”. Mr Leung refused and, according to Mr Fava, threw a telephone at him when told there would be litigation. Mr Leung then left but returned later that day with Mr Chong with a proposal to buy the ELD at $6m with no minimum leasing or $8m with a minimum leasing requirement. Mr Fava said that was no good to him.

[178] Mr Fava said he then “chanced my arm” by telling Mr Leung about the financial problems of Churchill, Matam and Cachinal. He said Mr Leung reacted positively saying he wanted to put a deal in place and would send Mr Chong to discuss it.

[179] Perhaps surprisingly, it was Mr Leung who said the “side letter” assertion surfacing during these meetings. He said:

727 I can remember that Philip was upset when he was talking to me. He was angry and yelling at me. He referred to the MoU and how Aral had to do a deal. He talked to me about the meetings we had earlier that month. He claimed that at that earlier meeting, I had offered him a deal with some sort of undisclosed side letter. This was the first time that he had made that allegation. This suggestion was nonsense.

729 Philip Fava alleges that I threw a mobile phone at him at one of these meeting. I did no such thing. I have never thrown a mobile phone at anyone ...

Q. So you claim, do you, that at this first meeting in the morning he accused you of having offered the fiction contract?

A. Yes, fiction contract, side letter. I cannot remember. I think he mention about the side contract, sorry the side letter, and all sorts of things which he alleged me, doing it on the 10th of April 1999. And I remember saying to him is that “If you come for that purposes you better not talk to me. You’d better talk to my lawyer, Tim Storey”.

Q. Did he threaten legal proceedings against you personally? A. I think he did mention that, yes.

[181] The meeting between Messrs Fava and Chong occurred on 28 April but the deal was much as before. Messrs Fava and Leung met again on 29 April. Mr Leung confirmed what Mr Chong had proposed previously and said he would assist in arranging finance and Mr Fava would have to work hard to lease the complex. Mr Fava expressed his gratitude in a handwritten note to Mr Leung that day.

[182] Mr Leung put in evidence what he said were notes of a Ms Chin summarising the meetings with Mr Fava in Singapore on 27-29 April 1999. Mr Fava said the contents were “almost entirely invention” and took the view that “this note is a creation as recent as after these proceedings were served”.

[183] The meeting between the parties in Singapore in late April 1999 and the Chin note, were the subject of extensive submissions by Mr Fava on 16 December 2009, even though it was difficult to link those incidents to the application for the Court not to deliver this judgment. Though some of the submissions were speculation as to what Mr Fava believes Mr Leung and others would have done in response to telephone calls and following meetings, much – including Mr Leung’s cross- examination on the note – was based on hotel and toll records. The Court’s view is that, whatever the circumstances surrounding the terms of the note or the date of its creation, they have virtually no relevance to the matters at the heart of the costs

application. Accordingly, the Court does not intend to traverse that material in detail, but notes Mr Leung was unable in cross-examination to remember much of it and though Ms Chin swore an affidavit at an earlier stage of the claim, she did not give evidence at the hearing.

[184] When Mr Fava returned to Auckland on 30 April he found his brother’s interests had placed Cachinal in liquidation on 28 April. Because the liquidation had not then been advertised, further discussions concerning Cachinal occurred on

[185] At Mr Fava’s request, Mr Leung returned to Auckland on 3 May 1999 to endeavour to negotiate an agreement by which the joint venture partners would purchase the retail components of the ELD on completion, in accordance with a sliding scale price formula.

[186] The liquidation suspended Cachinal’s – and therefore the joint venture’s - power to enter into any agreement to buy into the ELD and was an event of termination in the joint venture agreement. It gave Aral the right to buy Cachinal’s interest in Pacific Plaza. Mr Leung decided not to exercise the right of pre-emption and to assist Cachinal to come out of liquidation. This was not easy and required Aral to consent to arrangements made with Mr Noel Fava’s interests and authorising a cash distribution from the joint venture to enable Cachinal to clear its debts.

[187] Mr Fava advanced his own reasons for Aral not exercising the right. He acknowledged Cachinal’s liquidation was equivalent to the sale notice giving Aral the right to buy Cachinal’s share at market valuation but said “If I was in that position I wouldn’t have done it whilst I owned the expansion land next door”. That was the

“very nub of why the plaintiffs say the defendants perpetrated the fraud upon us. He was frightened, scared stiff, Mr Miles when we owned the land next door. It was a 50/50 joint venture on paper, but in commercial reality it was more like an 80/20 joint venture and the tail was wagging the dog, me being the tail, Mr Miles, a man with not the money but the man with the sales skills and the man with the ownership of the land next door and the man with the first-hand knowledge and the man with the property development skills. He was frightened, scared stiff of me, Mr Miles”.

[188] On 9 June 1999 Mr Fava sent Mr Leung a letter recounting the history of the proposal and seeking a letter from the joint venture supporting the ELD. Mr Fava, Mr Leung said, told him Aral’s sliding scale offer of $6-8m was not enough. On

28 June 1999, Mr Fava wrote to Mr Leung asking him for a Letter of Comfort from Aral in relation to the construction. He was still positive about the project. Mr Leung declined for a number of reasons, not least that the letter Mr Fava drafted for him to sign referred not just to the ELD but also to the joint venture wanting to buy the superstore. However, in a fax from Mr Leung to Mr Fava on 1 July 1999 he said that “as soon as you had leases for the Superstore ... then we can talk seriously about the Superstore land being purchased by Aral and Cachinal” and that although “normally Aral is not in favour of buying real estate that doesn’t even exist at the time of contract”, Mr Leung said he would be “quite happy ... to put together a contract with Matam for Aral and Cachinal to buy the retail component of the finished product” though subject to “full due diligence satisfactory in all respects to Aral” and compliance with Aral’s normal requirements for returns.

[189] Mr Leung provided an amended Letter of Comfort on 1 July 1999 in much less concrete terms. He said:

“Aral as an investor wants a reasonable return in the medium term to achieve rental growth and capital growth; that, as soon as you have leases for the superstore ... we can talk seriously about the superstore land being purchased by Aral and Cachinal”:

[190] Mr Fava responded on 2 July 1999 speaking of a possible “$20m write-off”

[191] On 16 July 1999 Mr Fava wrote what he described as a “stern warning” letter to Mr Leung. It rehearsed the history including the necessity for “all parties to act in the utmost good faith” when the MoU was signed but although it recounted the

$6m/$8m proposals for purchase of the ELD and forecast dire results if the development did not proceed, it did no more than urge Mr Leung to participate by agreeing to the joint venture buying the ELD at $12.4m conditional on 75% leasing.

[192] Mr Leung responded on 19 July 1999 setting out his position and saying he could “see no point in us renewing negotiations”. No reply was received.

[193] Cachinal was removed from liquidation on 22 July 1999. But by that time Churchill and Matam were in financial difficulties. On 1 July 1999 Treasury Group Ltd issued statutory demands to Churchill and Matam for amounts unpaid under a settlement of earlier statutory demands and on 2 July 1999 the Pacific Plaza designer applied to put both companies into liquidation for non-payment of fees. On

[194] Mr Fava flew to London to see Mr Leung on 6 September 1999 and stayed about a fortnight. Mr Fava said he found Mr Leung’s behaviour “unattractive” to the point where he covertly taped some of their conversations. He tried – unsuccessfully- to persuade Aral to buy the Superstore to avoid the ANZ Bank’s threatened mortgagee sale but finally returned with “no damage control deal”.

[195] On 6 October 1999 HSBC wrote to Mr Harris requiring the principal reduction due from Cachinal and Aral to be paid. Mr Harris said he reached the view the letter was a “setup” and as a result, after discussion with Mr Fava, Mr Harris telephoned Mr Storey as the joint venture and Aral’s lawyer and said:

I told him that I knew about the Dr Sohmen connection. I told him about the HSBC letter of 6 October 1999 and Aral and Mr Leung’s behaviour over the last eight month period. I told him that all of this would become public and that if Mr Leung wanted us all to go away he had better purchase out Cachinal’s interest in Pacific Plaza and quickly.

[196] He was then challenged on the statement in his brief that “HSBC acted upon Aral’s instructions”. He accepted that, as a commercial lawyer who occasionally acts for banks, it was a serious allegation to suggest that a bank would act in an inappropriate way under instructions from a customer. He denied that was what the quote meant, but that the phrasing of his brief is “not put as well as it should be” and that he had not “put it in the right words” or “described it accurately”.

[197] He then was challenged on his statement that “Aral had a very close relationship with HSBC and because of the Dr Sohmen connection was likely to be

able to exert some influence on HSBC”. He accepted the proposed evidence from the HSBC representatives that Dr Sohmen’s connection with HSBC made them, if anything, more conservative than normal in their dealings with Aral but said “that was a typical banker’s response”. He also accepted there was no evidence that HSBC’s New Zealand representative received any pressure or contact from outside New Zealand in their operations of the bank and acted throughout in accordance with normal Head Office requirements.

[198] After being referred to other matters which led him to the view that Aral and Mr Leung influenced actions at HSBC, he was referred to the affidavit made in support of the Anton Piller application in which he said :

“I believe that without restraining orders Mr Leung will use his significant influence with HSBC and with BDO to obtain and place documents beyond the jurisdiction of the Court.”

[199] Mr Harris accepted the seriousness of such fraudulent allegations particularly with the implication that HSBC and BDO Spicers would be complicit. He said the assertion was based on his belief that (pp 555-556):

“... because of the relationship between the Bank and Dr Sohmen and Mr Leung and the fiction contract and the purchasing of Cachinal’s interests, that Mr Leung had the ability to use that significant influence to obtain and place those documents.

Q. To get the Bank and accounting documents, and to take them out of the jurisdiction?

Q. Do you now regret making those claims, in the affidavit? A. Based on discovery?

[200] On 26 October 1999 Cachinal sold its 50% share of Pacific Plaza to Aral for a little over $12.7m, 10% above valuation, pursuant to an agreement to which

Cachinal, Churchill, Matam and Mr Fava were also parties and under which the joint venture was formally terminated. The agreement provided that no party should have any claim against the other arising out of the ownership, management and administration of Pacific Plaza. Aral relied on that in support of its affirmative defences. That contract settled on 10 November 1999.

[201] Mr Fava explained Aral’s assistance to bring Cachinal out of liquidation and paying 10% over valuation in October 1999 by saying to Mr Miles “Your client didn’t want to pay half of market valuation. Your client hoped to send us completely broke” and (p 300):

11 October 1999 when he mentioned the words ‘Dr Sohmen’ for the first time and Mr Leung couldn’t ring me fast enough.”

Q. Just so I understand the theory – having failed to take the golden opportunity in May 1999 they then waited until October and then got spooked by a phone call?

Q. Mr Leung says that making this fraudulent offer was not only totally out of character with him but would inevitably have been found out, and would have resulted in accusations against him of fraud, against the ANZ, allegations that he set out deliberately to mislead his trusted advisers, Bell Gully, and almost certainly would have led to him being fired. Does that not sound reasonable to you?...

A. And if this court finds that I’m right, by accepting my evidence and that of Mr Harris and that of Mr Chong, then there’ll be inevitable findings, Mr Miles, that three of us are right and one of us is wrong! Or the Court might find three of us are wrong and we’ve all lied in unison, and the other one’s right. That is what this Court has to decide. But if it finds for the plaintiffs, the consequences for the defendants will be very serious.

[202] Mr Fava said after the ELD was sold to The Warehouse for $1.8m on or about 15 December 1999, the superstore land went to a mortgagee sale at about the same time. Aral did not tender but Mr Fava managed to buy the superstore from ANZ using a shelf company Nomoi Holdings Limited. On settlement on

21 February he found Aral carrying out demolition work in part of the common area

in level 4 of Pacific Plaza thus, he suggested, cutting across Nomoi’s rights over the common area. That led to Nomoi obtaining an ex parte injunction on 25 February

2000 restraining Aral from carrying out further demolition work and, taking advantage of some overlap in the titles of the superstore and Pacific Plaza, prevented Aral undertaking further development. The injunction was confirmed on 2 March

2000. Mr Fava then invited Aral to buy the Superstore. Aral did, for $3.27m from Nomoi on 14 March 2000 though the property only had one tenant and had a landlord fit-out obligation.

[203] Mr Fava claimed his interests made about $1m on the transaction. He said he was:

but he did not regard that as taking advantage of a slip-up. He said that contract

“Philip seems to think it was clever of him to buy the superstore with a shelf company, then sue Aral for a technical breach, resulting in Aral having to pay an excessive price to get rid of him. I do not find this conduct clever. It is distasteful and unpleasant.”

2000 thus enabling Elders to sell the land to The Warehouse. It put up a large store which Aral bought in 2003 for $6m subject to the lease.

[207] Mr Fava wrote a letter on Churchill’s behalf on 12 January 2004 to HSBC’s manager for legal/compliance (copied to its Chairman). He gave considerable detail over some 19 pages in which he alleged “collusion between HSBC and Aral to apply pressure” so Cachinal would sell out to Aral and went so far as to insinuate Dr Sohmen was instructing Mr Leung in this matter.

6 February 2004 making it “plain in regard to Mr Leung, the subordinate of Dr Sohmen the HSBC Deputy Chairman, Churchill is alleging fraud, attempted obstruction, prevention, perversion or defeating the course of justice and perjury” and saying Churchill had put matters in the hands of the police. Mr Fava accepted “absolutely” in cross-examination he stood by all those assertions.

[209] Mr Fava’s letter on Churchill’s behalf to the SFO was dated 3 February 2004. It included much of the material previously sent to HSBC. The letter concluded:

Churchill alleges that HSBC has colluded with the investment company of the family of the deputy chairman of HSBC to advantage the interests of the investment company of the family of the deputy chairman of HSBC and to disadvantage the interests of Philip Fava by means of the letter of 6 October

Churchill alleges this conduct amounts to serious and/or complex fraud. Churchill also alleges there have been improper attempts to cover up the

Churchill also alleges there has been significant false and misleading evidence in the civil proceedings surrounding the alleged wrongdoing sworn by the immediate subordinate of the HSBC deputy chairman.

The alleged fraud involves a Bank trading in New Zealand. It is in the public interest that matters be fully investigated.

[211] The SFO responded on 5 February 2004 saying it would take the matter no further.

[212] The next day Mr Fava wrote to Police enclosing all the correspondence though not formally laying a complaint.

I believe the MOU was nothing but a charade to dupe Churchill into securing Deka for the existing Pacific Plaza and to cause Churchill to lend money to Matam and to guarantee Matam’s borrowings so that when Aral resiled from the MOU (the very day after the Deka deal was confirmed) Churchill would face financial difficulties and Cachinal (which was funded by Churchill) would have to sell its 50% of the Pacific Plaza to Aral at less than book value under the pre-emption right in the Aral/Cachinal JV Agreement.

Subsequently, when Churchill was financially stretched to breaking point in October 1999, Aral bought Cachinal out, took the benefit of the Deka deal and let the expansion land development evaporate. In this way Aral got control of 100% of Pacific Plaza with near 100% occupancy (by area when the Deka lease is included). Compared to the some $15m they paid for the first 50% of Pacific Plaza they paid some $12.7m for the second 50% of Pacific Plaza.

I believe that Aral and Mr Leung set out to do this from the beginning. There simply is no sound commercial rationale to otherwise explain their conduct.

[214] The claim then extensively pleaded what happened and six alternative means by which the plaintiffs or some of them would have become the entire owners of the ELD had it not been for the defendants’ actions. It is unnecessary to detail that material save to note that Mr Fava accepted the first claim was entirely posited on his interests buying Aral’s share of Pacific Plaza and making a profit of $25m. It was his position “that Aral would NEVER have bought us out” (p 358) but the reason he did not act at that stage was because he was “too much of a gentleman” and would not “shaft my partners like Mr Leung did to me”. (p 364).

[215] Mr Miles commenced submissions by saying that from the beginning to the end of the case Mr Fava “persisted with allegations of fraud and misconduct against Mr Leung, HSBC, Mr Simpson and Mr Storey and any denial of the allegations was met with a claim of perjury.” Mr Fava’s r 9.75 application ratcheted up his allegations against Mr Simpson to one of being a “corrupt lawyer”. Those allegations, he said, were designed to impugn professional and other reputations seriously.

[216] Because the four main protagonists had completed their evidence and what remained to be heard was important but not central, he submitted the Court could justifiably reach views in favour of the defendants that:

a) Mr Leung intended to negotiate in good faith with Mr Fava’s interests over the ELD when he signed the MoU in October 1998 and did in fact negotiate in good faith by, amongst other things, arranging finance through HSBC, instructing valuers, offering in March/April

1999 to purchase The Warehouse component unconditionally and the balance conditionally, and in actively assisting Cachinal to come out of liquidation later.

c) Mr Fava concealed a number of material matters from Mr Leung, not least his own and his companies’ insolvency and failed to advise Mr Leung of the dispute with his brother.

d) Mr Fava’s various collateral attacks on the defendants and their advisers were without foundation, not least the “baseless and outrageous allegations” to HSBC’s London office in early 2004 and his complaints to the Police which were “particularly vicious and vitriolic” and “little short of blackmail”.

e) Mr Miles also submitted a further element in Mr Fava’s conduct relevant to the costs application was his repeated assertions of criminal conduct on the part of the defendants and their advisers. It was, he submitted, a key component of Mr Fava’s strategy – and one adopted by counsel –designed, Mr Miles suggested, to try and force the defendants to settle.

[217] Mr Miles pointed to the allegations of deceit by Mr Leung having not appeared in the claim until years after the alleged events but never resiled from since. He submitted the Court must take accusations of moral impropriety seriously

(White Industries (Qld) Pty Ltd v Flower and Hart [1998] FCA 806; (1998) 156 ALR 169). When such allegations are found baseless, he submitted the Courts would “readily condemn those who perpetrate the allegations because of the significant harm that even alleging misconduct can produce”. He said the defendants seek “full exoneration” in light of the “seriousness and sheer number of allegations” of improper conduct made against them.

[218] Mr McBride, junior counsel for the defendants, dealt with the background to the claim, canvassing the evidence and documents in detail. With no disrespect to counsel, it is thought necessary only to refer to some of the salient points:

a) Mr Fava’s dispute with his brother was of long standing and, on settlement, resulted in the mortgage over Imatra’s shares in Cachinal and other debt, all totalling, with interest, nearly $2.5m owing to Mr Noel Fava’s interests with a due date which, as it happened, largely coincided with the major discussions between the parties in this claim in April 1999. None of that was disclosed to Mr Leung and Aral until after Mr Noel Fava liquidated Cachinal. How Mr Noel Fava’s interests could be repaid was never clear since Mr Fava admitted Churchill was insolvent for many years thus leading to Mr Fava’s comment that it was “grossly irresponsible of bankers to lend me the money”.

b) Churchill and Cachinal’s insolvency and inability to meet their debts was long-standing and resulted in numerous defaults. As Mr Thomas conceded in evidence, by early 1998 Mr Fava was facing total ruin; it was “ELD or bust”. Despite promises to tenant the development, The Warehouse was the only signed agreement to lease at critical times.

c) When the joint venture was signed Churchill agreed it would not deal with the land other than in good faith and in a manner not inconsistent with Aral’s and Cachinal’s rights. It breached that.

d) At about the time of the MoU and afterwards, contrary to obligations under the joint venture, Messrs Fava and Harris threatened to poach tenants for the new development.

e) Mr Fava was simply without the means to begin constructing the ELD without an agreement for sale and purchase to take to a construction financier. Thus he had to persuade Aral to sign an unconditional contract in orders to fund the building.

f) Pre-leasing was a major issue in evidence, with the plaintiffs’ witnesses insisting the understanding was there would be no (or not more) pre-leasing prior to construction commencing. Mr McBride submitted there was no document which supported that understanding and much evidence to the contrary, including Mr Fava’s own notes.

g) During the 1998 Singapore meetings Mr Leung expressed qualified interest in Aral acquiring a half share of the ELD - an observation which he honoured but which ultimately resulted in allegations of deceit against him. The “non-legal binding” MoU simply described the process by which the parties would obtain valuations to see whether agreement could be reached. All participants acknowledged that to be its meaning.

h) Of the good faith assertion, there was no evidence any amount of good faith negotiation would have led to execution of an unconditional agreement for sale and purchase between Matam and the joint venture: the obligation was simply to negotiate in good faith to see whether an agreement might eventuate. Aral was always entitled to walk away if what was proposed was unattractive, given the “non-legal binding” status of the MoU. Mr Fava acknowledged as much.

[219] Mr McBride then dealt at some length with particulars of the plaintiffs’

claim, particularly relating to the construction contract, pre-leasing, negotiation of an

agreement for sale and purchase and the good faith representations. In cross- examination Messrs Fava, Harris and Chong all resiled from their briefs on these topics. In particular, Mr Harris accepted his evidence-in-chief concerning negotiating the agreement as soon as possible was wrong and had been inserted at Mr Fava’s behest.

[220] Mr McBride pointed to authority that contracts purporting to bind parties to negotiate, whether in good faith or otherwise, are unenforceable. In Wellington City Council v Body Corporate 51702 (Wellington) [2002] 3 NZLR 486, 491-492 the Court of Appeal held:

[14] ... A contract purporting to bind the parties to negotiate, whether expressed in terms of good faith, best endeavours or otherwise, is in substance a contract to try to agree. Breach lies in failure to try, either at all or according to whatever may be required. Breach does not lie in failing to agree. ...

[16] ... ... [Handley JA in Coal Cliff Collieries Pty Limited v Sijehama Pty Limited (1991) 243 NSWLR 1, 40] ... then turned to examine whether the introduction into the equation of the concept of good faith, in the form of an obligation to negotiate in good faith, made any difference. For the reasons he gave, at p 41, paras F and G, Handley JA held that a promise to negotiate in good faith is illusory and therefore cannot be binding. His primary reasons were that parties negotiating for a contract are free to pursue their own interests. Generally speaking neither party is under any legal duty to consider the interests of the other. Whether and how long and in what manner the parties should negotiate, are matters within their own discretion.

[17] We add, at this point, that an obligation to negotiate in good faith is not the same as an obligation to negotiate reasonably. ... An obligation to negotiate in good faith essentially means that the parties must honestly try to reach agreement. They remain able to pursue their own interests within what is subjectively honest, rather than what is objectively reasonable.

[221] Mr McBride rehearsed Mr Leung’s evidence that he acted in good faith in his dealings with the plaintiffs: he obtained valuations as the MoU required and instructed Mr Chong to move to later valuations even though he was told the requirement of 75% pre-leasing might not be achievable. Despite changes in the project initiated by Mr Fava and lack of tenancies, Mr Leung still instructed Mr Chong to offer to purchase The Warehouse space alone with the rest to be negotiated later. It was Messrs Fava and Harris who refused that offer.

[222] That produced the letter from Mr Harris of 21 March 1999 – admittedly written with Mr Fava’s assistance – that made significant threats to Mr Leung to try to coerce Aral into executing an agreement for sale and purchase for the ELD. Mr Harris accepted the representations in the letter were false, he was not acting as an independent director of Cachinal when he wrote it and Cachinal was in breach of its fiduciary obligations in advancing Mr Fava’s position in this manner.

[223] Mr McBride next addressed the “fiction contract” allegation, carefully drawing attention to all evidence on the topic. He submitted:

a) The allegation, while central to the plaintiffs’ claim, was not mentioned in any contemporaneous document. It was first expressed in Mr Fava’s Anton Piller affidavit of 16 October 2002. He submitted the allegation was a “perversity” and a “deliberate manipulation” of Mr Leung’s good faith obligations.

b) If any contract contained a due diligence clause or was conditional, there was no need for any side letter: Aral could simply rely on the contractual terms. That, Mr McBride submitted, was fatal to the plaintiffs’ claim. None of their witnesses were able to explain that inconsistency, although Mr Fava tried to assert that a contract with a due diligence clause was not a conditional contract. He noted Mr Harris could offer no commercial explanation and, when pressed, Mr Chong asked for his evidence on the topic to be “struck out”.

c) By contrast, Mr Leung’s position was consistent, logical and commercially sensible. He was advised to offer a conditional contract. He did so. That was entirely appropriate in circumstances where Aral, a cautious investor, was proceeding cautiously.

d) Had there really been any suggestion of a “fiction contract” Mr McBride said there would have been no basis for Mr Fava to

continue to negotiate with Mr Leung, or for Mr Leung to have worked with Mr Fava and his interests to have Cachinal removed from liquidation. There would also have been no reason for Aral to pay more than valuation to purchase Cachinal’s interest in the joint venture in October 1999.

e) Despite that, Mr McBride submitted, Mr Leung has faced serious allegations for many years. He has even been accused of perjury, allegations which have been made to senior members of HSBC, the Police and the SFO.

[224] Both Messrs Miles and McBride submitted the facts and defences raised should have made clear to Mr Fava, the plaintiffs and their counsel well before trial that the plaintiffs’ claims were bound to fail. That was the only conclusion which could have been reached by any genuinely independent assessment of the plaintiffs’ position. That aspect of their submissions concluded:

86. Mr Fava’s conduct is appalling. He has invented the most serious of allegations and then coerced two other witnesses into buttressing his manipulations with their own half-truths and mis-statements. The defendants are entitled to total exoneration from this Court in respect of the fiction contract allegations, and a response from this Court to the personal commentary advanced by Mr Judd in the opening of the plaintiffs’ case. ... that the defendants were guilty of “arrogance, conceit, greed and stupidity”.

[225] It was submitted at some length it was Mr Fava who failed to act in good faith. He persuaded Mr Harris to act similarly. Though carefully considered, those submissions do not require a précis bar the summary:

102. The plaintiffs’ case was hopeless at every level. The allegations of fraud or misleading and deceptive conduct had no proper basis. The plaintiffs were all hopelessly insolvent. The claim for lost opportunity was hopelessly misconceived. The defendants ask that this Court record findings on these central matters.

The plaintiffs have accused Mr Leung of perjury, dishonesty, deceit, stupidity and greed. Throughout the 4 year life of this proceeding, similar allegations were made against HSBC and its employees. The allegations were set out by Mr Fava in letters directed to Mr Leung’s ultimate employer,

Dr Helmut Sohmen. Indeed, allegations of fraud were made against both HSBC and Dr Sohmen, notwithstanding that neither were parties to the proceeding. Any person choosing to side with Mr Leung has been subjected to similar allegations.

[227] In addition, the damages claim, despite being, in the defendants’ submissions, fundamentally flawed – evidence the defendants’ actions caused the plaintiffs’ pleaded losses was lacking – nonetheless cost the defendants significant sums in expert witness fees to meet.

[228] Counsel noted that the defendants, having been awarded judgment by default, were entitled to costs against the plaintiffs. If increased or indemnity costs were not justified – something not accepted – the defendants would still be entitled to costs on the basis of the abandoned claim amounting, on a category 3 basis, to $521,560.50. There was no challenge to this calculation.

[229] It was, however, submitted that scale costs were inadequate to do justice between the parties. Indemnity costs at that stage were $3,158,587.66 including disbursements and witnesses’ expenses but excluding GST.

[230] The submissions then moved to what were pleaded as unnecessary interlocutory applications by the plaintiffs. Nine were detailed – plus the Anton Piller application. Mr Miles noted three were dismissed, four were abandoned, one was complied with before hearing and only one – Churchill’s application to join additional plaintiffs – was successful. Other matters which increased the costs to the defendants included Mr Fava applying to appear for the plaintiffs in the interlocutory phases of the proceeding; applying for an urgent fixture allegedly to protect Mr Chong and then abandoning that application; and applying to join Matam without obtaining its liquidators’ and receivers’ consent then abandoning that application when Matam was brought out of liquidation.

[231] The defendants were paid no costs on any of the plaintiffs’ unsuccessful applications.

[232] On the other hand, the defendants filed 10 interlocutory applications of which four were successful, two were complied with, two were abandoned, one was successful (in this Court but partly reversed with additional evidence on appeal) and one only was unsuccessful. Mr Miles submitted all those applications were necessary because of the plaintiffs’ refusal to comply with their obligations under the Rules. The defendants were not awarded costs on any of their successful applications.

[233] He stressed the defendants’ reliance on the manner in which interlocutory activity was conducted. It assisted in justifying an order for increased or indemnity costs. That included:

a) The application for Anton Piller orders brought against Aral, HSBC and BDO Spicers alleging that, without such an order, they would remove, conceal or destroy documents. It was submitted there was never any proper basis for that allegation and it was embarrassing, especially to Mr Leung.

b) Mr Fava alleging fraud, obstruction of the course of justice and perjury against Mr Leung in the letter to the head office of HSBC in February

c) The raising of allegedly improper conduct by Mr Leung concerning whether Mr Chong would give evidence for Aral.

d) In particular, after alleging impropriety and criminal conduct on the part of both Mr Leung and Mr Simpson, Mr Fava had Mr Judd file a memorandum on 7 February 2005 - shortly after he was instructed - suggesting Mr Leung would have been prepared to pay Mr Chong

$200,000 to give evidence consistent with his own. Mr Miles strongly submitted it should never have been filed by counsel, let alone senior counsel, and was, in all probability, counsel simply parroting Mr Fava’s words or adopting what he had written.

2003, and also applied for return of the $100,000 security for costs ordered against them.

g) Discovery resulted in no fewer than 12 lists of documents from the plaintiffs and cost the defendants over $80,000.

[234] The memorandum of 7 February 2005 alleged seriously improper conduct on the part of the defendants – particularly in relation to Mr Leung’s suggested approach to Mr Chong - and repeated assertions which Mr Fava and counsel made that Mr Simpson misled the Court on 16 June 2003 in relation to various versions of Mr Chong’s witness statements. That latter aspect also formed a central theme of Mr Fava’s r 9.75 application and his application for re-call of the judgment dismissing that matter. Though much of the detail concerning that matter is found in the judgments dealing with it, some aspects also require consideration in this judgment.

[235] The memorandum went on to assert Mr Leung’s defences were “pure invention” and to suggest the proceedings could have been disposed of by the defendants paying $200,000 to Mr Chong and $100,000 in costs.

[236] The incorrectness of that approach was demonstrated when Mr Chong was shown at trial - for the first time, surprisingly in Mr Miles’ submission - the 2005 affidavits of Mr Leung, Ms Kwek and Mr Storey. Mr Chong accepted they were factually correct and contradicted what had previously been advanced as his stance to giving evidence for Aral and Mr Leung’s offer.

Mr Fava’s obsessive focus on this trivial and immaterial detail demonstrates his grotesque lack of perspective and judgment, and goes entirely to the defendants’ plea that they be awarded indemnity costs on account of the

irrational and unbalanced approach that the plaintiffs have adopted, at very significant cost (both financial and personal) to the defendants.”

[238] A further factor dilated upon in Mr Miles’ submissions was what he asserted was perjury by Mr Fava. Some of that is discussed in detail elsewhere.

[239] That allegation arose in the costs context because, pressed strongly to give a “Yes” or “No” response under cross-examination, Mr Fava answered “Zero” when asked whether he had any input into Mr Harris’ brief (p 295). Mr Harris said that there had been up to six email exchanges with Mr Fava concerning his brief but endeavoured to suggest they were relatively trivial other than as related to the “fiction contract”. He did, however, concede that significant aspects of his brief dealing with material issues resulted from his adopting Mr Fava’s comments on his original draft.

[240] During and after the main hearing, email exchanges were provided including earlier versions of the brief and it became clear, in the defendants’ submissions, that large portions of the brief Mr Harris ultimately read originated from Mr Fava.

[241] Mr Miles’ submissions carefully traversed the various versions of Mr Harris’ brief and the accompanying emails and comments, mainly from Mr Fava. It is not proposed to recount all that material but the emails did include comments proposing additional evidence couched as “suggested changes”; comments that “you ought to remember (and if you do not then you have very bad memory!!)”; a suggestion that “by my reckoning this is what you can say”; and the need to talk about amendments “’cos you might be making a mess of things”. There was one suggestion Mr Harris’ statement be amended “so as it is not exactly the same as mine”. Many of the emails and amendments were copied to Mr Judd.

[242] Mr Fava sought to justify his “zero” answer by reference to dictionary definitions of “input” and by the fact his comments on drafts of Mr Harris’ brief appeared only on one of Mr Harris’ two computer screens and not the one from which the final brief was taken. The Court’s view is that can only be described as

sophistry at best. The fact is Mr Fava made numerous suggestions as to the content of what emerged as the brief Mr Harris read in Court. Much was merely editorial – matters of grammar or syntax – much was unexceptionable – date correction and the like – but on important issues much was undeniably designed to chivvy, even bully, Mr Harris into supinely adopting Mr Fava’s forms of expression in his witness statement so the meaning was the same but the words not too similar to Mr Fava’s description.

[243] The cumulative effect of those amendments was, Mr Miles submitted, to re- write Mr Harris’ draft on important issues to ensure it conformed with Mr Fava’s version, emphasised the points Mr Fava wished to stress and omitted or downplayed aspects of Mr Harris’ evidence which were not seen by Mr Fava as of assistance to the plaintiffs’ case.

[244] As a result of all of that, Mr Miles submitted Mr Fava’s “zero” answer was perjurious:

136. ... This conduct cannot be sanctioned in any way by this Court. It informs this Court that key evidence has been improperly manipulated by Mr Fava to accord with his own, who was prepared to lie under oath about his involvement in this process. In itself it warrants indemnity costs against both the plaintiffs and Mr Fava.

[245] Mr Fava’s written submissions largely focused on the Chong statements/Simpson response dealt with elsewhere. However, he also made detailed general submissions. They were almost entirely oral and included copious references to evidence, the documents generally and many affidavits and numerous exhibits filed earlier and on this application. Every effort has been made to encapsulate that material from over 80 handwritten pages of notes, but some submissions have been grouped and there may be matters omitted which Mr Fava would regard as material.

[246] The submissions commenced by saying that this application was a “full frontal attack on me and my credibility” with the defendants asserting that all of the

plaintiffs, Mr Fava and counsel had throughout “made unfounded allegations against all and sundry”.

[247] The dispute with his brother was “centrally relevant”. Mr Noel Fava assisted the defendants throughout the litigation. It was, he suggested, “temerity” for his brother to attend the substantive hearing, pass a “constant stream of notes” to counsel and make unfounded allegations of fraud. It must be said that, while Mr Noel Fava was present during much of the substantive hearing, he was not seen to be passing notes to defendants’ counsel, at least during sittings.

[248] Mr Fava then expatiated on matters concerning the Mainzeal debt resulting from the construction of Pacific Plaza and the way it was settled by the Messrs Fava. He detailed events surrounding Mr Noel Fava’s enforcement action in April 1999 leading to Cachinal’s liquidation, and Mr Leung’s or Aral’s assistance in its removal from liquidation, relying on the detail of his brief and a number of exhibits, including exhibits to his affidavit of 23 March 2009. He then passed to dealing with the Churchill liquidation and the dispute with Mr Noel Fava. Extensive reference was made to numerous exhibits attached to Mr Fava’s affidavit and, again, the documents in the case and his brief.

[249] When quizzed as to relevance, Mr Fava said the detail gave rise to “pure perjury” and the creation of “false documents to suck funds under Facility Finance”. Relevance to the costs application, he submitted, was that the defendants were able to try to portray him as an “uneducated loose cannon”.

[250] The result of all of that, Mr Fava submitted, was a Murdoch Hall exchange of letters with Bell Gully in November 2004. That, he said, led to Bell Gully “working out what was going on”.

[251] In light of that, it was, Mr Fava said, “audacity to paint me ... as a person who makes unfounded allegations of fraud”. He agreed with Mr Miles the allegations were damaging and, if wrong, that he needed to be “brought into line”. But, though Bell Gully knew Mr Fava was correct that, he said, “did not stop them portraying me as a madcap litigant – which I am not”.

[252] He then asked, rhetorically, “how come this little joker has come across so many people who are dishonest?” and answered that by saying “people tell lies, big people tell big lies” – an observation on which he elaborated with reference to the “fiction contract”, his theory of the case, and some observations on the manner in which the litigation had been managed.

[253] That brought Mr Fava to submit the defendants were identified with their solicitors because of the events leading up to 16 June 2003, and what occurred since. He dealt with Mr Simpson’s “Opposition to Fava affidavit no.5” memorandum (“No.5 Memorandum”) and its contents together with Mr Chong’s statements and affidavits and Mr Leung’s affidavit. Salient aspects of this matter as submitted by Mr Fava appear here: more are discussed in the relevant part of the judgment. Mr Fava commented that the Mr Chong “won’t talk to Aral or its lawyers” statement was patently incorrect and “pure invention”. He dealt in some detail with what he said was the attitude of plaintiffs’ then counsel on 16 June 2003 by contrast with Mr Simpson’s actions (which he had also described in his affidavit of 18 February

2009): Mr Simpson, he said, was “right off his trolley” on 16 June 2003, and the

[254] All in all, he submitted, he had shown that there was no doubt whatever that Mr Simpson was “wrong and could never have been right” in his comments relating to that memorandum.

[255] He acknowledged that the assertion Mr Simpson’s submissions were “concoction” was a very serious allegation to make concerning a partner of one of New Zealand’s leading law firms.

[256] Taxed again on the connection between his submissions and the costs application, Mr Fava said it was to rebut the assertion he was a “loose cannon”, There was a plausible theory of the case concerning the “fiction contract” which the defendants needed to cover up for representational reasons and because Aral was under the control of the deputy-chairman of HSBC. The “fiction contract” would have meant Mr Fava’s interests were to be able to “rip off” the ANZ Bank for $10m. That would be found to be the reason the defendant’ solicitors engaging in

unscrupulous – at one end – or dishonest – at the other end – conduct. All that needed to be taken into account under r 14.7(g).

[257] Mr Fava then dealt with the “fiction contract” issue and promised to put all the evidence before the Court on this application. He divided it into more than a dozen categories.

[258] He accepted his affidavit of 16 October 2002 in support of the Anton Piller application was the first documentary mention of the “fiction contract” but he also pointed to Mr Harris’ supporting affidavit and directed attention to a significant passage from his affidavit of 23 March 2009 relating to the Anton Piller application.

[259] He submitted this was one of the most contentious aspects of both the trial and the costs application, but that if he had manufactured the assertion he must have persuaded Mr Harris, a barrister and solicitor, to support him and that if he was incorrect it “must be strike-off material: seriously bad stuff”.

[260] He then dealt with Mr Leung’s affidavits, further passages from his 23 March

2009 affidavit, and earlier affidavits sworn by himself and Mr Harris in 2003 on the topic. He detailed the efforts he made to obtain Mr Chong’s evidence in 2003 and drew attention to passages from Mr Chong’s witness statement and, later, his affidavit. He detailed aspects of his brief and referred to passages from Mr Chong’s cross-examination listing all the passages dealing with the “fiction contract”.

[261] Mr Fava then turned to the position concerning Mr Storey, saying that whilst he liked him and thought him able, he objected to Mr Storey’s trial brief because he was “saying things I considered to be demonstrably wrong”.

[262] He also drew attention to passages from Mr Harris’ brief and how amendments occurred, either at his suggestion or those of Mr Judd. In relation to Mr Harris’ brief, Mr Fava said that he “never insisted on anything” by way of amendment but he did suggest a “lot of polishing detail”.

[263] He then turned to the plaintiffs’ theory of the case concerning the “fiction contract”, again drawing attention to passages from his brief and a number of documents and numerous passages in the evidence. He stressed what he submitted was Mr Leung’s error in not obtaining the guarantee ASO wanted at an early stage, and said Mr Leung was “wild with me and wilder when he heard of the debenture proposal which he didn’t understand”. At the April 1998 Singapore meeting Mr Leung was “almost off the planet wild with me, and understandably”.

[264] Concerning the possible agreement for sale and purchase for the ELD, Mr Fava submitted that “all Mr Leung had to do prudentially was to do nothing”. But he did not do that. He had a “cunning plan to square me off and avoid loss of face with Dr Sohmen”. Mr Fava dealt with the evidence concerning the necessity for pre-leasing at length, and the comment he would have to “fill it up fast”.

[265] He detailed how, in his view, he had persuaded HSBC to amend its pre- leasing condition. When Mr Leung came to Auckland in mid-April 1999, Mr Fava said he knew Mr Leung “had given Mr Chong a bollocking for enabling [Mr Fava] to contact Mr Leung in London” and the position then, though “music to my ears was not music to Mr Leung’s ears” with the amended offer from HSBC evidencing a “monumental shift” in attitude also being unwelcome.

[266] By the time of the crucial March-April 1999 meetings, Mr Fava submitted Mr Leung must have known how close they were to a deal, with Deka committed, HSBC having amended its offer but with Mr Leung’s “cunning plan unravelling like a bale of wool in the mouth of a dog”. When he prepared to attend the 10 April meeting Mr Fava said he felt “on top of the world” and “over the moon”, and that the “culmination of one man’s lifetime’s work was about to fall into place” with Aral and HSBC prepared to “take a punt on this little fella”.

[267] Concerning the defendants’ submissions that there was no need for a side letter when any agreement would be either conditional or non-binding, Mr Fava said the difficulty was it was described as a “fiction contract” and nobody other than Mr Leung knew what to make of that. He said he was “mad” at the suggestion and, if the participants had gone ahead with the fraudulent notion of the “fiction contract”,

he would have been “out of there quick smart”. He thought before the meeting they would do a deal similar to the Pacific Plaza purchase but Mr Leung dreamed up the notion of the “fiction contract” because he was considering how he was “going to jerk Fava around”. Understandably, in those circumstances, the plaintiffs’ witnesses did not give “superb evidence”.

[268] Mr Fava then passed to deal with what he termed a number of subsidiary points.

[269] To meet the defendants’ submission he had written many “appalling” letters and complaints, Mr Fava referred to a number of documents to suggest that he was a man with the “courage of his convictions” and that he was not a person to write to the chairman of HSBC “needlessly and without advice”, which he said he received from various counsel.

[270] Responding to the submission that Mr Chong’s evidence at trial did not mirror his earlier statements, Mr Fava said this arose out of Mr Chong’s strong sense of duty – referring to actions by Mr Chong to demonstrate that –and that “Mr Chong had evidence he could have given but did not as it would offend a friend ... such as Mr Ronald”. Next, he re-addressed Mr Leung’s improper approach to Mr Chong but said, ruefully, that Mr Chong “came up short for me at trial”.

[271] He referred to the library proposition but said it could still have proceeded with the keenness of local councillors and it was not pursued because after 10 April

1999 you could “put a ballpoint through my affairs” and that his aspirations “all melted like snow freeze in a microwave oven”. The MoU “died” on 10 April 1999. Thereafter he was in “damage control”.

[272] He said if Mr Leung wanted to buy Cachinal out, the reason he did not do so when it was liquidated was that he did not wish to pay half the then market value but, more, he was “enjoying the pain he was inflicting on me and my affairs” because Mr Fava had “caused him to lose face with Dr Sohmen”.

[273] Concerning his unannounced visit to Singapore in late April 1999, Mr Fava said it was on that occasion that he first mentioned the “fiction contract” and again asserted that the note said to be made by Ms Chin of the meeting was in fact created some years later, after the Anton Piller order. Actually, perhaps tellingly, Mr Fava’s brief said nothing about the “fiction contract” or side letter being mentioned at the late April meetings. It was Mr Leung who said Mr Fava spoke of the matter - and then only of a side letter – and at the hearing on 16 December 2009 to bolster his submission that the Chin note was a later fabrication, Mr Fava denied he ever mentioned either the “fiction contract” or a side letter during the late April 1999

[274] Of the defendants’ assertion that Ms Kwek was instructed to review the case, Mr Fava produced a list of documents which he said were in existence at the time and noted there was no account from Ms Kwek in the defendants’ costs claim. Therefore, he submitted, it was not a proper review and was no more, he suggested, than a “sophisticated sleight of hand to get Mr Chong on side”.

[275] Reverting, he said what emerged as to the way Mr Harris’ brief was produced was a “gift from heaven” for the defendants. They wanted it so much that after discovery of its email iterations following the substantive hearing they settled their claim against Mr Harris’ firm.

[276] He then returned to the Chong witness statement/affidavit position and said that was “pivotal” to his position on the costs issue, reiterating aspects concerning the dispute with his brother and his allegations concerning Bell Gully and HSBC’s position. He dealt again with the “fiction contract” and the side letter saying this issue arose out of a necessity to “pay me back for causing Mr Leung to lose the face that is so important to Chinese people” and that the defendants and their solicitors took the view the “proceedings had to be shut down” to avoid further “loss of face”. He said the defendants’ solicitors had misled the Court and were resolute in opposition to the plaintiffs for over six years, and that, if Mr Simpson and Bell Gully were prepared to act as they did on 16 June 2003, “then how much more unsavoury conduct might they have been prepared to engage in? – Plenty, in my submission”.

[277] He drew distinctions between the length of this hearing and the conduct criticised in Three Rivers.

[278] The defendants presented full reply submissions seeking to answer seriatim those of Mr Fava – especially his allegations of fraud. Only some detail needs noting:

a) There were five reasons why the “fiction contract” allegation was fallacious, including Mr Fava’s concession in submissions that he “got it wrong” in cross-examination and gave unsatisfactory answers on the topic.

b) Mr Fava committed perjury when answering “zero” concerning his input into Mr Harris’ evidence.

c) Mr Fava’s repeated assertions that he was correct and all others who disagreed with him were fraudulent should be rejected, particularly his “vicious” attack on the defendants’ lawyers.

d) This, submitted Mr Miles, was about “as strong a case as ever came before a Court” that the director of a company was the “guiding hand” in the litigation and would have been the ultimate beneficiary.

e) There were strong grounds for ordering increased or indemnity costs against the plaintiffs and Mr Fava with the defendants less preferred option being substantially increased costs, principally to reflect the way in which the litigation had been run and to vindicate the reputations of those damaged by Mr Fava, plus the enormous cost incurred by the defendants in meeting what was always going to be unsuccessful litigation by the plaintiffs.

[279] To decide the costs application first requires evaluation and assessment of the trial evidence given – principally - by the four main witnesses together with aspects of the interlocutory history of the case to see whether it is possible to conclude, however tentatively given the substantive hearing was near completion but not concluded, whether the plaintiffs or the defendants would have succeeded at trial. If the view is that the defendants would have been successful, the next stage is to set that finding against the terms of rr 14.6 and 14.7 to decide if an order for increased or indemnity costs is justifiable and, if so, to what extent. The next stage is to consider the opposition to the costs application in terms of r 14.7(g) to decide if there is “some other reason” to deny the defendants increased or indemnity costs. That involves consideration of the defendants’ actions, but principally requires consideration of the actions of Bell Gully and, even if those actions were to be held reprehensible in any way, whether Bell Gully’s actions are to be identified with the defendants’ position such that Bell Gully’s actions provide “some other reason” to deny the defendants’ costs application.

[280] As noted previously and in other judgments, the first of those involves assessment of the reliability and credibility of the main witnesses, particularly in and around the two sets of crucial meetings.

[281] As mentioned several times, there were four attendees at the principal meetings, Messrs Fava and Harris for the plaintiffs, and Messrs Leung and Chong for the defendants. However, from late 2002/early 2003 Mr Chong was prepared to give evidence for the plaintiffs. That was no doubt seen as a coup for them: they had three of the four attendees at the meetings all giving, in their briefs at least, roughly similar versions of events ranged against the very different versions of the

facts and the motivation of the parties appearing in the brief of Mr Leung, the sole witness to those events on the defendants’ behalf.

[282] During the substantive hearing – particularly the extensive cross- examination of all four main witnesses – there was ample opportunity to evaluate not merely what the witnesses said but the manner in which they said it and the possible motivations which led to their testimony.

[284] Whilst Mr Fava’s extensive brief dealt in great detail with matters he wished to advance in support of the plaintiffs’ claim, it does no disservice to his approach to say that, in the early portion at least, it read much like an autobiography of a person who, from modest beginnings, regarded himself as having been successful in business through a combination of persistence, energy and acumen. Examples included his preservation of his business interests in the 1987 sharemarket crash and his foresight in arranging the purchase of the Whangaparaoa Town Centre which later became Pacific Plaza. In late 1993, that purchase, and the roughly contemporaneous purchase by Aral of the Jet Set Centre from his interests, led him to say that he:

“... had all the balls in the air at the same time and I choreographed them all falling in the right box at the right time.”

[285] Mr Fava’s described his view of himself and his approach to business in an affidavit sworn on 23 March 2009:

23 I am a meticulous person. Everyone who knows me knows that. I dislike getting things wrong. Everyone who knows me knows that. In commerce, I take meticulous care to avoid getting things wrong. Everyone who has done business with me knows that. By this modus operandi I survived the sharemarket crash of 1987 with all my assets intact and not a single judgment against Churchill, me or any of my interests. That quite extraordinary survival experience drove me to being even more meticulously careful in commerce in the 90’s than I was in the 80’s.

24 But in 1998 this modus operandi let me down. The precise commitment I extracted from Aral and Mr Leung to negotiate a sale and purchase agreement for the expansion land development in good faith and my subsequent reliance upon same proved to be my undoing. The whole expansion land saga was a fraud by Aral and Mr Leung from day one and it brought my interests down.

25 My meticulous care in commerce in the 1990’s did not enable me to avoid the consequences of the fraud by the defendants. It did however enable me to give very detailed and precise evidence in my witness statement for this proceeding to put right the consequences of that fraud.

“I am a man who possesses the courage of his convictions i.e. gather in the evidence of apparent wrongdoing; ask for explanation of the apparent wrongdoing; if none is forthcoming then press ahead.”

[287] He was, he said, a “particular kind of chap, that if I see somebody saying what I consider is wrong then, as I am a person of conviction, I say so”. He said “when I say I’m going to do something, I do it”.

[288] The flavour of those passages was reflected in his evidence and submissions. On a number of occasions he used the phrase “beyond any or all doubt” to express certainty. He repeatedly used the phrase “further or other” to ensure he covered all options. When asked about the importance of documents to remind him what took place on any occasion he said:

“I am a careful person. I like to make certain notes about certain things. No excuse. That’s the way I am.”

[289] He harped back many times to his central thesis, namely that it was the defendants’ “fraud that brought the macro plan and everything else to termination”.

[290] Mr Fava showed himself throughout this litigation to be a complex character. Early in the piece – and very likely the motivation for the Anton Piller application – Mr Fava reached the view he had first caused Mr Leung to “lose face” in around April 1998 and that everything Mr Leung – and therefore Aral – did after that date was undertaken to cause harm to Mr Fava and his interests and ultimately destroy them. That was both in order to get back at him for that “loss of face” and to enable

Aral to buy Cachinal’s share of Pacific Plaza cheaply. He therefore took the view the MoU was a sham from the outset, Mr Leung never intended to undertake good faith negotiations pursuant to it and the March/April 1999 correspondence and discussions were a charade which ultimately led to Aral buying Cachinal’s interest in Pacific Plaza at the expense of Mr Fava and his interests.

[291] He and his interests fought back. First, by the Nomoi contract of early 2000, then by the issue of these proceedings in 2001 and their service in 2002 alongside the Anton Piller orders, then, following discovery, by his complaints to HSBC Head Office, the Police and the SFO. At the latest by the time he made those complaints – and probably earlier - his view of Mr Leung’s conduct had deepened to the point where he regarded it not only as improper but potentially criminal.

[292] In parallel with his view of Aral and Mr Leung, from at least mid-2003 – and probably earlier - he took the view that, first, Bell Gully were potentially at risk of a claim for professional negligence by Aral to indemnify them against any damages awarded the plaintiffs in this litigation and, therefore, that Bell Gully - Messrs Storey and Simpson in particular – would do virtually anything – certainly well beyond their professional duties - to defeat the plaintiffs’ claim at every stage and in every way. They, too, Mr Fava concluded, were guilty not only of negligence but of professional misconduct and criminal behaviour.

[293] That, however, is a somewhat anodyne description of Mr Fava’s approach to this litigation. Underpinned by his unshakeable faith in the correctness of his beliefs and the disreputable motivation of the defendants and their advisors, what he habitually did was amass a selection of detailed information which appeared to him to be consistent with his view of apparent wrongdoing or was, he inferred, capable of bearing that construction and put that to others. When – whether through inability, lack of access to documents, unwillingness, repugnance at what was asserted, or apparent illogicality of Mr Fava’s conclusions - recipients failed to engage in refutation of his claim of wrongful conduct, Mr Fava not only regarded their silence as proof of the initial insinuation of, say, impropriety or unprofessional behaviour but, often, as proof of something more serious, say criminal conduct. Thus his

assertions of false, misleading or deceitful behaviour or lies became assertions – in his view proved - of perversion of justice or serious or complex fraud.

[294] In this, he was materially assisted by his mastery of detail. As has been remarked in other judgments, throughout this matter – both before and after launching the litigation – Mr Fava exhibited extraordinary instant recall of dates, times, amounts, contents of documents, even of the ties he wore, the hotels at which he stayed and the restaurants at which he ate. Good examples are the 2004 letters he wrote to HSBC Head Office which did not just assert wrongdoing in a broad fashion but went so far as to analyse commencement times and duration of telephone calls and phone numbers of recipients of calls and faxes. That mastery enabled Mr Fava to dominate by detail. It augmented his persuasiveness. It gave him power by precision. Others seemed resignedly to defer to Mr Fava’s grip of the background in preference to the impreciseness of their own recollections.

[295] Throughout this litigation he was doggedly persistent in advancing his interests and those of the plaintiffs and never shrank from attributing base motives to those who stood in their way. And, of considerable importance as far as this case was concerned, by controlling the input to others he exerted considerable control over their output especially of critical witnesses such as Messrs Harris and Chong. Nobody other than Mr Fava could hope to remember all the contents of all the documents in this case and, by selectively choosing those they received, he effectively ensured that matters arguably adverse to his interests and those of the plaintiffs did not emerge – or at least did not emerge until cross-examination.

a) His choice of detail in his modus operandi was skewed by his adamantine certainty that what underpinned the actions of the defendants, their advisors and others was fraud, deceit and other forms of moral obloquy, even criminal conduct.

b) Although he accepted in cross-examination that recipients of his allegations might honestly hold different views, any failure by them

to engage with him in response invariably led him to conclude his assertions were correct. An honest difference of opinion or others’ honesty of purpose seemed never to occur to him, still less that he might be wrong.

c) If no documents supporting his views, he either created them or was at a loss. His brief was buttressed by documents. In cross- examination his answers repeatedly referred to documents. When asked “Can you not answer that question without going to documents?” he responded: “I like to go to documents”. That has important resonances in this case, particularly in the period surrounding and following 10 April 1999.

d) A result of Mr Fava’s detailed and documentary approach was that flaws in his lines of argument only became discernible by similarly detailed and documentary cross-examination and analysis unaffected by Mr Fava’s mind-set.

[297] It is appropriate to record that Mr Fava may not order his business affairs in accordance with the high moral standards he sought to enjoin in others. While setting out to insist on the defendants fulfilling to the letter what he and the plaintiffs saw as their obligations to them, he did not seem to require similar conduct from himself and his interests. He saw nothing untoward in failing to ensure Churchill complied with its contractual obligations concerning the rental guarantees. He justified not telling Aral that under contractual warranties Churchill owed money to Woolworths because, although he acknowledged money was owing, no formal demand had issued. He said he deliberately left tenancies in Pacific Plaza vacant in the run up to the April 1999 meetings because of his plans for the ELD though he realized it was a “slightly difficult position for me” given his management obligations. He and Nomoi may have been within their legal rights in obtaining the injunction in early 2000 which led to Aral buying them out and his interests making

$1m - he had sufficient on his side to persuade the Judge who made the injunction that such was arguably the case - but to act as he did towards a party with which he had lately been in a joint venture requiring good faith and take advantage as he did to

his interests’ considerable profit of what he must have known was Aral’s need to continue with its development, justifies Mr Leung’s description of that episode as “distasteful and unpleasant”

[298] Furthermore, emblematic of Mr Fava’s willingness to push things to the perimeter of what he saw as acceptable boundaries was his approach to the “zero” answer concerning his input to Mr Harris’ brief. His explanation is detailed elsewhere. It wholly depends on acceptance of one of several dictionary definitions of the word “input” and a highly artificial explanation concerning the two screens on which Mr Harris’ brief was prepared. It entirely overlooks the influence he had over Mr Harris. It symbolizes the resort to technicality Mr Fava habitually employed to justify his actions.

[299] Mr Harris was a Hamilton solicitor whose sister lived with Mr Fava at material times.

[300] Mr Leung initially welcomed Mr Harris’ appointment as director of Cachinal, thinking he would follow an independent line, act as a brake on Mr Fava and help ensure Mr Fava and Churchill honoured their obligations. But, as time went on, he became disabused of that view and concluded Mr Harris was weak, under Mr Fava’s dominance and, in the end, became little more than a “mouth piece” for Mr Fava.

[301] That was exemplified in his 21 March 1999 letter to Mr Leung. Ostensibly written on behalf of Cachinal, it became clear during the substantive hearing that much of the content came from Mr Fava. Far from being an independent appraisal of the then position, it was in effect written on Mr Fava’s behalf in an endeavour to pressure Mr Leung into agreeing to the joint venture committing to an unconditional contract to buy the ELD.

[302] There were other examples of Mr Harris’ lack of independence and preparedness to side with Mr Fava, not least the affidavit he made in support of the Anton Piller application.

[303] However, by the time the substantive hearing got under way, Mr Harris had provided a lengthy and detailed brief and was to give evidence for the plaintiffs which reflected Mr Fava’s evidence in material particulars.

[304] Salient points of Mr Harris’ evidence are important and need noting. They include:

a) As may have been expected, there was a considerable – even inevitable - degree of commonality between Messrs Fava and Harris’ briefs. They had been, after all, working together over a lengthy period towards a common goal, they attended many of the same meetings and they either saw or were responsible for many of the documents.

b) It was suspected during the substantive hearing - but only confirmed through non-party discovery after December 2006 - that Mr Fava’s “input” to Mr Harris’ brief was considerably more significant than that mild term might suggest. Not only did Mr Fava choose the documents Mr Harris used to prepare his brief, it is now apparent that during preparation, Messrs Fava and Harris were in frequent communication, with Mr Fava suggesting changes to the draft brief which might better advance the plaintiffs’ case than the wording originally chosen by Mr Harris. Trilby-like, Mr Harris accepted Mr Fava’s propositions. Thus, on a number of important points, Mr Harris’ brief was effectively largely dictated by Mr Fava though put forward by Mr Harris as his own evidence.

c) When it was suggested to Mr Harris he had no influence over Mr Fava and was “basically there to do what he told you to do”, he acknowledged that he was “unable to influence him with what he was doing with his Churchill activities”.

[305] Regrettably, it must be said Mr Harris cut an unfortunate figure in his trial evidence, particularly under cross-examination. As example after example was put

to him of his lack of independence, his preparedness to do Mr Fava’s bidding and dereliction of his directors’ duties, Mr Harris struggled. Some detail appears elsewhere. The transcript is graphic enough but does not record the length of his silences before answering, his increasing discomfiture, nor his obvious distress to the point where he effectively invited the Court to disregard the whole of his evidence. It seemed it was only during cross-examination that Mr Harris came to appreciate the full consequences of his actions. Examples include:

a) On inquiry as to his health Mr Harris said: “This has been very stressful for me ... and I am finding the circumstances extremely difficult to be able to give evidence”.

b) In the Anton Piller affidavit he had said Aral had an obligation to enter into a sale and purchase agreement with Cachinal. It was suggested this was “legally nonsense”. After a further long pause, Mr Harris said “I just don’t know”.

c) In re-examination a number of documents were put to Mr Harris and his explanation sought but, when objection was taken to evidence he proposed to give on documents concerning which he previously said he had no recall, he said that when the documents were put to him in cross-examination “I didn’t even see the words”. He then said he had “hardly any recollection of the evidence” he gave in cross- examination. The hearing then proceeded (at pp 586-587):

“THE COURT: Well, Mr Harris, I’ve expressed some concern for your well-being during the course of your evidence. But are you now suggesting I should disregard all the evidence you gave on Monday, or at some earlier stage, because you were confused at that point?

MR HARRIS: Sir, I’ve got hardly any recollection of the evidence I gave on Monday. I had not been very well.

THE COURT: Mr Harris, I’m by no means unsympathetic to your position. And it has been evident, to all of us, the stress and worry from which you have been labouring during the giving of your evidence. But, in

fairness to you, I should say that what you’ve just said, effectively, invites me to disregard most of what you’ve told me. Do you realise that?

THE COURT: Well, the difficulty, as I now see it, is that – because I’m not a doctor and we have no medical certificate – it may be unfair to you and to the parties for me to pick and choose between this answer or that. Do you understand that?

d) It was plain to all present that Mr Harris was in a poor mental and medical condition during his evidence. The admissions he made seemed to give rise to the possibility his evidence might have significant implications as far as his future was concerned. Accordingly, he was offered – and accepted – the opportunity to take independent legal advice before continuing. The hearing was adjourned for that purpose and independent counsel was present in the Courtroom during the remainder of Mr Harris’ testimony.

[306] With regret, the conclusion must be recorded that Mr Harris’ retractions, contradictions and general performance in the witness box seriously undermined his credibility and reliability.

[307] From 1993 until October 1999 Mr Chong was employed by Aral and ASO to manage their New Zealand investments and other development projects. He acted as administrator of the joint venture and authored many of the documents in the case. But he had little authority and regularly reported to, and carried out instructions from, Mr Leung. He said he had to seek directions from Mr Leung on every aspect of his work that was “other than minor”. He was only an “operation man”. Of the lead up to 10 April, he said:

“It is known to everybody Chong Wai Sun got no commitment to commit anything ... it’s just zero zero effect.”

... and at the end of the day you’re just like a fool, pushing round like clown”.

[308] Curiously, whenever Mr Chong came to describe events of crucial meetings and critical issues, despite being a participant and the author of many of the documents, and despite the balance of his affidavits, brief of evidence and the like discussing matters in considerable detail, he did not discuss that detail. He repeatedly adopted the device of saying he had read Messrs Fava and Harris’ evidence and their notes and that “to the best of my recollection their evidence is accurate” or “truthfully put”. His brief said that of their Anton Piller affidavits. His affidavit of 16 June 2003 said the same in respect of both sets of meetings. It is now known he adopted that device in the confidential statement he made before swearing that affidavit. An inference is therefore available that Mr Chong adopted that mode of expression – perhaps at Mr Fava’s suggestion – in order that he could be seen as siding with the plaintiffs, but not being wholly committed to the detail of those critical meetings in the words adopted by Messrs Fava and Harris and as not being seen as disloyal to his former employer.

[309] That inference gains weight from what is now known of the efforts to which Mr Fava went in order to persuade Mr Chong to give evidence for the plaintiffs and what is now known as to the manner in which Mr Harris’ brief of evidence was prepared.

[310] Up until 10 April 1999 Mr Chong was much more enthusiastic than Mr Leung about what was on offer concerning the ELD. As joint venture administrator and as one deeply involved in the detail, he was much more prepared than Mr Leung to see Aral and the joint venture assume the risks involved in signing an unconditional agreement for sale and purchase with Matam. He therefore became frustrated by Mr Leung’s conservatism and unwillingness to offer any more than an unconditional agreement to purchase The Warehouse space and a conditional agreement for the balance. That led to his letter of resignation of 23 March 1999 with effect from 31 October 1999 and Mr Leung’s friendly responses.

[311] The reasons he gave for resignation varied. In his confidential statement he said that in late March 1999 in Singapore:

I had just returned after more than three weeks in Auckland. From all the lack of action surrounding the MoU it occurred to me Aral and Mr Leung never had any intention of performing the MoU and were not going to perform the MoU. I discussed resigning from ASO with my wife Anne and we decided I would resign.

and that he acted on that the next day when he felt insulted because Mr Leung upbraided him for enabling contact to be made with him in London. That contrasts with other explanations as to the reasons for his resignation and those he gave in evidence.

[312] All of that notwithstanding, as has been remarked elsewhere, it must have been seen as a coup for the plaintiffs to persuade a person who was a former employee of the first defendant and a non-compellable witness to give evidence for them.

[313] He was extensively cross-examined and, unsurprisingly, particularly cross- examined about the events of the crucial meetings. When pressed on the reasons for the absence of any description by him of the 10 April 1999 meetings, he first said that his brief was as joint venture administrator and “I would not put in such thing that I think is not required” and was merely doing a “statement for the Counsel to read”. Pressed further, he said he wanted to “strike it out now”. The evidential transcript cannot convey the irritation and forcefulness Mr Chong displayed in saying he wanted to “strike it out now”. He was plainly most uncomfortable at being quizzed on detail, especially that appearing in the briefs of Messrs Fava and Harris (p 794):

.. the situation today I need to come as witness to answer all these questions”.

[314] However, he was a loyal employee of Aral and tried conscientiously in evidence to give his recall of events, though the Court’s view is that he was, at best, mistaken or forgetful concerning much of what took place on 10 April 1999. In particular he asserted there was no offer from Mr Leung for a conditional contract on

the development beyond The Warehouse and, asked whether Mr Leung had used the word “contract” in the 10 April meeting, Mr Chong said: “He never mention a contract at all between Aral and Cachinal as far I remember. It wasn’t discussed about contract at all”. But then, cross-examined further:

“Q. Well, you’ve agreed with Mr Fava who said there WAS a contract offer. Who is right?

A. In my mindset, when you ask this question I always think a contract is a term, condition, set as a general binding of property. But you put in English what is a contract in that specific term then you can say I make a mistake. All mistake is made by me. I confusing you.

Aral and Cachinal as far as I remember. It wasn’t discussed about contract at all.” So how is that consistent with your reply to me a couple of questions ago?

A. It just come to my mind, I just reply to you I must understand [I misunderstand???] it is very difficult for me to 100% match this, match that. I have never had any experience being a witness. Sometime I getting nervous and sometime really do not know how to answer these questions. Some of these thoughts that occur to me. That’s why I offered withdraw the whole statement on that and I go on with other things.

Q. Well, when I said to you “Did he mention the word ‘contract’ at all?” are you suggesting you were nervous and didn’t understand the question?

A. Not only that, all this while all this come to me, because I really never expect such experience to this day. I really wanted to call it off.”

“Q. Well since the agreement was NEVER an unconditional agreement was ALWAYS conditional, there was never the slightest need for a side letter, was there?

[316] Further, Mr Chong’s first language is Mandarin. His grasp of English is good but not idiomatic. Many documents show his slightly stilted use of English. As an example, Mr Leung telling Mr Chong that “he very keen not to buy that expansion land” became “your keen decision not to purchase the expansion land” in his letter of

[317] In the same vein, the evidence showed it was Mr Chong who first used the phrase “fiction contract” at the 10 April 1999 meeting. In the Court’s view he did so as part of what occurred during that heated meeting and was his inadequate bi- lingual effort to explain Aral’s conditional offer. Mr Chong’s rendition was “fiction contract” or side letter as quoted in para [163]. An important passage, it bears repeating:

“To me, if Mr Leung mention he want a side letter I then, in my own English language, I say it is a fiction contract. It only come to my mind in my language that it say it don’t mean any impact on that. Like you say, you have all the contract to do it. To me any contract that need a side letter, it is a fiction contract in my own interpretation. Very much of my own English way of saying things.”

[318] It is not accepted that the phrase “side letter” was used in any sense other than as referring to the conditional contract. In particular, while it is accepted that it is likely that the phrases “fiction contract” or “side letter” were used at the 10 April meeting, it is accepted they came from Mr Chong. But it is not accepted they were used with reference to any document saying Aral would enter into an unconditional contract for the sale and purchase of the whole of the ELD but with a side letter which would say it would be under no obligation to settle such a deal. When Mr Chong agreed there was no need for any side letter if a conditional contract was entered into, he seemed to agree - but later wanted to strike it out.

[319] Mr Chong’s contradictions, his forgetfulness on crucial issues – everybody else agreed contractual issues were at the heart of the 10 April meeting - the fact that his brief was based only on documents Mr Fava chose for him – he had not seen some 18,000 pages of documents which he leafed through during his evidence - his desire to “strike it out now” when pressed on the detail of what passed at the

evidence, though sincerely given, was of suspect credibility and reliability on critical issues.

[320] Mr Leung is fluent in Mandarin and moderately articulate in spoken and written English. His English is markedly better than Mr Chong’s.

[321] Mr Leung said that “throughout my working life I have placed great value and integrity on sound business ethics”, qualities which had never been questioned prior to his dealings with Mr Fava. He said he took “strong exception” to the allegations made against Aral and himself in these proceedings. They “caused me considerable hurt, embarrassment, anxiety and mental distress”. He added:

926. I firmly believe that this proceeding has been a cynical and deliberate attempt to ruin my life. Philip Fava is a spiteful and vindictive person. At the outset of this proceeding, he obtained a search warrant against ASO’s offices in Auckland, as well as orders for discovery against HSBC and BDO. I am still very upset about this. I understand that these orders were only obtained because Philip Fava persuaded the Court that I was likely to destroy documents, and that I was likely to conspire with BDO and HSBC to destroy any documents that they held. I just cannot understand this. There is just no way I would ever consider this, let alone do it. It has been hugely embarrassing to me to have to explain myself to HSBC and to BDO. ... I just could not believe what was going on.

927. I also want to express my outrage at the letters Philip Fava has written to HSBC. ...

[322] Mr Leung had many reasons for caution in relation to the ELD generally and the 10 April 1999 meeting in particular.

[323] On a personal level, he was a cautious, conservative businessman, responsible for administering valuable assets for an affluent family and limited in his capacity to commit Aral to any project. Aral habitually invested in buildings and other property yielding a solid income stream. It was not a speculative investor, yet in the ELD it was, unusually, contemplating investment in a building as yet unbuilt, largely un-let and thus of questionable value and return.

[324] He had encountered previous difficulties with Mr Fava, particularly in Churchill’s failure to meet its obligations. His initial reliance on Mr Harris as a mediating influence had been misplaced, to the point where Mr Harris was prepared to threaten him. His long-term loyal administrator had been pressuring him to be more positive about the ELD than Mr Leung was comfortable with and had resigned feeling his views and his work were insufficiently valued.

[325] Though the prospect seemed attractive at the time, Mr Leung’s caution led to the MoU being “non-legal binding”. Mr Leung accepted Mr Fava was entitled to change the earlier proposal, but what was in contemplation as the ELD in March

1999 was substantially different from the proposal at the time of the MoU and the earlier valuation.

[326] Further, the ELD was significantly un-let. The only signed agreement to lease was with The Warehouse of 9 October 1998 under which a percentage of The Warehouse’s turnover was payable as rent but, unusually, with no minimum. The only other committed tenant was Deka who, on 8 April 1999, committed to a six year lease plus rights of renewal but the base rent was unsettled: it was either

[327] There was thus every reason for Mr Leung’s commercial caution given what was on offer compared with the MoU and the way he and Aral normally did business.

[328] At trial, Mr Leung’s evidence was measured, reflective, for the most part restrained, cogent and commercially consistent with Aral's normal approach to business. He was not evasive in cross-examination. He met searching questions with credible answers. The only time his restraint faltered was in relating the effect on him and his reputation of Mr Fava’s repeated assertions of improper and criminal behaviour on his part.

[329] It follows, therefore, that, of the four main witnesses, Mr Leung’s evidence was much the most credible and therefore reliable.

a. The plaintiffs had Mr Fava who, in 1998 and 1999 significantly over- estimated his and the plaintiffs’ commercial and financial strengths and significantly under-estimated the plaintiffs’ commercial and financial weaknesses.

b. From at least the Anton Piller application in 2002 – and perhaps as early as 2000 given the Nomoi incident - the plaintiffs and their litigation were driven by Mr Fava – supported by Mr Harris - whose thesis was that from 1998 at the latest the defendants’ actions were motivated and orchestrated by fraud and deceit designed to bring him and the plaintiffs to ruin.

c. As a result of his view of what lay behind the defendants’ actions and perhaps in an endeavour to force a settlement of the claim, Mr Fava – supported by Mr Harris – repeatedly and persistently alleged a wide range of moral obliquity and criminal behaviour on the part of the defendants, making those allegations not just to them but to their superiors and to the authorities.

d. Over the same period, Mr Fava also made the same or similar allegations against the defendants’ bankers, their accountants and, most of all, their solicitors and counsel.

e. Mr Miles described the assertions made about and to the persons mentioned in the last two sub-paragraphs as “vicious”. The description is not inapt.

f. That Mr Fava undoubtedly persuaded himself – and Mr Harris – that what he was asserting was justifiable is scarcely to the point. That it was

likely to be held unjustifiable could have been seen by any disinterested observer knowing the personalities and in full possession of the facts.

a. While notionally independent in 1998 and 1999, in fact sided with the plaintiffs and Mr Fava.

b. His partisan stance was made plain in the 21 March 1999 letter and when he swore the Anton Piller affidavit in 2002. He remained consistently in Mr Fava’s camp and that of the plaintiffs thereafter.

c. That notwithstanding, when confronted in cross-examination with the consequences of his actions and its possible impact on his professional and personal future, he essentially disavowed the evidence he had given on crucial matters and invited the Court to disregard it. Ill he no doubt was, but that illness may in part have stemmed from his belated realisation of the consequences of his actions.

a. Though a loyal employee of Aral in 1998 and the early part of 1999 became disgruntled with Mr Leung’s prudent approach to the ELD by contrast with his more optimistic view, and resigned.

b. Was persuaded, for whatever reason, from late 2002 to side with the plaintiffs and Mr Fava and consistently supported them thereafter, though adopting a method of approach which did not commit him to the detail of Messrs Fava and Harris’ view of the central issues in the case.

b. Even Mr Fava, in submissions on the costs application, said Mr Chong did not “come through for me”. Mr Chong’s duty, of course, was not to “come through” for the plaintiffs and Mr Fava but to give truthful evidence. When confronted on the detail and

Court to “strike it out now” and “call it off”. [333] On the other hand the defendants had Mr Leung who:

a. Gave evidence in a commercially realistic, measured and credible way, largely without rancour despite the allegations repeatedly made about him.

b. Was unemotional, except about the pressure and embarrassment occasioned him by Mr Fava’s unjustifiable assertions.

[334] As mentioned several times, because the substantive hearing did not finish nor were submissions heard, no final judgment on the merits would be appropriate. Nevertheless the substantive hearing had proceeded sufficiently far towards its conclusion – especially with the completion of the evidence from the four main protagonists – that emergence of further major changes or insights would have been most unlikely. Thus views on the evidence given, despite being tentative, can be appropriately reached.

[336] For a reasonably lengthy time before those meetings, the parties had been in business with each other, first in normal commercial transactions and then as joint venturers. They chose the unwieldy – since they often involve differing aims – vehicle of a joint venture. They thus imposed on themselves mutual obligations of good faith – express and implied - in what was obviously envisaged as a lengthy business association.

[337] Even during this period there were strains in the relationship. For instance, in April 1998 despite the good faith obligation, Churchill as manager of the joint venture was frequently in breach of its rental obligation and the joint venture seemed

powerless to compel it to honour its commitment. Mr Leung at that stage regarded Churchill and Mr Fava as having the money to meet its obligations, though he formed the view Mr Fava deliberately failed to have Churchill meet its dues. While the earlier part of that assumption may now be open to doubt, it was nonetheless the case that Churchill was repeatedly in breach of its obligations over a lengthy period and, when pressure was applied to him to have Churchill comply, Mr Fava’s insouciant reply was “Nobody is going to die” over the arrears. The Court does not share Mr Fava’s view that that incident caused Mr Leung to “lose face” and was the germ of the defendants’ attitude to his interests thereafter. But his insouciance was certainly contrary to the parties’ mutual good faith obligations and the lack of payment, coupled with the manner of its expression, did little to ease the atmosphere for the joint venture.

[338] A further example is the suggestion in September 1998 that Mr Fava’s interests might “poach” tenants from Pacific Plaza if the joint venture did not do as he wished. While, technically, if the joint venture was dissolved, Mr Fava’s interests could act to further their position, that must be seen as a semantic response. The information on which the poaching might have taken place would largely have been gathered while Churchill was managing Pacific Plaza for the joint venture. Such action would hardly have been in the spirit of its good faith obligation.

[339] So the relationship was not without its strains, even before the October 1998 meetings.

[340] Turning to those meetings, it is first pertinent to consider the terms of the MoU. It was, in its terms, “non-legal binding”. It was deliberately intended by the parties to set no more than a framework which might provide them with the basis to discuss whether further agreement was possible. Even Mr Fava, to the Court, acknowledged that. He accepted that neither the MoU nor the pleaded representations were claimed by the plaintiffs to be certain to lead to an agreement for sale and purchase for the ELD. In those circumstances, the MoU “non-legal binding” must be seen as no more than an agreement to deal with what needed to be done so the parties could embark on discussing whether they were able to agree on terms of purchase of the ELD. It was therefore no more than agreement to

endeavour to agree and was unenforceable (Wellington City Council v Body Corporate 51702). That points towards the plaintiffs never having been likely to be successful on that aspect of their claim.

[341] Possibly recognising that point, the plaintiffs, however, relied on the representations and discussions which did not find expression in the MoU and the Court turns to these.

[342] The plaintiffs pleaded the parties agreed there was to be no pre-leasing of the ELD other than to The Warehouse prior to any agreement for sale and purchase being reached. A deal of time was utilized during the substantive hearing on that issue. In the Court’s view, this issue occupied more time than the evidence justified.

[343] These parties were experienced commercial concerns, on the one hand an experienced property developer and on the other an experienced property investor. Both knew the value of properties with which they were concerned would be affected by whether they were generating a secure income stream of as great a magnitude as was achievable. Both knew that such an income stream improved profitability and thus value of a development such as that proposed. While a specific percentage pre-leased was almost certainly not agreed at the Singapore meetings, both knew the construction of the project would require bank finance – probably from HSBC – and both almost certainly knew that in order to service the borrowing any bank would also wish to be assured of the quantum of the income stream for the project being financed and thus be likely – as happened – to impose a condition of a specific percentage of the project pre-leased on the provision of finance.

[344] Therefore, whilst it is very probable the participants in the Singapore meetings did not agree that a specific proportion of the proposed development should be pre-leased, the need for tenants was discussed between them, and all would have known that pre-leasing was desirable and a fixed percentage of pre-leasing was likely to be a condition of a bank agreeing to finance the project.

[345] The Court’s view is therefore that no specific percentage of the ELD being pre-leased was a term of the Singapore meetings, but leasing was discussed and all

understood that the more of the ELD which was pre-leased the better for the future of the project. This was presumably why Mr Leung told Mr Fava to “fill it up fast”.

[346] A general comment needs to be made concerning the other pleaded representations though a judgment on a costs application without submissions on the topic is not the appropriate place for detailed consideration of legal issues arising at the substantive hearing. That said, this was not a case with significant legal complexity and, as with the evidence, the case had reached the point where – apart from quantum and the affirmative defences – it is unlikely legal submissions would have offered novel insights beyond those which could be forecast when the default judgment was issued.

[347] That said, the statements on which the plaintiffs rely as representations were likely not to have been intended to be taken seriously. As the evidential review shows, they would appear to be the type of badinage resulting from people successfully completing a piece of business – “this is the way to do business” – and not as serious and binding representations as to future conduct. Mr Chong said he saw them as that. Accordingly it may be doubted that intensive examination of what was pleaded as having been said would be capable of qualifying as misleading or deceptive conduct under s 9 of the Fair Trading Act 1986. Put slightly more formally in terms of AMP Finance NZ Ltd v Heaven (1997) 8 TCLR 144 and Janus Nominees v Fairhall [2009] 3 NZLR 757, there may be doubt whether the statements made were capable of being misleading; doubt whether Mr Fava and the plaintiffs were in fact misled by those statements; and significant doubt whether it would have been found reasonable for the plaintiffs and Mr Fava to be misled. Reasonable people in their shoes may well, in the seemingly bantering atmosphere in which they were made, not have been misled by these statements. That provides a further pointer to the plaintiffs’ likely lack of success in the claim.

[348] Even if, despite those comments, the representations generally were found to be capable of being misleading or deceptive, individual statements may not have qualified.

[349] Mr Leung – plus, possibly, Mr Fava - is said to have represented that he would negotiate in good faith. That he did is highly likely – but it was a mutual obligation of both parties, both under the joint venture agreement and generally to negotiate in good faith: they would hardly have agreed to negotiate in any contrary fashion.

[350] Mr Leung is said to have told Mr Fava that once there was a contract in place for sale and purchase of the ELD there would be no difficulty in arranging finance for construction. Though Mr Leung was unaware of Matam’s financial position, something along those lines was probably said – but it was self-evident. Mr Fava may have believed it, but he would not have been misled as he undoubtedly already knew it as an experienced property developer.

[351] Then there were pleadings about the fees and expenses of proceeding with the ELD and that the joint venturers would be able to purchase it for an amount broadly in line with the valuations. The former would have been expected by all present at the meeting. The latter was self-evident: the parties were getting valuations (and got second valuations) in order to provide a platform for later negotiations to see if they could agree over price and terms.

[352] To sum all that up, the MoU was “non-legal binding” and was unenforceable as simply being an agreement to attempt to agree at a later stage and if the representations were to be regarded as capable of being actionable under the requirements of the Fair Trading Act 1986 and the authorities – and there is considerable doubt on that score – the likely conclusion would have been that they were not breached.

[353] It is unnecessary to discuss the facts concerning the period from the Singapore meetings to 10 April 1999 in greater detail save to note the following salient facts:

a. The concept and components of the ELD on offer in April 1999 were significantly different from those on offer in October 1998. Details of the changes appear elsewhere. Since the defendants regarded the

plaintiffs and Mr Fava as being at liberty to change the components of the ELD without their agreement and since Mr Fava regarded them as having agreed because they failed to object to his proposed changes, nothing hangs on that. But those changes and the lack of contracted tenants providing Aral’s customary return meant it was entirely understandable that Mr Leung, a cautious man in all respects, would have viewed the project then on offer with considerably less enthusiasm than previously.

b. Though the date was in contention as to when Messrs Fava and Harris were told that, despite Mr Chong’s enthusiasm, Mr Leung was only prepared for the joint venture to agree to an unconditional purchase of The Warehouse space and a conditional contract subject to due diligence for the rest, it was certainly no later than the first days of April. They were aware of Mr Leung’s preparedness only to recommend that deal to Aral’s board well before the 10 April meeting.

c. Mr Leung’s concerns about the altered ELD proposition by mid- March 1999 were significantly heightened by Mr Harris’ letter of

21 March. Mr Leung’s reaction has been detailed elsewhere, but it is fully understandable that if he had doubts about the construction and financial viability of the project on offer in mid-March 1999 and the parties’ commitment to it before he received the letter, his doubts were magnified by its terms. It caused any trust he still had in Mr Fava largely to evaporate. It undermined his trust in Mr Harris and his independence. In the context of a joint venture with mutual good faith obligations, he was being told Aral had to agree to an unconditional deal immediately or Churchill would resign as manager and Mr Fava’s interests would actively set out to poach tenants wholesale and wreck the project. The letter was couched in a threatening tone. The chances of the parties negotiating an agreement for the joint venture to purchase the whole of the ELD were not good prior to the letter’s receipt, and much poorer afterwards.

[354] All that notwithstanding, Mr Fava, in his unshakeable optimism and his failure to recognise the consequences his actions may have on others, said he was supremely confident going into the meeting on 10 April 1999 that he and Mr Harris would be able to persuade Mr Leung to enter into a binding unconditional contract for the purchase of the entire ELD from Matam to enable it to raise sufficient finance to construct the development. For reasons already outlined, that optimism was misplaced, but nonetheless he and Mr Harris set about trying to convince Mr Leung of the desirability of their proposal. The meeting became heated to the point where Mr Fava withdrew.

[355] The Court’s view is that it is likely withdrew because of dawning realization he was not going to succeed in persuading Mr Leung to move from his previously notified position of offering an unconditional deal for The Warehouse and a conditional deal for the balance. He realized that his failure in that regard not only was likely to terminate the joint venture but would lead to no construction (in breach of the obligation to The Warehouse) and Cachinal being financially unable to buy out Aral. Much more seriously, his failure to persuade or pressure Mr Leung to move from his stated position would result in his inability to meet his pressing obligations to his brother, with the likely consequence, if not of his financial ruin then certainly of his and his companies’ loss of any ability to prosper from the development.

[356] Those present – especially Messrs Harris, Fava and, to the extent he participated, Mr Chong – undoubtedly presented every possible argument they could conceive of to try to persuade Mr Leung to modify his position and phrased it in any way they felt they could justify in the increasingly heated environment. But Mr Leung’s attitude remained consistent with his earlier stance. The Court’s view is that if the phrases were used it was in one of those exchanges when Mr Chong was endeavouring to explain the conditional contract proposition in his own words, that he – not Mr Leung – used the phrases “fiction contract” or “side letter”. Thus those phrases, on which so much has been made to depend - not from that period but from

2002 onwards - must be seen, as mentioned, as one attempt by Mr Chong, for whom English was not his first language, trying to render in English a version of what he understood by Mr Leung’s conditional contract proposal. Mr Leung thought as

much (para [697] of his brief) although Mr Fava said there was “not even one- thousandth of 1% chance” (p 301) of that being the case. Crucially, it is not accepted that whichever phrase was used – or even if both were – that they were accorded any particular importance by those at the meeting at the time. It is not accepted it was the use of that phrase or those phrases which caused Mr Fava to leave the meeting. It is not accepted that there was any talk at the meeting of the “fiction contract” or “side letter” being used to defraud Matam’s banker or that there was any discussion of any arrangement pursuant to which Aral would be able to require Matam not to insist on performance.

[358] In the first place, despite virtually every other important facet of the relationship within these parties being extensively documented, there are no documents - contemporary or nearly so - which support the plaintiffs’ version of the “fiction contract/side letter” mention at the 10 April meeting.

[359] Secondly, no notes were taken by any of the participants when, if the “fiction contract/side letter” issue had been as important as the plaintiffs later claim, there can be no doubt, given Mr Fava’s fondness for documents and reliance on them, that the issue would have been reduced to writing.

[360] Thirdly, while Mr Fava claims everything he did after that meeting was “damage control”, there is scarcely any suggestion that he evaluated the possibilities open to the plaintiffs at that stage and decided on the approach he took. He only noted his meal venues. Ceasing negotiations altogether was not an option for Mr Fava’s interests given the pressure from his brother. The other options available were continuing negotiations, continuing negotiations with the “fiction contract/side letter” issue in reserve, or utilizing the “fiction contract/side letter” issue at that stage. Yet there is nothing to suggest Mr Fava contemplated that range of options and deliberately opted for the first. If any “fiction contract/side letter” statement had anything like the importance the plaintiffs later ascribed to it, there can be no doubt Mr Fava would have given evidence as to his selection from the range of options then available to him and the reasons for him opting to act as he did, and would have

documented his choice. In fact, there is nothing in the evidence to suggest he had the option which he now contends he had, namely to place the “fiction contract/side letter” at centre stage. All his actions, he said, were “damage control”.

[361] The next reason is that the high probability is that if the “fiction contract/side letter” statement had been made and was as important as the plaintiffs later contended it to be, there can be no doubt Mr Fava would have chosen to raise it with Mr Leung and Aral at that stage. His make-up, as the evidence makes plain, does not shrink from assertions of improper conduct. He does not hesitate to raise such issues. He maintains such views unrelentingly over lengthy periods. He did not – at that stage or for a long period afterwards - even follow his habitual course of conduct, namely to level an assertion of improper behaviour at others and regard their failure to meet it as proof.

[362] Instead, he hand-wrote his letter of appreciation to Mr Leung for continuing to negotiate with him on 30 April 1999 and maintained that stance through negotiations over the next two months or so. None of that correspondence contains a hint of the “fiction contract/side letter” issue. None suggests the statement was made. None suggests it was important, even if it were made. None suggests Mr Fava would invoke it in an attempt to improve his desperate financial situation and assure his future prosperity. Mr Fava’s later actions show he would not have hesitated to do virtually anything to save his situation and improve his prospects. His failure to mention the “fiction contract/side letter” assertion until years afterwards is the most convincing reason to conclude the “fiction contract/side letter” assertion was either never made or, if it was, it was a matter of no importance on

10 April 1999. It was recognised by the participants as Mr Chong’s inadequate bi- lingual attempt to describe his version of a conditional contract.

[363] That is not to overlook Mr Leung’s evidence that the “side letter” assertion was raised by Mr Fava when he went to Singapore and spoke with Mr Leung in late April 1999. However, it is notable that that evidence came not from Mr Fava but from Mr Leung and there must therefore be a possibility Mr Leung was mistaken. In his 16 December 2009 submissions, Mr Fava firmly denied his making any such statement. Even if the statement were made, it is notable that it was of a “side letter”

not of a “fiction contract”. It is not accepted that the comment led to Mr Leung throwing a mobile telephone at Mr Fava: Mr Leung’s denial of that occurring is accepted. Therefore, if the comment was made, it was made only in the context of continuing attempts by Mr Fava to persuade Mr Leung to alter Aral’s position.

[364] A further reason for the views reached concerning the “fiction contract/side letter” statement is that the only “side letter” reference in the documentary evidence is in Mr Ronald’s 6 October 1999 memorandum that HSBC held a “side letter” - but it was one whereby Aral intended to act in accordance with the joint venture, not contrary to it.

[365] The next reason for holding that the “fiction contract/side letter” statement was either not made or, if made, was unimportant is the time it took to surface. The first mention in the documentary record of the “fiction contract” claim is in the Anton Piller affidavits of 16 October 2002, 42 months after the incident was said to have occurred. For somebody of Mr Fava’s temperament and habitual resort to allegations of moral obloquy – even criminal conduct – and his ready resort to litigation as a business tool, the omission for over three years to raise what the plaintiffs and he now regard as a pivotal issue is telling evidence that the incident either never occurred or, if it did, simply passed as unimportant and as no more than Mr Chong’s inadequate use of English.

[366] Even if the personalities of the leading participants are taken out of the equation, there is almost insurmountable force in the submissions of Messrs Miles and McBride that it would be commercially and legally illogical and inconsistent to have a “fiction contract/side letter” by comparison with the conditional agreement which was offered for the balance of the ELD. Aral could simply have exercised its contractual due diligence right to declare itself unsatisfied without any need of a “fiction contract/side letter”. Even the plaintiffs’ witnesses recognised that, though Mr Fava sought to explain it in the way earlier summarized.

[367] Further, even if there were a “fiction contract/side letter” to the effect that

Matam could not call on Aral or the joint venture to settle the entire ELD purchase,

there must be considerable doubt as to the legal efficacy of such a document to defeat any claim by Matam for specific performance.

[368] Therefore, on the evidence given to date – not just that specifically reviewed thus far - the Court finds:

a) That it accepts the evidence of Mr Leung where it conflicts with that of Messrs Fava, Harris and Chong – as it did on almost all vital issues.

b) That it accepts – both generally and in relation to the two critical periods of time - that the plaintiffs’ assertions of breach of the Fair Trading Act 1986, deceit and the various other allegations of moral obliquity and criminal conduct against the defendants were and always have been unfounded.

c) That the similar allegations against HSBC and its officers – particularly Dr Sohmen - BDO Spicers and, especially, Bell Gully and Mr Simpson were similarly unfounded. The allegations against those parties, especially Bell Gully and Mr Simpson, were reprehensible – to put it no more strongly –on the part of, especially, Mr Fava. The responses of the defendants, Bell Gully, Mr Simpson and other counsel were a justifiable reaction to Mr Fava’s actions and were mounted only in retaliation for what Mr Fava levelled repeatedly at the defendants and those associated with them. Though the responses by and on behalf of the defendants by Bell Gully and others may be seen as significantly more robust than customarily met in such exchanges, they were provoked by the intemperate and exaggerated assertions by and on behalf of Mr Fava and the plaintiffs and were proportionate to them. The opening words of Hosea: viii;7 come to mind.

[369] In light of all of that, the conclusion must accordingly be that, as the claim stood at the time of the r 485 judgment, the plaintiffs were very highly likely to have

failed on both causes of action against both defendants on the facts, the law and on an assessment of the evidence.

[370] Observations have elsewhere been made about the number and type of interlocutory applications and their outcomes. It is sufficient for this phase of the judgment to say the defendants were markedly more successful in the interlocutory phase of the claim than the plaintiffs, but to note they have received no payments of costs for that.

[371] There are three aspects of the interlocutory phases of the claim warranting further discussion. They are:

2. A detailed consideration of an aspect of the matter placed at the forefront of Mr Fava’s opposition, namely, the varying versions of Mr Chong’s statements and evidence and Mr Simpson’s No.5 memorandum; and

[372] These proceedings were commenced on 12 October 2001 following a request of Churchill’s liquidators by Mr Fava on behalf of his debenture holders. Because of suggested urgency arising out of limitation, the liquidators agreed to proceedings being filed before funding and costs arrangements were completed but on the basis no other steps would be taken before they occurred.

[373] As a result, the proceedings were not served on either defendant promptly or within the 12 months for which R 127 (now r 5.72(2)) provided, despite directions by Master/Associate Judge Faire. In particular, on 20 February 2002 the Master was

6 September 2002 the plaintiffs’ then solicitor was recorded as saying they expected service by 1 October. Service on both defendants occurred on 18 November 2002.

[374] Alongside that, Mr Fava continued with steps to bring Churchill out of liquidation. On 28 August 2002 the liquidators, at Mr Fava’s urging, circulated a proposal to creditors other than companies associated with Mr Fava whereby those creditors would receive an increased compromise figure of 10¢/$1. It was approved at a meeting on 5 September 2002. Two creditors opposed. One expressed its concerns in a letter to the liquidators which described the proposition as “most unsatisfactory and possibly illegal”. It detailed its opposition both to Churchill’s release from liquidation and to Mr Fava’s involvement to the point where it said “there may be grounds to have Mr Fava deemed to be a person not appropriate to be a company director due to his involvement with Churchill and also Matam”.

[375] In parallel with that, on 17 October 2002 the plaintiffs sought Anton Piller orders against BDO Spicers, HSBC, and the defendants. The grounds were that there was “good evidence for concern” that those towards whom the orders were directed might otherwise “remove, conceal, delete or destroy” documents sought to be obtained.

[376] The Court declined to deal with the application on the papers but heard counsel later that day. The matter was adjourned part-heard for amendment. Preservation and Anton Piller orders were finally made on 30 October 2002 and executed on 4 November.

[377] That rather spare description now needs elaboration to consider the possible impact of the Anton Piller matter on the costs application.

[378] When the ex parte application was placed before the Duty Judge, the suggestion that a company ultimately owned by a wealthy family, together with a major international bank and a significant international accountancy firm might do what the plaintiffs alleged and move documents off shore or even destroy them seemed most implausible, unlikely, even counter-intuitive. But orders were

ultimately made because they were supported by the affidavits of Messrs Fava and

Harris and by undertakings by the then plaintiffs and the Philip Joseph Fava No.1

Trust to abide any order the Court might make for damages that were sustained by the recipients of the order.

[379] Mr Fava’s affidavit largely recounted the history of the relationship between these parties in a manner similar to that elaborated upon in his evidence in the substantive hearing but, in addition, it said:

101 It is the combination of Mr Leung’s inclination to destroy unhelpful documents, create and use fictitious documents, influence the Bank and act as if Aral is above the law that leads me to believe that if not restrained Mr Leung and Aral will retrieve all material from the HKB Auckland and BDO as soon as these proceedings are served and put the material in a place where this Court has no jurisdiction.

102 Mr Leung has suggested in the past that documents should be destroyed and has created documents to meet his commercial interests.

[380] He lengthily elaborated on that statement by reference to four examples. They did not rely on the “side letter/fiction contract” although that was described at length earlier in the affidavit.

[382] At the time, the reliability of Mr Fava’s oath was unknown and his affidavit was treated with the weight accorded any other deponent. But what ultimately resulted in the orders being made, despite the initial implausibility of the application, was the affidavit from Mr Harris, a solicitor, a partner in a well respected legal firm and one who knew the obligations not just on deponents but also on lawyers who file ex parte applications. Without those affidavits, particularly Mr Harris’, the Anton Piller order would not have been granted.

[383] For reasons elsewhere described, it may have been the case that, even then, Mr Harris was under Mr Fava’s influence in phrasing his affidavit as he did. No doubt, then and now, Mr Fava had convinced himself and Mr Harris that what they swore to in the affidavits was correct. But, more importantly for present purposes,

the question which arises is why the plaintiffs sought ex parte Anton Piller orders. The proceeding had been on foot – though unserved – for a year. Routine discovery against the defendants was available. Third party discovery could have been obtained against HSBC and BDO Spicers. Why, then, seek ex parte Anton Piller orders?

[384] Mr Fava has suggested documents of considerable value to the plaintiffs were obtained on execution of the Anton Piller orders. That may have been correct given the extremely wide terms of the orders obtained – not far short of full discovery by seeking “all information which is relevant to the dealings” between the recipients and Aral – but that information would have been available on discovery in any case.

[385] Ultimately, what was pivotal to making Anton Piller orders were the sworn assertions of Messrs Fava and Harris that Mr Leung was likely, if he came to know of the application, to destroy the documents sought, and had sufficient influence over BDO Spicers and HSBC to ensure they similarly destroyed relevant documents. At the time, that assertion seemed far-fetched. Seen with the advantage of what has occurred since, it now seems far-fetched in the highest degree.

[386] As can be readily understood, apart from the considerable work involved in compliance, execution of the Anton Piller order caused, as Mr Leung said, very considerable embarrassment and distress to all recipients. So why did the plaintiffs and Messrs Fava and Harris proceed in this way?

[387] It was suggested during the substantive and costs hearings that the Anton Piller procedure was selected precisely in order to create maximum embarrassment and distress to those on whom it was executed and Aral and Mr Leung. Given the other options then available and the factual findings now arrived at, it must be said there is very significant weight in that suggestion. That impacts on the costs application.

[388] Early in 2003, shortly after the proceedings were served on the defendants, Mr Leung contacted Mr Chong and asked him to assist in the defendants’ response. Neither saw anything amiss in that. Although Mr Chong had resigned from Aral’s employment some three-and-a-half years before, he had been Aral’s principal point of contact with Messrs Fava, Harris and the plaintiffs, been present at the meetings which are at the heart of this claim, and was author of many of the documents in evidence. His brief of evidence said Mr Leung approached him on 14 February 2003 telling him he was being sued by Churchill for misrepresentation and offering him an “assignment which would involve me in assisting with the litigation and he would pay me a fee”. Pressed, he accepted his evidence should have mentioned he was employed by Ms Kwek, Aral’s Singapore solicitor at the time, and the offer came not from Mr Leung but from her. Although Mr Chong did not intend to assist, out of politeness he did not tell Mr Leung. He dissembled. But in cross-examination he accepted there was nothing unusual or improper in the fee offer. Mr Chong said in cross-examination:

“There is nothing improper in morally offer a service. That is how I look at issue. I mean everybody is free to offer service and is up to the party to take or not take”.

[389] Mr Storey telephoned Mr Chong the following Monday, 17 February 2003. He asked him to keep time free to talk to the defendants’ solicitors. In the course of a long conversation - which he summarized in an almost contemporaneous file note - Mr Storey said Mr Chong told him he would not commit to assisting Aral in the future (nor Mr Fava) and saw no need to “make any kind of commitment like that”.

[390] Mr Chong telephoned Mr Storey on 23 February 2003 as he was concerned he may have been “too harsh or difficult” in the earlier call but, again basing the conversation on his similarly prepared file note, Mr Storey said Mr Chong advised he did not want to be involved for Aral. Mr Storey told him it was a decision for him. That accorded with Mr Chong’s brief.

[391] He said Mr Leung telephoned him on 9 April 2003 seeking information. He asked Mr Leung to provide in bullet point form the information he wanted. He did not do that. They met on 10 April 2003 but discussed this litigation only in general terms.

[392] In fact, though not mentioned in Mr Chong’s brief, Mr Fava and he had met on several occasions, with Mr Fava endeavouring to persuade Mr Chong to give evidence for the plaintiffs. Mr Fava’s affidavit of 23 March 2009 set out the detail. It showed at least four meetings prior to February 2003, including a request - which Mr Chong refused - to make an affidavit supporting the Anton Piller application and Mr Chong being interviewed by solicitors then acting for the plaintiffs on 16 October

2002. After Mr Fava further interviewed Mr Chong between 8-11 March 2003, he travelled to Sydney on 25-28 April 2003 and prepared a 44-page statement by Mr Chong which was to be confidential to Churchill’s then senior counsel. It was based on the then claim, a number of affidavits, the Anton Piller papers and a quantity of the documents in this case which Mr Fava chose. Of Mr Chong’s resignation from Aral it first spoke of his decision, in agreement with his wife, that he should resign and then (twice – in paras 123 and 141) that Mr Ronald’s 8 October

1999 HSBC memorandum was accurate and that Mr Chong told him confidentially in April 1999:

“I had resigned because of lack of action performing the MoU and that was part of an agenda to buy out Cachinal”.

It must immediately be noted that incorrectly records Mr Ronald’s file note which said no more than that:

“Chong’s frustration stems from ASO’s lack of action in seeking to buy out

[393] That led to Churchill applying ex parte on 9 May 2003 for orders under the then r 509. An order was made but Mr Chong – then in New Zealand – refused to comply even after given independent legal advice.

[394] Mr Fava continued to try to persuade Mr Chong to make an affidavit. He was initially unsuccessful but then, when Mr Chong returned to New Zealand on

13 June 2003 he signed - again after independent advice – an open statement. Thirty-four pages long, it was unsworn and read as if parts of its wording came from Mr Fava. Indeed, the statement deals with the 10 April 1999 meeting only by adopting, again, Messrs Fava and Harris’ affidavits. In the open statement the earlier reference in the confidential statement that Mr Ronald recorded the reasons for

Mr Chong’s resignation correctly in his 8 October 1999 memorandum disappeared, as did any reference to the discussion with Mrs Chong. Mr Chong repeated that he told Mr Ronald in April 1999 he resigned from ASO because he was “frustrated over the lack of action over the MoU and I believed it was part of the agenda to buy out Cachinal”.

[395] Mr Fava swore a fifth affidavit on 13 June 2003 exhibiting Mr Chong’s unsworn open statement, but the defendants objected to that method of attempting to get Mr Chong’s evidence before the Court in relation to the applications to set aside Mr Leung’s protest to jurisdiction and other interlocutory applications heard on

16-18 June 2003. On the first day it was ruled inadmissible, though the judgment observed it did not mean that Mr Chong’s evidence might not emerge in a statement at some later stage sworn in Singapore.

[396] Predictably, that produced - on 17 June 2003 - an affidavit, affirmed overnight by Mr Chong in Singapore. A photocopy was handed in by senior counsel then acting for the plaintiffs on 17 June 2003 and the original was filed in Court on

18 June. Apart from being affirmed, it was identical to the unsworn open statement. For completeness, it might be added that although Mr Chong’s affidavit became part of the evidence on the interlocutory applications, it was, ultimately, accorded little weight.

[397] Though in part repetitious, the extra detail it contains makes it pertinent to recount part of the oral judgment delivered on 16 June 2003. The salient parts read:

[5] The more urgent issue, however, relates to the admissibility of an affidavit sworn and filed in this matter by Mr Fava, Churchill’s managing director, on Friday, 13 June 2003, or, more particularly, the admissibility of a signed brief of evidence of Mr Chong Wai Sung exhibited to that affidavit. The brief is signed but is not sworn.

[6] Mr Leung, through Mr Simpson, strongly opposes the admissibility of Mr Chong’s brief and it is with that issue that this judgment is principally concerned. Mr Simpson submits the brief is not only late but is served without adequate explanation as to why it is unsworn. ...

[12] Although a statement of defence and the r 131 protest had been earlier filed, an initial application to have Mr Chong’s evidence taken under r 509

was lodged ex parte on 9 May 2003. In a Minute issued (at 1:49pm) that day the Court said it was not prepared to deal with the application on an ex parte basis but counsel were invited to make submissions in support and orders were made on an ex parte basis (at 2:40pm) that afternoon. For reasons which will appear, Mr Simpson was not advised of the application and accordingly the defendants were unrepresented, even on a ‘Pickwick’ basis.

[13] ... Even Mr Leung, in one of his affidavits, makes it clear that he and Aral regard Mr Chong’s evidence as important in the resolution of the matters in dispute. For instance, in an affidavit sworn on 16 April 2003

Mr Leung said that following service he contacted Mr Chong to ask him to give evidence on Aral’s behalf but Mr Chong declined with the excuse that he was busy with his personal affairs. It was suggested that if the matter went to trial Aral might have Mr Chong’s evidence taken in Singapore.

Registrar of this Court during his presence in the country. Churchill offered to make legal advice available to Mr Chong and to pay for that advice. It was made clear that if Mr Chong provided an affidavit over that weekend Churchill would not pursue the examination under r 509.

[15] The reasons for the application being made ex parte were said by Mr Fava in a supporting affidavit to be, first, that Churchill was concerned that if Mr Chong was forewarned of Churchill’s wish to have his evidence taken whilst in New Zealand he might either cancel his proposed trip or leave the country before the evidence could be taken and, secondly, he was concerned that pressure may be brought to bear on Mr Chong by Mr Leung if the latter were informed of the former’s proposed visit with the result that he would not come to this country.

[16] It was clear from Mr Fava’s affidavit that he, perhaps like Mr Leung, had been trying hard over a lengthy period to persuade Mr Chong to give an affidavit detailing his version of the critical events in this case, presumably on the assumption that Mr Chong would support Churchill’s position, notwithstanding Mr Leung’s statement in his affidavit that he believed Mr Chong would support Aral. Mr Fava said that he had asked Mr Chong to make an affidavit and had been refused. It would appear that the first request may have been as far back as October 2002. At that point Mr Fava said Mr Chong said he would provide a statement of his recollection of events but would not provide an affidavit.

[17] In March 2003 Mr Fava said he again asked Mr Chong to give an affidavit and was again refused. Mr Fava’s latest affidavit said that on the weekend of 26-27 April 2003 he met Mr Chong in Australia and discussed the litigation, again asking for a brief to be provided. On that occasion Mr Fava said Mr Chong agreed but directed that his brief be confidential to Churchill’s senior counsel. According to Mr Fava, the brief was signed on Monday, 28 April 2003, and the existence of a brief was mentioned during the hearing on 9 May.

[18] The order made on 9 May directed that the r 509 hearing take place on Monday, 12 May, at 10:00am but made the order conditional on service of the order on Mr Chong as soon as practicable after his arrival in New

Zealand and for Churchill’s solicitors arranging for Mr Chong to be taken to see Mr John Turner, a respected commercial solicitor and a partner in Buddle Findlay, in order that Mr Turner could advise Mr Chong concerning his position. Churchill agreed to pay Buddle Findlay’s account.

[19] The Court also directed that if practicable Mr Simpson be advised of the making of the order and the arrangements made for Mr Chong and for the evidence to be taken, again as soon as practicable after Mr Chong’s arrival. Leave was granted to either defendant to apply on short notice to vary or rescind the order. No application was made over the weekend pursuant to that leave.

[20] In a memorandum filed on 12 May the Court was advised that Mr Chong was served with the orders on Sunday, 11 May, about 9:30am, following which he was interviewed by Churchill’s counsel and solicitor and refused to provide an affidavit or obey the orders. The Court was advised that Mr Chong’s stance was that he would not attend the hearing on 12 May and might even leave New Zealand immediately, that is to say on the Sunday. He took Mr Turner’s advice, but that was said to have been reluctant and not to have changed his mind. Mr Bierre, junior counsel for Churchill, said that efforts were made to contact Mr Simpson during Sunday,

[21] There matters seem to have rested for a period other than on 12 May Mr Simpson was told that there was a confidential brief of Mr Chong’s evidence in existence. Mr Simpson asked for its disclosure to him but that did not occur at that stage.

[22] Mr Fava, it appears, persisted with his efforts to have Mr Chong provide evidence for this Court. He apparently travelled to Australia to discuss the matter with Mr Chong in late May and, as he put it in his 13 June affidavit, he “met with him all this week from Monday 9 June 2003”. It was as a result of those efforts that Mr Chong finally signed his 34 page brief on Friday, 13 June, and a copy was made available by service on Mr Simpson’s firm later that day.

[25] Mr Asher stressed the importance to Churchill of Mr Chong’s brief being ruled admissible, saying that he contradicted Mr Leung’s evidence on a number of material points. Mr Simpson also said that there were some material amendments between the initial and the final brief and in particular the reasons for Mr Chong’s departure from Aral.

[26] While acknowledging the importance of Mr Chong’s evidence to all parties in this matter, Mr Simpson nonetheless submitted strongly that in the factual circumstances the brief should not be ruled admissible and, in particular, stressed that Mr Leung and Aral had had no opportunity to respond to suggested contradictions in Mr Chong’s brief by contrast with the numerous affidavits filed on behalf of the defendants. There was therefore substantial risk of prejudice to the defendants if the brief were to be admitted.

[28] ... The real question comes down to what efforts Churchill made to obtain an affidavit from Mr Chong and whether it was reasonably practicable for them to obtain his evidence.

[29] In considering that, it must first be recounted that Churchill – indeed both parties – have known for a considerable period that Mr Chong’s evidence would be of great importance to both. All parties wanted him to give evidence. Mr Fava, it appears, has been more active in trying to secure an affidavit from Mr Chong. He has been trying to persuade him to provide an affidavit on a number of occasions over a number of months including, it seems, travelling to Australia for the purpose.

[30] Of importance, however, is that it is clear that Mr Chong, a Singaporean, has now travelled to New Zealand on at least two occasions over the past few weeks. In part it seems those visits were specifically to discuss the matters in issue in this proceeding. Notwithstanding the orders made on 9 May, Churchill did not carry through with the orders and try to continue with the r509 hearing on 12 May. Whilst it may have been the case that Mr Chong might have left the country before 10:00am that morning or may have refused to give evidence, there was nonetheless an opportunity, first, to obtain an affidavit from him during that visit and, secondly, if he refused, to require his attendance at the Court in order to have his evidence taken on oath. Then, the factual circumstances previously discussed make it clear that Mr Chong returned to New Zealand for most if not all of the week beginning 9 June and was prepared at the end of that time not just to confirm a lengthy brief of evidence which he had given on a confidential basis to Churchill’s counsel prior to 9 May but to authorise the disclosure of the brief on an open basis to the Court and to Aral.

[31] But, critically, what the evidence does not cover is why, when Mr Chong was prepared to co-operate with Churchill to the extent discussed and even to sign a brief, he was not prepared to swear it as an affidavit. He does not say why and it seems there was no effort made by Churchill last week to subpoena him or to apply for a further order under r 509 for his evidence to be taken prior to his departure.

[32] In those circumstances the Court’s view is that Churchill has failed to demonstrate that it was not reasonably practicable to obtain Mr Chong’s evidence in the form of a sworn affidavit or a deposition made before the Registrar or the assigned Judge under r 509.

[33] In those circumstances the Court concludes that Churchill has not shown that Mr Chong’s brief is admissible and the objection taken by Mr Simpson on Aral’s behalf is accordingly upheld.

[398] Two additional matters need to be noted before dealing with Mr Simpson’s response.

[399] The first is that Mr Chong’s first statement, the confidential version, which was put before the Court with Mr Chong’s consent as an exhibit to Mr Fava’s affidavit sworn on 27 March 2009, said of his reason for resigning from Aral that he

told Mr Ronald the true reason in late March 1999 after he resigned and Mr Ronald correctly recorded that reason in his HSBC memo of 8 October 1999. Mr Ronald’s memorandum mentioned linkages between Aral and the Sohmen family with Dr Sohmen being deputy chairman of HSBC. After recording financial difficulties with Mr Fava and his companies and problems with meeting Pacific Plaza indebtedness to HSBC the letter commented:

“A feature of our loan is that we hold a side letter from David Leung stating that Aral fully intends to exercise certain rights under their J/V agreement in the event Cachinal defaults on a payment. Inter alia this would involve Aral advancing funds to Cachinal to ensure all loan obligations are met. The J/V agreement provides that in such a case the defaulting party’s share in the J/V property would be reduced accordingly.

Clearly the most desirable outcome for the Bank is for Aral to buy out Cachinal’s share and also to continue the development on the expansion land to secure The Warehouse lease.”

[400] The second is that, after again taking independent legal advice, Mr Chong swore an affidavit on 31 May 2004 supporting the plaintiffs’ application for an order under the then r 436. It repeated what had already been said, including Mr Leung’s request to Mr Chong to assist him with the litigation and said “he would pay me a fee”. It also said he told Mr Storey on 17 February 2003 that he “would not be involved”. In the next paragraph it said: “I told Mr Storey I was prepared to answer questions/clarify documents or work initiated by me relating to the litigation”.

[401] Mr Storey’s affidavit of 1 February 2005 in opposition to the plaintiffs’ application to rescind the order for security for costs rebutted the detail of Mr Chong’s 31 May 2004 affidavit especially that last statement. Mr Storey stood by his file note which did not refer to any comment of that sort.

[402] By 8 June 2004, however, the position had deepened. On that day Churchill wrote to Bell Gully asserting that:

“In early 2003 Mr Leung offered Mr Chong money in exchange for assistance with this litigation”

which amounted to a “wilful attempt to obstruct, prevent, pervert or defeat the course of justice”.

Memorandum, and orally, said Mr Chong “won’t talk to Aral or lawyers”, that was untrue and misleading because Mr Chong’s “second affirmed affidavit” had him saying, in what he thought was his only conversation with Mr Storey, he had told him “I was prepared to answer questions/clarify documents on work initiated by me relating to the litigation”. The letter asserted the statement by Mr Simpson amounted to a wilful attempt by him to defeat the course of justice.

[404] By 10 June 2004 Churchill’s assertions of Mr Chong’s attitude were repeated but a number of additional allegations were made concerning Mr Leung and Bell Gully. As far as the former is concerned, the 10 June 2004 letter said on several occasions that Mr Leung had “offered money in exchange” for Mr Chong’s assistance with the litigation, and Mr Leung was keen to “try and tie Mr Chong down to assisting him with this litigation with offers of money”.

[405] On 21 June 2004 Mr Fava made an affidavit in support of the r 436 application. Though he said :

[9] Mr Leung must have known on or about 14 February 2003 when he went to see Mr Chong to offer him an assignment and a fee for assisting with this litigation but Mr Chong would be able to confirm much of my evidence and much of the evidence of Mr Harris made in October 2002 ...

[10] ... I believe that Mr Leung knew his proposed evidence would not be correct and he attempted to enlist the co-operation of Mr Chong in advance to guard against his own evidence being later contradicted by Mr Chong. Hence the offer of an assignment and a fee as opposed to coming straight out and asking Mr Chong to make an affidavit.”

[14] The plaintiff has secured evidence of conduct which would appear to amount to the Second Defendant, Mr Leung, attempting to wilfully obstruct, prevent, pervert or defeat the course of justice in relation to this proceeding. The affidavit of Mr Chong Wai Sum ... affirmed 31

That led to a letter from Murdoch Hall to Bell Gully of 23 June 2004 which relevantly said of Mr Chong’s “second affirmed affidavit” that Mr Leung offered him an “assignment and a fee”; that was more than an “ordinary offer of employment” as Mr Simpson had described it in Court on 22 June 2004. The letter then said:

8. Mr Chong deposes to a subsequent telephone call initiated by Mr Storey to Mr Chong. Our client knows the exact words used. Mr Chong deposes he offered to answer questions/clarify documents or work initiated by him relating to the litigation.

9. Mr Chong deposes to a subsequent still telephone call from Mr Leung to Mr Chong. Our client knows the exact words used. Mr Chong deposes Mr Leung wanted answers/clarification. Mr Chong deposes he was willing to oblige.

11. Our client therefore believes that it is possible to establish beyond a reasonable doubt that your firm (and therefore Mr Simpson) knew prior to 16 June 2004 [sic.] that Mr Chong had offered to answer questions/clarify documents or work initiated by him relating to the litigation.

[406] The Court turns to what was propounded in the defendants’ reply submissions on the costs application and Mr Fava’s further rejoinder to that material.

[407] In his reply submissions on the changes to Mr Chong’s statements and the No.5 Memorandum, Mr Miles first pointed to Mr Chong accepting that the payment offered was not improper and Mr Storey’s recollection of his conversations with Mr Chong were accepted by him as correctly representing what passed between them. He therefore said Mr Fava’s claim that Mr Simpson’s submissions were “pure invention” was unsubstantiable.

[408] He said that, unknown to the Court on 16 June 2003, in fact Mr Chong’s April 2003 statement “had been shown to Mr Simpson at a meeting on the basis that it was ‘confidential’ and he could not retain a copy”. Mr Miles said Mr Simpson’s suggested “invention” was first raised by Mr Fava in his letter to Bell Gully of

10 June 2004 and persisted in ever since. He drew attention to the differences between Mr Chong’s confidential and open statements, particularly relating to the reasons for his resignation from Aral. He said it was only in the open version that there was any mention about the “agenda to buy out Cachinal” which led to lack of action over the MoU. The No.5 Memorandum was accurate in that regard. Mr Fava’s persistence in alleging Mr Simpson was corrupt was therefore a “classic example of an improper allegation of fraud designed to embarrass the defendants’ solicitors to the point that they could not continue to act”.

[409] Mr Fava, however, disputed that version of events in his further reply memorandum dated 30 March 2009 where, over 22 pages, he refuted Mr Miles’ assertion that Mr Simpson had been “shown” the April 2003 confidential Chong statement.

[410] He painstakingly analysed the contents of Mr Chong’s statements on this issue and the HSBC memorandum in support of his submission there were no material differences between the two. He then analysed the terms of the No.5

Memorandum to support a submission it was “pure concoction” and was intended to convey, misleadingly, that Mr Chong resigned from Aral through frustration caused by its refusal to exercise its rights as a joint venturer to buy out Cachinal’s share, when, seen correctly, Mr Chong’s confidential statement said he “resigned because of lack of action performing the MoU and that it was part of an agenda to buy out Cachinal”.

Memorandum because he knew of Bell Gully’s potential exposure to a claim by Aral and was “keen to expunge” that possibility by defeating the plaintiffs’ claims as early as possible. In making the point that when Mr Chong resigned on 23 March

1999 Cachinal was not in breach of the joint venture agreement and thus Aral could not have bought its share at that stage, Mr Fava again said the No.5 Memorandum

was “concoction” and that “as I have repeatedly stated I can never be wrong about this”. And when he put Mr Chong’s confidential statement before the Court on

[413] There was, as noted, no impropriety in Mr Leung approaching Mr Chong to help him with the litigation. Indeed, there were good reasons for that which were earlier set out.

[414] Mr Chong was obviously reluctant to help, but he was a loyal employee and when Mr Leung approached him on the second occasion he asked Mr Leung to prepare a memorandum setting out his questions in bullet point form. Mr Leung did not do that. There, so far as the evidence goes, matters relating to Messrs Leung and Chong ended with Mr Chong thereafter siding with the plaintiffs and providing the statements and affidavits just reviewed.

[415] It is of note that Mr Chong’s assertion that he told Mr Storey he was “prepared to answer questions/clarify documents or work initiated by me relating to this litigation” first appeared in his 31 May 2004 affidavit. It was not in any earlier affidavit. It could therefore have had no bearing on the events leading up to 16 June

[416] From the plaintiffs’ viewpoint, however, the issue escalated. What was a perfectly understandable offer by Mr Leung to pay Mr Chong (or pay Ms Kwek, as Mr Chong’s then employer) for the time taken in assisting him with the litigation, became converted in the plaintiffs’ view to something improper. Though not, it would appear, based on sworn evidence, in a memorandum probably drafted by Mr Fava but filed by Mr Judd dated 7 February 2005, in a discussion of the likely costs to the defendants of proceeding with a claim, the following appeared:

65. ... it would have made sound commercial sense in February 2003 for Mr Leung to offer Mr Chong a fee of say, $200,000.00, in exchange for “assistance” – presumably Mr Chong giving evidence that did not “in any material way” contradict the evidence of Mr Leung.

66. The practical effect of this would likely have been that the protest by the second defendant would have had a better chance of complete success on the grounds of no good arguable case. Had the second defendant succeeded on those grounds then, as already mentioned, there would no doubt have followed an application for summary judgment by the first defendant on the same grounds and if that succeeded then that would have been the end of the proceeding.

67. By those means the whole proceeding could have been disposed of for say a $200,000.00 fee to Mr Chong and some $100,000.00 in legal fees – with costs recoverable from the plaintiff. The defendants would have achieved:

[417] But Mr Chong, in his evidence in the substantive proceeding, accepted that payment of a fee would not have been out of the ordinary. Even if Mr Chong was prepared to assist the defendants with clarifications or other comments on the documents – something which was unexceptionable given his authorship – and be paid a fee for his time for so doing, there was no justification whatever for the plaintiffs to elevate a payment for Mr Chong’s time into what they suggested - though quantified only in a memorandum - was an improper attempt to, in effect, “buy” favourable evidence from him. Still less was there any justification for suggesting the comments made by Messrs Leung, Simpson and Storey might amount to attempting to pervert the course of justice. This whole aspect of this dispute has been over-blown by the plaintiffs – Mr Fava in particular – for whatever purpose. There was no basis to escalate it into a significant issue.

[418] As is apparent from the foregoing, efforts had been made by Mr Leung since early 2003 to utilize Mr Chong’s detailed knowledge of the background to meet the

claim. Those efforts were ultimately unavailing, but that may have been unknown to the defendants and their advisers until perhaps about May/June 2003.

[420] It referred to Mr Chong’s confidential statement of 28 April 2003 and then to his open statement of 13 June 2003 and expressed concerns over differences between the two as follows:

(i) Para 111 says Chong resigned because frustrated over lack of progress in MOU

(ii) Previous version referred to and agreed with statement in HSBC bank note that Chong resigned because frustrated that Aral wouldn’t exercise right to take out Cachinal’s interest in PP

[421] Two aspects of Mr Simpson’s No.5 memorandum have continued to resonate throughout the subsequent history of this case. They were:

a) Mr Simpson’s statement that he “sighted the [confidential] statement when Mr Stewart met on Monday 9 June”. (para 2)/

b) Mr Simpson’s statement that it was “obvious Chong providing substantial assistance to Fava” though he “won’t talk to Aral or lawyers” (para 4(e)).

[422] The “won’t talk to Aral or lawyers” statement is the more easily dealt with. [423] If the statement were to be treated entirely literally in the sense that

Mr Chong was not prepared to engage in speech with Aral or its lawyers, then the statement was incorrect. Mr Chong was still prepared to talk politely to Mr Leung. His February 2003 conversations with Mr Storey had been affable to the point where

Mr Chong rang on the second occasion because he thought he may have been too harsh in the first, and the conversation closed with mutual expressions of friendship.

[424] But that, plainly, is not what the “won’t talk to Aral or lawyers” statement was intended to mean.

[425] It was in a paragraph of Mr Simpson’s submissions dealing with the assistance Mr Chong was, now, known to the defendants to be prepared to give Mr Fava and his interests and was a complaint that though he was prepared to give Mr Fava a lengthy statement, partially prepared by Mr Fava and containing his views, he was not prepared to “talk” to the defendants or Bell Gully. That plainly meant “talk” (including perhaps providing them with a brief) in the sense of providing them with assistance in defending the claim, detailing the background and the documents – particularly those of which he was the author – and thus siding with the defendants, his former employers, and their advisers rather than with the plaintiffs. The fact that Mr Chong, who might previously and reasonably have been assumed by the defendants to be prepared to assist them in meeting the claim, was now known to be prepared to assist the plaintiffs was doubtless a matter of consternation for the defendants. Mr Simpson was concerned to try to persuade the Court Mr Chong’s unsworn statement should not be received in evidence for the numerous reasons he provided.

[426] True, in his r 436 affidavit sworn on 31 May 2004, Mr Chong said that in the earlier conversation with Mr Storey he told him that “I was prepared to answer questions/clarify documents or work initiated by me relating to the litigation”. That does not sound like Mr Chong’s phraseology and was not a statement he had previously made. It thus could form no basis for Mr Simpson’s 16 June 2003 objection but, even so, the statement means no more than that Mr Chong was prepared to comment on documents relevant to the case, no doubt because of his continuing relationship with Messrs Leung and Storey. If the statement was made during the February 2003 telephone call(s)– and comments have already been made on Mr Chong’s reliability of re-call – it was in any event no more than he told Mr Leung he was prepared to do had Mr Leung complied with Mr Chong’s bullet

point request. Thus, the comment, even if made, was neither incorrect nor hinted he was prepared to provide a detailed statement or brief of evidence to the defendants.

[427] Seen in that light, the “won’t talk to Aral or lawyers” submission by Mr Simpson should have been understood by all who heard it as synonymous with a complaint that it was now known to the defendants that Mr Chong would not co- operate by providing them with his version of events in writing, in a brief or an affidavit.

[428] Therefore there is – and never has been – any basis for the repetitious criticism of Mr Simpson’s submissions on that score.

[429] The comment that Mr Simpson “sighted” Mr Chong’s statement during a meeting he had with Mr Stewart QC on 9 June 2003, led to Mr Stewart filing a memorandum on 26 June 2003 saying Mr Chong’s “statement did not leave my possession at any stage and Mr Simpson did not read any part of the statement” though he later read the last paragraph as to the basis on which the statement had been provided. Mr Stewart said Mr Simpson could only have been “referring to the fact that he would have seen me holding a bulky statement in my hand”. On

[430] Mr Simpson responded with a memorandum on 21 March 2005 accepting his meeting with Mr Stewart was “Without Prejudice” but pointing out he disclosed no part of the negotiations at the meeting. He also accepted Mr Chong’s statement did not leave Mr Stewart’s possession but said that during the meeting Mr Stewart “quoted several extracts from the statement”. Mr Simpson said he was confident that at one stage during the meeting he “looked over his [Mr Stewart’s] shoulder” as they read one paragraph together.

[431] That produced a response affidavit from Mr Stewart, sworn on 16 May 2005, saying that at no stage during the 9 June meeting did he allow Mr Simpson to “look over my shoulder and read a paragraph of Mr Chong’s confidential” statement. He did not expressly respond to the assertion that he quoted several extracts from the statement during the meeting.

[432] When those issues are seen in proper context, Mr Simpson’s statement that he “sighted” Mr Chong’s statement must, in light of the evidence, be seen as referring only to having seen the bulky document in Mr Stewart’s possession - but not having read it, including not having read a paragraph over Mr Stewart’s shoulder. What was not elucidated by evidence was whether the paragraph from the confidential statement of which the passage cited from the No.5 memorandum is Mr Simpson’s précis, was or was not one of the paragraphs which Mr Stewart – admittedly by silence – seems to accept he read at the meeting.

[433] What is critical – though seems to have been repeatedly overlooked by Mr Fava – is that it is clear Mr Simpson must have been told the detail of the particular passage in Mr Chong’s confidential statement as to the reasons for his resignation for him to be able to phrase para A.1(e)(ii) of his No.5 Memorandum as he did. Since he did not read the statement itself, it follows that the resignation reason must have been one of the paragraphs Mr Stewart read Mr Simpson at the meeting. No other source presents itself.

Memorandum. Both paras A.1(e)(i) and A.1(e)(ii) only partly reflect the terms of paragraph 111 of the open statement and paragraphs 123 and 141 of the confidential statement. That Mr Chong was more positive than Mr Leung about the ELD and wanted Aral to proceed was known to all, and his resignation through frustration at his inability to convince Mr Leung in that regard was hardly controversial. What was important to the plaintiffs and Mr Fava was what might be thought to underpin their view that all the defendants’ actions from April 1998 onwards were to “get back” at Mr Fava for causing “loss of face” to Mr Leung and for Aral to buy Cachinal’s share of Pacific Plaza cheaply. That might conceivably have gained some support from the assertion in both paras 141 of the confidential statement and

111 of the open statement that Aral’s lack of action in performing the MoU was “part of an agenda to buy out Cachinal”. But, notably, neither para A.1(e)(i) nor A.1(e)(ii) refer to that potentially important issue. Paragraph A.1(e)(ii) more obviously reflects the terms of Mr Ronald’s 8 October 1999 memorandum – to which Mr Simpson would have had access – than para 141 of the confidential statement. It must follow that para A.1(e) of the No.5 Memorandum was incomplete

in the sense that both sub-paragraphs omitted reference to what may have been the most important aspect of paras 141 and 111, but neither what was said nor what was unsaid could have misled the Court.

Memorandum, he has been trenchantly criticised repetitiously ever since. The statements discussed were frequently argued to be:

a) in breach of his obligations concerning the “Without Prejudice” nature of the meeting;

c) an integral part of Mr Fava’s theory that Bell Gully has, throughout, been desperate to defeat this claim on Aral’s behalf because the firm (and Aral) knew it was exposed to a claim for professional negligence for any amount for which the Court might have found Aral liable.

[436] There is no merit in the first objection. Neither Mr Stewart nor Mr Simpson suggest the Court was not to be informed they had a meeting on a “Without Prejudice” basis. That is to say, it is not suggested the “Without Prejudice” rubric extended to the fact of their having a meeting.

[437] Secondly, it has long been a well-recognised exception to the “Without Prejudice” rule that admission of facts independent of or collateral to the subject matter of a dispute between the parties has always been admissible to prove that fact (Waldridge v Kennison (1794) 1 Esp 142, 170 ER 306-307; Foskett: The Law and Practice of Compromise 6th ed (2005) para 27-25 p 302). The fact Mr Chong was now supporting the plaintiffs was doubtless important, but what motivated Mr Chong to resign from Aral seems highly likely to have been a factor collateral to the purpose of the meeting.

[438] Both Mr Chong’s statements were admissible if not privileged, and any privilege for the subject matter in the latter was probably waived when his 17 June

2003 affidavit was filed. His provision to counsel of the former statement on a confidential basis may have rendered it temporarily privileged and thus immune from production in Court (other than subject, possibly, to conditions). Thus, if the “Without Prejudice” meeting was concerned with settlement of this claim (the purpose of the meeting does not appear in the papers and this may have been Mr Stewart’s only involvement in the entire history of this litigation as opposed to acting for Mr Noel Fava) Mr Chong’s two statements were nonetheless admissible or potentially so.

[439] The assertion that Mr Simpson was in breach of the “Without Prejudice” rule in para A.1(e)(ii) of his Opposition memorandum is therefore unproved – most likely untenable - and always has been.

[440] Turning to the “misleading the Court” allegation, the main response must be that Mr Simpson did not mislead the Court. As recounted in several judgments – particularly those of 16 June 2003 and 20 August 2009 - prior to the coming into force of the Evidence Act 2006 there was very little chance the Court would admit as evidence a signed but unsworn statement by one person exhibited to the affidavit of another. That it was a device was testified to by the fact that a sworn copy of the statement was admitted in evidence the following day. Even if the unsigned statement exhibited to Mr Fava’s affidavit had been admitted on 16 June, very little weight would have been paid to it – and indeed very little weight was accorded the sworn statement in the determination of the interlocutory applications then current.

[441] Secondly, what Mr Simpson was trying to do in his No.5 Memorandum and oral submissions was persuade the Court not to admit Mr Fava’s fifth affidavit with its unsworn statement annexed. His memorandum and oral submissions were advocacy. Trying to persuade a Court by means of advocacy to adopt a particular point of view of the facts is part and parcel of everyday litigation. Advocacy is not synonymous with ‘misleading’.

[442] Thirdly, as has been remarked on a number of occasions, even if Mr Simpson set out to mislead the Court as opposed to trying to persuade it to a particular viewpoint, he omitted reference to the most important fact. So Mr Simpson’s successful advocacy did not mislead the Court on that score. Even if he tried to, he failed on the grounds propounded. Although he was successful in having Mr Fava’s fifth affidavit ruled inadmissible, it was for different reasons and his success was only short-lived. It lasted 24 hours. Thereafter, Mr Chong was a constant witness for the plaintiffs and gave extensive evidence and was subjected to extensive cross- examination at the substantive hearing.

[443] Proper appreciation of the points just made should have shown any disinterested observer that Mr Simpson’s advocacy in the terms of his No.5

Memorandum and submissions was, at best for the plaintiffs and Mr Fava, a short- lived success. It could not and did not mislead the Court. Mr Chong’s full participation in this litigation on behalf of the plaintiffs from June 2003 onwards should have resulted in this issue, if legitimately raised – and it is extremely difficult to reach that conclusion –- coming to an end within 24 hours. It should never have been pursued and consistently repeated since that time.

[444] It is sufficient to deal finally with this matter to say there is nothing in the respective reply submissions which disturbs those conclusions on this topic. Mr Miles’ submission that Mr Simpson was “shown” Mr Chong’s confidential statement is the same as Mr Simpson saying that he “sighted” the statement at his meeting with Mr Stewart. In light of the evidence, that attracts the same observations as appeared earlier.

[445] Mr Miles appears to have been in error in suggesting that it was only in the open version of Mr Chong’s statement that there was any mention about the “agenda to buy out Cachinal” since, as mentioned, that phrase appears in para 141 of the confidential statement. But the rest of Mr Miles’ submissions are correct.

[446] For the reasons earlier mentioned, Mr Fava’s repeated efforts to create significance between the statements and the affidavits and between those documents and the No.5 Memorandum are simply unsupported by fact.

[447] The only new points in Mr Fava’s submissions, were the date of Mr Chong’s resignation, the date Aral became entitled to buy Cachinal’s share of the joint venture and that it was only in Mr Chong’s confidential statement he said he told Mr Ronald that one of the reasons for his resignation was Aral’s recalcitrance which was “part of an agenda to buy out Cachinal”.

[448] The problems confronting those submissions are, first, that in his memo of

8 October 1999 Mr Ronald was recounting his recollection of what Mr Chong had told him some six months earlier (perhaps refreshed by Mr Chong’s repetition at a meeting with Mr Chong on 6 October 1999) and, secondly, that Mr Chong’s confidential statement said he advised Mr Ronald of the “agenda” reason in April

1999. He does not say when in April, and Mr Chong’s evidence said he reached that view independently (after discussion with his wife) and not because of anything done or said by Mr Leung or Aral relevant to Pacific Plaza.

[449] Mr Chong was, throughout, keener than Mr Leung that Aral should proceed with the ELD. He resigned on 23 March 1999 because Mr Leung was not prepared to move in accordance with Mr Chong’s wishes. Therefore, when Mr Chong added the “agenda” point to his acceptance of the 8 October 1999 memorandum, it may have been something he recollected on 28 April 2003, but the documents do not convincingly suggest it was something he voiced to Mr Ronald in April 1999.

[450] There is thus no basis in Mr Fava’s reply submissions to alter the Court’s earlier conclusions.

[452] The principal damages claim exceeding $25m was for what was in effect lost opportunity for the plaintiffs (or a combination of them) to purchase Aral’s share in Pacific Plaza. It was not really debated in evidence and was not, of course, the subject of submissions. In view of that, no extended debate on damages need be undertaken. But a few comments are pertinent.

[453] The first claim would appear to have faced difficulties in deciding which of the plaintiffs was entitled to what and whether the plaintiffs would have had the financial capability, given their poor financial positions, to complete the purchase. And it was wholly predicated on the assumption the plaintiffs would buy Pacific Plaza when it was clear Aral was always much more capable and likely to be the buyer, as it was. Further, in endeavouring to prove what would have happened if other events had occurred, there were clearly difficulties both in proving causation and in quantum. The evidence of Mr Thomas and others showed there was substance in the defendants’ objections on all those issues.

[454] The second claim was for $25m exemplary damages. This, too, would appear to have faced considerable difficulties. In the first place, there may well have been an element of double-counting about this claim in relation to the lost opportunity claim. Secondly, it would have been unusual to say the least to award exemplary damages to companies – and there was no specific evidence on that topic. Thirdly, exemplary damages are only infrequently awarded in New Zealand. Fourthly, the amount claimed was larger by a number of orders of magnitude than any previous award of exemplary damages in this country (Blanchard et al: Civil Remedies in New Zealand 2003 para 11.7.1 p558). And last - but by no means least

- the facts would have had to justify an award of exemplary damages, and the observations made show that was most unlikely to have been the ultimate finding.

[455] There may have been other problems as well, but at the very least it must be said that the plaintiffs’ claims for damages – especially exemplary damages - faced the severest problems.

[456] The exemplary damages claim could only properly be described as extravagant and presumably included to increase settlement pressure on the defendants. That, too, impacts on the costs determination.

[457] It is next convenient to turn to the rules and submissions on the costs application starting with Mr Fava’s opposition.

[458] The main ground for Mr Fava’s opposition to the defendants’ costs application was, under r 14.7(g), that “some other reason exists which justifies the Court refusing costs or reducing costs”.

[459] Though generalizations, that principally rested on the following propositions:

a) Mr Fava and his interests gained financially in 1998 at Mr Leung’s/Aral’s expense. That caused Mr Leung to “lose face”, particularly with Dr Sohmen. That meant the MoU was a sham from the outset and both it and Mr Leung’s actions under it in April 1999 and afterwards were founded on a desire by Mr Leung to wreak revenge on Mr Fava and his interests.

b) For reasons of professional negligence detailed later, Bell Gully were throughout this litigation desperate to defeat this claim because the firm was at risk of having to indemnify Aral for any judgment given against it and thus should never have continued acting for the defendants, especially in the manner they did.

c) That because of (b), Bell Gully’s actions on behalf of the defendants were more determined than their professional duties required, and in particular led to Mr Simpson concocting his assertions concerning Mr Chong’s evidential statements on 16 June 2003 and ever since.

[460] In combination, those issues, it was submitted, were sufficient to identify Bell Gully’s actions with those of the defendants and provide the “some other reason” to decline the costs application.

[462] On 12 September 1996 Mr Mallett of ASO faxed Mr Leung a note concerning Pacific Plaza in which he recommended that the supplementary agreement to purchase Pacific Plaza then under negotiation include a “provision

which extends Fava Co’s [Cachinal’s] liability so as to guarantee all CH’s [Churchill’s] obligations”. Mr Leung accepted in cross-examination that Mr Mallett was making the point that if Cachinal was not Churchill’s guarantor then, if Churchill defaulted, enforcement would need Cachinal’s support and that, in the circumstances, would have been near impossible. He accepted a provision to that effect was not included in the supplementary agreement. Thus, when Churchill later defaulted, the joint venture mechanism was unavailable to ensure compliance with the guarantee with Cachinal’s assistance.

[463] Mr Leung accepted that, but denied it was a “bad mistake”. He denied the omission of what Mr Mallett described as “vital” deprived Aral of additional power to ensure Churchill’s compliance. He also denied that at the time he wanted Pacific Plaza “so badly because it was such a great buy” that he overlooked Mr Mallett’s recommendation in his enthusiasm.

[464] It is sufficient to deal with the assertion to say that although Mr Leung became annoyed at Churchill’s defaults and Mr Fava’s attitude towards payment, for Aral to have had Cachinal’s guarantee would have added little to the mix: the guarantee was likely to be one to the joint venture not to Aral direct, thus posing difficulties in enforcement by Aral. Even if the guarantee was direct to Aral, Cachinal and Churchill were likely not to have been able to meet their obligations. Further, although there were subsequent tensions in the relationship, the parties did continue in business in the normal way with no indications of spite.

[465] It has also been found that Mr Leung was throughout genuine in his negotiation under the MoU and the discussions around that and genuine, though understandably cautious, in the discussions in March and April 1999. Thus there is no basis for any conclusion other than that the Cachinal guarantee suggestion of September 1996 did not underpin Mr Leung’s later actions. Even if there were some annoyance at Mr Fava’s later failure to ensure Churchill complied with its obligations, there was no evidence of “loss of face” arising out of the issue and certainly nothing to suggest revenge or anything similar as Mr Leung’s enduring later motivation. Despite Mr Fava’s view that Mr Leung was malicious and determined to prolong Mr Fava’s agony, he would hardly have been likely to

continue in business with him and pass up an easy opportunity to buy Cachinal’s share of Pacific Plaza in April/May 1999, still less to authorize expenditure by the joint venture to help Cachinal out of liquidation, then pay about 10% over valuation in October to buy that share, were he motivated as Mr Fava suggests.

[466] As to proposition (b), though this claim has long been suffused with allegations of professional negligence, impropriety, moral obliquity and criminal conduct on the part of Bell Gully and Mr Simpson, particulars and details of just how Bell Gully were alleged to have been exposed to suit by Aral in this way have been sparse and infrequent.

“56. ... failure to obtain restrictive covenant from my interests in regard to retailing exclusivity, failure to obtain a consent from my interests in regard to building on the common area of a property on unit titles, cancelling a prior full and final settlement which opened the door to this proceeding by Churchill ...”

[468] Those assertions appear to be based on and fleshed out in letters from Murdoch Hall & Co, especially one to Bell Gully dated 18 November 2004 (perhaps echoing Mr Fava’s phrasing):

The purpose of this letter is to raise serious questions concerning the propriety of your firm acting.

Under a written agreement dated 26 October 1999 Aral purchased the bulk (but not all) of the unit titles at Pacific Plaza from Mr Fava’s interests Cachinal...

Aral did not purchase unit title FDU4 Pacific Plaza from Mr Fava’s company Churchill.

Matters between Aral-Churchill (and others) in regard to Pacific Plaza were fully and finally settled pursuant to a second written agreement dated

Woolworths, the supermarket anchor of Pacific Plaza, had a type of exclusivity provision in their lease. Under their lease Woolworths possessed draconian relief against their landlord if the building on FDU4 Pacific Plaza was leased to a competitor selling merchandise specifically prohibited under the exclusivity provision.

In the documentation under which Aral settled matters with Churchill (and others) Aral agreed to assist Mr Fava’s interests to obtain a principal unit title for FDU4.

Bell Gully failed to obtain for Aral in the documentation under which Aral settled matters with Churchill (and others) a restrictive covenant from Mr Fava’s interests not to lease any part of the building on FDU4 to a tenant selling merchandise in breach of the type of exclusivity provision in the Woolworths lease.

Bell Gully failed to obtain for Aral in the 26 October 1999 documentation under which Aral purchased from Cachinal the bulk (but not all) of the unit titles of Pacific Plaza or in the 26 October 1999 documentation under which Aral fully and finally settled all matters with Churchill (and others) consent from the registered proprietor of FDU4 for Aral to build on the common area of level 4 Pacific Plaza.

Aral completed the Pacific Plaza unit title purchase from Cachinal in November 1999; it then, near immediately, commenced building on the common area of level 4 Pacific Plaza to accommodate Deka whom it had signed up as an incoming tenant.

Nomoi, representing the interests of Mr Fava, purchased FDU4 Pacific Plaza and settled the purchase in early 2000. As soon as Nomoi found out Aral was building on the common area of Pacific Plaza Nomoi applied for an obtained an injunction to stop that building work proceeding.

Bell Gully allowed to be included in the Aral/Nomoi sale and purchase agreement signed up on 14 March 2000, after extensive discussions and numerous drafts of the settlement documentation prepared by Bell Gully, a cancellation of the Aral-Churchill (and others) full and final settlement contained in the Aral-Churchill (and others) agreement of 26 October 1999.

Had it not been for that cancellation the full and final settlement would have been an impediment to the present claim.

[470] Alternatively, and put slightly differently from Mr Fava’s submissions in support of the re-call application:

a. Aral bought Cachinal out of the unit titles comprising Pacific Plaza (but not Churchill out of FDU4 comprising the Superstore) and there were two full and final setlement

b. Bell Gully negligently failed to obtain from my interests (as potential future owner of FDU4 the Superstore) for the benefit of Aral a covenant (as required under the Woolworths lease) not to lease the Superstore to a food retailer; and

c. Bell Gully negligently failed to obtain from my interests (as potential future owner of FDU4 the Superstore) for the benefit of Aral a covenant consenting to Aral building on the common area of the unit titles comprising Pacific Plaza; and

d. Aral entered into a lease of premises at Pacific Plaza with DEKA which premises included the common area of the unit titles comprising Pacific Plaza; and

e. In furtherance of the lease deal with DEKA Aral commenced demolishing and building on the common area of the unit titles comprising Pacific Plaza; and

g. Nomoi, as owner of the Superstore, obtained an injunction restraining Aral from demolishing and building on the common area of the unit titles comprising Pacific Plaza; and

i. To settle matters Aral bought Nomoi out of the Superstore at a price in excess of $1m over market value; and

j. In the settlement agreement between Nomoi and Aral Bell Gully negligently cancelled the full and final settlement agreement between Churchill and Aral; and

k. There no longer being a full and final settlement between Churchill and Aral, Churchill commenced this proceeding against Aral.

[471] Aral pleaded accord and satisfaction stemming from the 26 October 1999 agreement. That agreement terminated the joint venture and gave neither party “any claim against the other” in relation to the ownership, operation or management of Pacific Plaza but, apart from that, the means set out in Murdoch Hall’s letter by which Bell Gully was said to have been exposed to indemnifying Aral featured little in the evidence.

[473] Even if all the above were correct factually and might conceivably have given Aral a claim against Bell Gully – the possibility seems more conceptual than real and is, of course, radically affected by the likely conclusions on the facts - the narrative appears to lack any causal link between Aral’s actions up to 26 October

1999 when it bought out Cachinal’s share of Pacific Plaza by comparison with what Aral felt constrained to do in relation to Nomoi in March 2000. Further, even if Bell Gully were vulnerable to a claim by Aral for its actions in relation to events after October 1999 – and all the portents are in the opposite direction – the imbalance in the comparison between vulnerability for the $3.27m Aral paid Nomoi to buy the Superstore land by contrast with Aral’s supposed vulnerability to Churchill and the other plaintiffs for its actions prior to October 1999 of approximately twice $25m is such that the plaintiffs would plainly have encountered difficulty.

[474] Without the hearing being concluded, including submissions, it would not be correct to pronounce finally on this issue, but the nub of Mr Fava’s assertion is assumed to lie in his three heads of potential exposure and Murdoch Hall’s letter. Even if, as Murdoch Hall asserted, the 14 March 2000 contract might have cancelled the 26 October 1999 settlement and opened Aral to this claim, everything was still predicated on achievability of the conveyancing results. There is no evidence such was the case.

[475] In addition, it must be said that perusal of the signed and the most formal (but unsigned) versions of the contract between Aral and Nomoi to buy the Superstore land in evidence does not, as Mr Fava and Murdoch Hall asserted, appear clearly to cancel the agreement of 26 October 1999. One of the 14 March 2000 contracts contains a release, but not of the 26 October 1999 contract. Submissions would have been needed on that topic.

[476] All of that notwithstanding, even assuming Bell Gully might conceivably have been vulnerable to a claim for professional negligence by Aral for its professional services after October 1999 – and for the reasons mentioned that seems very doubtful – it is extremely difficult to see Bell Gully as being vulnerable to Aral to indemnify it for any judgment that might have been given against Aral for events

prior to October 1999: the factual links, the quantum and the suggested linkages do not seem to exist or add up, even without submissions on the topic.

[477] The conclusion must accordingly be that Mr Fava’s assertion as set out in paras [459](b) and [467]-[470] seem unlikely to have been capable of being effected, seems even more unlikely to have been founded or been the motivation for the way in which Bell Gully has represented Aral throughout this litigation and therefore falls well short of identifying Aral and Bell Gully to the extent of providing “any other reason” under r 14.7(g) to deny the costs application.

[478] The position concerning para (c) has elsewhere been considered in detail and both streams rejected: if more determined than might customarily have been encountered, Bell Gully’s responses were prompted only by the stridency of the plaintiffs’ and Mr Fava’s allegations, and Mr Fava’s repeated assertions of “concoction” in respect of Mr Chong’s statements issue has been conclusively rejected.

[479] In light of all of that, the question is whether the defendants have shown that the Court should order increased or indemnity costs in their favour against Mr Fava and the plaintiffs, that is to say costs exceeding the $521,560.50 to which they are entitled under Category 3.

[480] Looking first at r 14.6(3)(a) the view must be that the nature of the proceeding and the way in which the plaintiffs dealt with its interlocutory phases, suggest the defendants were required to spend substantially more time on it than a normal case under Band C. The review of the more egregious aspects of the interlocutory history of this case amply supports that view. Then, the pleadings involved deceit. That always leads litigants to defend their reputations firmly, and led to Mr Leung defending himself to the utmost, particularly against a background of assertions of improper conduct against him and a number of others made in terms and circumstances designed to cause him maximum embarrassment. The amounts claimed were very large – probably extravagantly so - and, as far as the damages are

concerned, were difficult and expensive to rebut. There were more and more bitterly fought interlocutories than normal.

[481] As regards r 14.6(3)(b), the question is whether the plaintiffs and Mr Fava contributed unnecessarily to the time and expense of the claim by the means listed in the Rule. The only matter in the sub-rule which might justify increased costs in the interlocutory phase is pursuing an unnecessary step or an argument lacking merit. That might be said to apply to the Anton Piller application and the plaintiffs’ application to rescind the order for security for costs. For the reasons mentioned, it can now be seen there was no merit in the Anton Piller application. In a case as lengthy, complex, and extensive as this, quite irrespective of the personal acrimony between the parties, security for costs would be regarded as routine.

[483] The principal matter in issue is therefore whether “some other reason” exists to justify orders under rr 14.6(3)(d) and 14.6(4)(f) and whether the plaintiffs and Mr Fava “acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing or defending” the claim under r 14.6(4)(a). particularly in the post-interlocutory phase. Against that, the Court must consider whether “some other reason exists” which would justify refusing costs or reducing them in terms of r 14.7(g). That has been partly discussed in dealing with Mr Fava’s objection.

[484] Seen by a person with no prior involvement in the case or knowledge of the parties, this file, at least up to the commencement of the substantive hearing, might well be seen as one which was difficult, complex, extensive and hard-fought and where the parties had entrenched attitudes antagonistic to each other but one which, to the extent it could be encompassed within that description, would not be seen as out of the ordinary. In particular, of the four main participants at the critical meetings, three were giving evidence for the plaintiff and their briefs broadly harmonized on principal issues. Depending on the documents seen and the interpretation ascribed, there might have been thought to be a supporting documentary trail. True, the disinterested observer would have noted Mr Leung’s brief took issue with the plaintiffs’ witnesses on nearly all significant matters and

there were obvious difficulties about enforceability of the MoU, the March/April

1999 exchanges and the damages claims but, broadly, the claim might have been seen as not necessarily vexatious, frivolous, improper or unnecessary.

[485] However, if at any time between the claim being launched and the beginning of the substantive hearing the impartial observer became aware of the whole of the background discussed extensively in this judgment and came to know Mr Fava and, to a lesser degree, Mr Harris, well, that person might have taken the view that the thesis of Messrs Fava and Harris – particularly the former – which they believed underlay the matters in issue, was highly suspect, for the reasons discussed extensively in this judgment. The likelihood of judgment for the October 1998 meetings and the MoU was dubious. What took place in March/April 1999 depended, for the plaintiffs’ success, on only their view being upheld. That particularly manifested itself in the Anton Piller application when the claim was still unserved. Thus they might have tentatively concluded that commencing and continuing the claim might have been, if not frivolous, then possibly vexatious (though not as that term is described in s 88B of the Judicature Act 1908 and the cases under that section: McGechan on Procedure para J88B.04 p 3-140). It was also possibly improper in a broad sense and it was necessary only in the sense of Mr Fava wishing to vindicate his views and, hopefully, make a very considerable amount of money. Still, with three out of the four main witnesses prepared to give roughly similar versions of events for the plaintiffs and only one main witness opposing them, the disinterested observer, while perhaps very dubious or sceptical as to the justification for or wisdom of the plaintiffs beginning and continuing the claim, may not have seen at that stage that so doing was highly likely to expose the plaintiffs to an application for increased or indemnity costs.

[486] The disinterested observer who knew nothing of the background before the substantive hearing began would, however, be very likely to have had second thoughts as the plaintiffs’ case proceeded. And the disinterested observer who was aware of the background would be likely to have had the most serious misgivings at that point as to the wisdom or justification for the plaintiffs continuing. In large part, that would have arisen from the very damaging cross-examination of Messrs Fava, Harris and Chong and, to a lesser degree, the cross-examination concerning

damages. For reasons given elsewhere, though Mr Fava had, in cross-examination, “stuck to his guns” as far as he was able, the impartial observer would have concluded that his evidence showed him to be lacking in credibility on significant points – his attempted rationalization of the conditional contract point was one example - Mr Harris’ evidence to be unable to be accepted – he effectively invited the Court to disregard it - and Mr Chong wanting to “strike out” his own evidence.

[487] At that point, the impartial observer would have concluded that, in pressing on, the plaintiffs and Mr Fava were bringing themselves within rr 14.6(3)(d), (4)(a)(f) and were clearly risking an order for increased or indemnity costs if they did so. Difficulties in the damages claims would have been thought to buttress that view.

[488] The plaintiffs and Mr Fava would no doubt have countered by saying all was not lost to them at that stage with Mr Leung’s evidence and cross-examination still to come. That view, however, would not have been justified for the reasons, first, that, though highly likely given the allegations against him, the plaintiffs could have had no certainty the defendants would call evidence given the state of the litigation at the conclusion of the plaintiffs’ case. Secondly, Mr Fava and Messrs Harris and Chong knew Mr Leung well and, had he or they been able to consider the matter dispassionately, might well have expected Mr Leung to stand up well – as he did – to cross-examination. The impartial observer would, therefore, at that point in the litigation, have advised the plaintiffs and Mr Fava to end the litigation by one means or another or risk orders for increased or indemnity costs should they continue.

[489] They did, of course, continue to the point where it was only Mr Fava’s bankruptcy that ended the litigation with judgment for the defendants.

[490] Seen in that light but putting the background aside, the plaintiffs and Mr Fava must be held to have run the litigation – in the interlocutory phase and substantively

- throughout in a way which substantially increased the defendants’ costs between what was inherent in a claim of this length and complexity and possibly acted vexatiously, frivolously, improperly or unnecessarily in continuing with the

litigation. That especially applies beyond a point towards the end of the plaintiffs’

[491] However, once the background was factored in, the decisions of the plaintiffs and Mr Fava as to the way in which the litigation was begun and managed up to the commencement of the substantive hearing, the decision to embark on the substantive hearing and the decision to continue it beyond the point of the plaintiffs’ case mentioned must be seen as largely if not wholly motivated by Mr Fava’s unjustified views as to what was galvanizing the defendants. That clearly amounts to “some other reason” to order increased or indemnity costs from that point on and the Court has found there was no “other reason” to reduce or refuse costs under r 14.7(g).

[492] The result therefore is a combination of rr 14.6 and 14.7. Even if the plaintiffs and Mr Fava might, with major difficulty, be thought to be justified in the way in which they began and managed the litigation up to the commencement of the substantive hearing and, perhaps, towards the end of the plaintiffs’ case, there could have been little, if any, justification for them in continuing beyond that point.

[493] The conclusion is therefore that the way the plaintiffs and Mr Fava commenced and ran this litigation up to and towards the end of the plaintiffs’ case was such that – particularly in the latter portion of that period - they are liable to an order for increased costs. To continue the litigation beyond that point, they are liable to indemnity costs.

[494] As an aside, it should be observed that orders for increased or indemnity costs are not tantamount to a fine for bad behaviour. But they are a reflection of the conduct of the plaintiffs and the way Mr Fava commenced and ran the litigation.

[495] At the costs hearing, neither counsel nor Mr Fava addressed the quantum of the costs claim or the detail of its components. In such matters it is almost invariable when detail is being considered for there to be a multitude of differences of view about the reasonableness of parts of the claim, the necessity for steps undertaken, the

reasonableness of the costs, issues such as the incidence of GST particularly on a New Zealand subsidiary of an overseas company, and about numerous other matters. The award should also recognise that for a large part of the life of the claim the defendants have been held to be entitled only to increased costs.

[496] In light of that – though accepting the approach is somewhat arbitrary – it has been decided to allow the application for increased costs both before the substantive hearing began and because of the interlocutory activity and its tone up towards the end of the plaintiffs’ case. Mr Chong’s evidence concluded on 24 November 2006, Day 21, and the plaintiffs’ case concluded on 27 November 2006, which was Day 22 of the hearing. Doing the best that can be done with the figures, it would seem appropriate to allow the defendants’ increased costs in an amount of about thrice scale for that period (including expert/witnesses’ fees). An amount of $1.6m is allowed for this period.

[497] For pressing on unjustifiably beyond that point for another nine hearing days, the plaintiffs and Mr Fava should be ordered to pay indemnity costs. Again doing the best that can be done on the figure but recognising the result cannot be precisely calculated and needs to take the uncertainties mentioned into account, an allowance has been made against the plaintiffs and Mr Fava of $400,000, approximately what the defendants were charged for this period. No separate allowance has been made for subsequent attendances. The overall result approximates two-thirds recovery.

[498] Mr McBride’s researches showed that at the time of delivery of this judgment all the plaintiffs are extant. None are in receivership or liquidation. The order on the costs application against them will therefore be against all four jointly.

[499] There is no conclusion realistically open other than to hold that an order for increased and indemnity costs should be made against Mr Fava personally, in addition to the orders against the plaintiffs. His actions throughout the conduct of this claim fit clearly within the criteria outlined in Asset Building M Pritchard Ltd. He was responsible for the plaintiffs initiating the proceeding in the manner they did. He was responsible for controlling them thereafter.

[500] Though his web of trusts and companies was likely not to have led to payments to him personally – one of the factors in creating that web was tax avoidance - had the plaintiffs succeeded in their litigation, he would clearly have ensured that he and his interests would have been the ultimate beneficiaries: the evidence in the substantive claim concerning the companies and trusts controlled by him and the level of his personal participation in the litigation as shown by the evidence discussed in this judgment, all combine to indicate that he should be held not to be able to escape personal liability for costs. In a way the whole of the litigation has been conducted for the ultimate benefit of him and his interests through companies which were either insolvent or were incorporated solely to participate in the matter at the heart of this case and in the litigation itself. The evidence repeatedly showed up his companies and trusts were mere vehicles to further his interests. Further, he has persistently alleged impropriety and bad faith. It could not be said that he acted in the interests of the plaintiff companies rather than his own interests. In terms of Dymock, the companies may have been the nominal plaintiffs but he was the “real party” to the litigation.

[501] Up until 7 December 2009 Mr Fava remained bankrupt but an order against him personally could still have been made during his bankruptcy for the following reasons:

a) The Insolvency Act 1967 applies to Mr Fava’s bankruptcy because s 444(2) of the Insolvency Act 2006 states that the former Act continues to apply to the exclusion of the latter to any “past event” even if taken after the commencement of the 2006 Act. “Past event” is defined by s 444(1) to include the issue of a bankruptcy notice before the 2006 Act came into force. That applies to the bankruptcy notice served on Mr Fava.

b) Although s 32 of the 1967 Act provided that “any debt provable in the bankruptcy” was stayed on adjudication, the costs order against Mr Fava personally was not a “debt provable in the bankruptcy” because of the effect of s 87(1) of the 1967 Act which read:

(1) . ... all debts and liabilities, present or future, certain or contingent, to which the bankrupt is subject at the time of his adjudication, or to which he becomes subject before his discharge by reason of any obligation incurred before the time of his adjudication, shall be debts provable in bankruptcy.

c) The personal order for costs against Mr Fava was not in contemplation at the time of his adjudication and although he had become subject to that obligation before his discharge, it was not by reason of any obligation incurred before adjudication. Accordingly, there is no bar in law to the making of an order in the costs application against Mr Fava personally. And it is appropriate that his liability be several and not jointly with the plaintiffs.

[502] On 7 December 2009 Mr Fava applied for an order that delivery of this judgment be delayed until such time as his appeal against the judgment of 20 August

2009 had been decided. Although the separate judgment dismisses that application, consideration was given to whether delivery should be postponed until the forecast r 10.9 application had been filed and determined one way or the other. It was decided not to adopt that course. Amongst the reasons are that there is not, as yet, complete certainty that the r 10.9 application will be filed – although it seems very likely given Mr Fava’s participation in this claim to date.

[503] Further, while it would be desirable to complete the substantive hearing and deliver a judgment on the merits, for reasons explained throughout this judgment it is highly unlikely that the result would change following the defendants’ remaining evidence and submissions from both sides. Rather than beleaguer this case with further interlocutory applications, possible appeals and further significant delays, in light of the firm conclusions that have been able to be reached, however tentatively, on the central issues in the case, it is considered better to complete the proceeding in this Court and leave the parties to such appeal rights as they may wish to exercise.

[504] Therefore, the defendants having demonstrated an entitlement to increased costs on major parts of the litigation, and indemnity costs on others, and to avoid lengthy arguments about the type of incidental matters just mentioned, the result is:

a) The defendants are entitled to an order for increased or indemnity costs against the plaintiffs jointly and Mr Fava severally which are fixed in the sum of $2m.

b) The sum lodged by the plaintiffs for security for the defendants’ costs and interest accrued thereon (currently about $115,000) is to be paid by the Registrar to the defendants’ solicitors in partial satisfaction of Order (a).

c) The $300,000 received from Mr Thomas is to be taken in partial satisfaction of Order (a).

e) Within 42 days from delivery of this judgment the defendants are to advise if they intend to continue to seek an order for increased or indemnity costs against Mr Yee and Murdoch Price. If they do, a conference will be convened to make timetable arrangements concerning that matter.

f) For the avoidance of doubt, the sum for which the plaintiffs and Mr Fava have been found liable to the defendants is to include the costs of the increased or indemnity costs hearing and all subsequent appearances.

McElroys (Andrea Challis/Rachel Scott), P O Box 835 Auckland 1140, for Mr Yee and Murdoch

High Court of New Zealand Decisions

Churchill Group Holdings Limited v Aral Property Holdings Limited HC Auckland CIV 2001 404 2302 [2009] NZHC 2605 (22 December 2009)