Seven years after Maurice O’Reilly agreed to pitch in and financially assist old school friend Stuart Morrison the two were in court bitterly disputing what had been agreed: O’Reilly had agreed to warehouse his Tauranga properties until he got back on his feet, Morrison said; Morrison sold the properties outright, said O’Reilly.
Valued at $4.7 million in July 2018, the properties at Tauriko on Tauranga outskirts encompass two residential properties and a kiwifruit orchard. Mr Morrison purchased Tauriko in stages through 2004 and 2005, taking title in the name of his family trust. By 2011, the trust was in default on a bank loan. A mortgagee sale was threatened. Mr Morrison put the properties up for auction. They didn’t sell. Conditional sales eventually came to nothing. Family friend Maurice O’Reilly and wife Anne came to the rescue, borrowing to pay off the pressing bank loan and taking title in the name of their family investment company: Autumnal Investments Ltd. A lease was signed allowing Mr Morrison to stay in occupation of his home, paying rent to Autumnal. The High Court was told Mr Morrison never paid the agreed rent and Autumnal never pressed for payment. Kiwifruit operations were contracted out. Revenue from kiwifruit and rentals from the second residence went to Autumnal. In what was an unusual commercial arrangement, Mr Morrison was personally liable to Autumnal for all shortfalls in expense beyond revenue received.
Mr Morrison was bankrupted in 2013. The O’Reillys again came to the rescue, setting up a company which employed Mr Morrison as a painter and decorator. In August 2014, Mr Morrison presented the O’Reilly’s with plans to subdivide and sell part of the Tauriko property. Evidence was given that the O’Reilly’s were furious, stating the property was owned by Autumnal and Mr Morrison had no rights over it. Pushing Mr Morrison to one side, they did subsequently proceed with the subdivision, selling off the subdivided portion at a net profit for Autumnal of some $450,000. Litigation followed, after Mr Morrison’s discharge from bankruptcy.
Mr Morrison claimed the O’Reillys had agreed to a no-cost ‘buy and hold’ arrangement with Autumnal holding title in trust for Mr Morrison’s family trust. He was to cover any financial shortfall, Mr Morrison said, with the right to get the properties back once he was back on his feet. The O’Reillys denied any such deal.
Justice Wylie ruled that on balance a ‘buy and hold’ deal was agreed. The arrangement did not mirror a typical ‘arms-length’ transaction. Mr Morrison as vendor paid the legal costs of Autumnal as purchaser; he received no reimbursement for work done around the property; a contract requiring him as vendor to accept all responsibility and financial risk for ongoing operations was not a typical commercial arrangement, and; the O’Reilly’s setting up a painting company during his bankruptcy was consistent with the need to have him earning income to meet Autumnal’s expenses.
Autumnal held title to Tauriko as constructive trustee for Mr Morrison’s trust, Justice Wylie ruled. Trust law does not allow trustees to profit from their position, unless expressly agreed. The O’Reillys were ordered to transfer title for Tauriko back to Mr Morrison’s trust and to account for the net profits of the subdivision and sale together with all revenue profits received. Autumnal made a taxable profit in four of the six years it held title to Tauriko. Transfer of title back to Mr Morrison’s trust is subject to him repaying Autumnal’s mortgage and reimbursing the O’Reillys for their $55,500 cash contribution towards Autumnal’s purchase.
Morrison v. Autumnal Investments Ltd – High Court (3.12.20)
21.008