Facing a mortgagee sale, Northland contractor Jimmy Daisley was buoyed by an offer from neighbours the Kellers to step in and help with refinancing. For the Kellers it set off a decade of disputes over what had been agreed. Ten years on, the Kellers were vindicated in three different sets of litigation on appeal to the Court of Appeal, dealing variously with allegations of Daisley not keeping promises, his removing buildings without authority and creating false invoices to inflate values of contracting equipment.
In late 2009, Mr Daisley and his companies were under considerable financial pressure. Westpac was threatening to call up a $1.5 million loan. Another $110,000 was secured by second mortgage to a solicitor’s trust company. At risk was Mr Daisley’s depot on Maungakaramea Road and rural properties in the district owned by him or his company SDD Ltd.
The Kellers offered to assist. A deal was proposed having the Kellers pay off his mortgage debt, with Mr Daisley’s business assets tipped into a new company called Ark Contractors Ltd with shareholding split to reflect their respective contributions after allowance for a 25 per cent discount on the Daisley contribution to recognise he was being rescued from a mortgagee sale. A taste of what was to come surfaced early when the Kellers learnt belatedly about the second mortgage debt of $110,000. Westpac agreed to the Ark Contractors bail out and postponed its mortgagee sale, subject to the Kellers paying upfront $200,000 of Daisley’s Westpac debt.
The Court of Appeal was told that one day prior to Daisley’s first property going to mortgagee sale, the Kellers put their contracts for Ark Contractors’ purchase in front of Mr Daisley with an ultimatum: sign; take it or leave it. He signed. The Kellers then paid the required $200,000 upfront to Westpac. Balance of Daisley’s debt was to be paid from the Kellers’ savings and a Kiwibank refinancing loan. Nearly two months later, Mr Daisley baulked on signing off on the Kiwibank loan; he was playing for time, exploring other options. Mr Daisley used this delay as leverage to amend their prior Ark agreement. This time the Kellers were under pressure; they faced loss of $285,000 already put into the deal unless bank financing was completed.
Their relationship steadily slid downhill. Mr Daisley failed to agree on or sign a shareholder agreement, needed before issuing to him shares in Ark Contractors. He stopped paying rent to Ark for his occupation of business premises at the Maungakaramea depot. In September 2010, in league with son Scott, he set about removing office buildings from the depot. The buildings were on skids; temporary structures not part of the land sold to Ark Contractors, Mr Daisley said. Police intervened, preventing removal of a third building. The Court of Appeal confirmed a High Court ruling that the buildings belonged to Ark; they were part of the land, affixed by a permanent electrical connection; and in any event were included in earlier negotiations as being amongst the assets sold to Ark.
Mr Daisley sued Mr Keller for conversion, claiming Mr Keller prevented access to some forty items on site at the depot having a replacement value of $225,000: contracting equipment, a tractor and trailer plus beams and poles. Mr Keller, already angered by the buildings removal, demanded Mr Daisley provide proof of ownership. With Mr Daisley’s contracting business then going into liquidation insolvent, Mr Keller was confronted by Daisley’s trade creditors and equipment suppliers all claiming rights of possession over various items on site. In the High Court, Mr Daisley produced what were ruled to be suspiciously fabricated invoices to justify the value of goods allegedly converted: one for a forklift being held by Mr Keller; another invoice supposedly for the value of steel beams.
At the High Court trial, Mr Daisley was awarded $541,700 for breach of fiduciary duty since he was never issued shares in Ark Contractors. This was calculated as the value of his equity contribution to Ark. This ruling was overturned by the Court of Appeal. The Kellers at no point owed any fidicuary duty to Mr Daisley. Their agreement to have shares in Ark issued to Mr Daisley remains open. He has to first sign a shareholders’ agreement. Valuation of his interest in Ark will be problematic given the years of litigation. The court was told Ark currently has a net worth of about $500,000.
Keller v. Daisley – Court of Appeal (29.07.21)
21.131