Property
developers Wayne Wallace’s and Stuart Herron’s relationship quickly
deteriorated when Mr Wallace wrongly used joint venture funds to further his
own projects, then their fingers were badly burnt with involvement in the Blue
Chip group of companies and finally Mr Wallace’s admitted debt to Mr Herron of
$3.2 million was cut back to some $291,000 after a series of court cases.
The two met in 2003,
jointly sourcing property development opportunities for the Blue Chip group and
other property developers. The deal with
Blue Chip was to see them paid in kind, taking title to completed apartments
rather than payment of consultancy fees.
Prospects later dimmed with Blue Chip’s insolvency.
The Court of Appeal was
told that in 2003 Mr Wallace siphoned funds out of their joint venture company
without Mr Herron’s knowledge both to purchase land for his proposed development
of a retirement village in the Auckland suburb of Belmont and to settle a
relationship property claim with his former partner. Mr Herron was furious when he found out,
threatening intervention by the Serious Fraud Office.
In October 2005, the
two agreed to disentangle their financial affairs with a “wash-up”
agreement. Mr Wallace acknowledged he
owed Mr Herron $3.16 million. Payment
was due in three years and six months, subject to a number of
contingencies. The amount payable was to
be reduced by payments potentially due from Lombard Finance and from the sale
of yet-to-be-completed Blue Chip apartments in Auckland and Queenstown. Mr Herron was subsequently bankrupted in
2009; discharged in 2012. He then set
off in pursuit of Mr Wallace. Following
stop/start litigation through 2016 interrupted by arguments about what was or
was not admissible in evidence, the High Court ruled the balance owed Mr Herron
under the “wash-up” agreement was $966,531.
Both appealed. The Court of
Appeal reduced the amount payable by another $675,000. This was the value placed on Mr Herron’s
half-share in a Queenstown apartment, not yet built by Blue Chip at the time of
the 2005 “wash-up”. Blue Chip later abandoned
the project. In December 2006, Mr Herron
had settled out of court his litigation against Blue Chip. He agreed to give up all rights to a
Queenstown apartment. His rights against
Blue Chip were swapped, in what the Court of Appeal described as a curious
change of focus, into attempts by Mr Herron together with Blue Chip’s Mr Mark Bryers
to muscle in on Mr Wallace’s Belmont retirement project. By giving up all rights against Blue Chip, Mr
Herron prevented his joint venture partner from gaining a Queenstown credit
towards the amount due under the “wash-up” agreement. Consequently, the agreed value of Mr Herron’s
half-share in the unbuilt Queenstown Blue Chip apartment is to be deducted from
the amount due to Mr Wallace, the Court of Appeal ruled.
Wallace
v. Herron – Court of Appeal (14.08.17)
17.101