High Court rules on Stefan Lepionka's housing development wrangle

A housing subdivision on Kahuranaki Rd, on a stretch of the Tukituki River known as Horseshoe Bend, near Havelock North, which is under dispute in the High Court. Photo / File

A High Court judge has vindicated former orange juice magnate Stefan Lepionka as a four-year legal wrangle over a multimillion Tukituki subdivision nears an end.

A High Court judgment issued by Justice Fitzgerald said while "at its core" the case concerned a mortgagee's statutory and equitable duties, and the remedies to be generated in case of a breach, in a "broader context" it concerned competing claims over a 24ha block of land on the banks of the Tukituki River.

The plaintiff, GWP Group, formerly owned by Garth Paterson, set about developing the property in 2009, working initially, with Hawke's Bay developer Andy Coltart, who from 2009 lived in one of two houses on the property.

Following a falling out, GLW granted Coltart an option to purchase the lot where his house was located, along with a contractual arrangement giving him the right to roam over the property's common area.

GLW continued to market other lots, and in 2014 entered into a sale and purchase agreement with Stefan Lepionka, of Lepionka and Company Ltd, who paid a deposit of $463,000 to GLW Group for several planned sections on the Tukituki River's Horseshoe Bend.

However, Justice Fitzgerald said two difficulties then arose. One was that GLW was in serious financial trouble, pointing out the company had taken a $1.3m loan with AFI Management Pty. The second difficulty in the case was that in entering into the Lepionka purchase, it had contracted to sell the purchaser something it could not deliver, due to the existing right to roam agreements.

When GLW defaulted on its $2.6 million mortgage, Lepionka bought the mortgage off Westpac to protect his deposit.

Justice Fitzgerald said it was "concerning" Paterson has been willing to actively mislead others, namely both Lepionka and David Johnson of AFI.

The court found Lepionka's account of who was to blame more credible than Paterson's arguments on issues regarding completion of the sales contracts .

"I record that I generally prefer Mr Lepionka's evidence on this point. It is more consistent with the contemporaneous documents, as well as my overall impression of the witnesses' credibility and reliability. Mr Paterson also accepted in cross-examination that he/GLW "bore the risk" of being able to settle the Lepionka Purchase Contracts".

The judgment went on to dismiss GLW's claims that LCIL acted unlawfully and had enriched itself unlawfully.

"No underlying legal cause of action is advanced in relation to these allegations."

In summary, Justice Fitzgerald said LCIL did not wrongfully refuse to permit GLW to redeem the first mortgage in April 2015.

While it was pointed out LCIL breached its equitable duties as mortgagee, in that it exercised its power of sale for improper purpose, it had not breached it duty by failing to accept the Coltart offer on May 1, 2015, or the TFL offer in November 2015.

A total of five of eight claims put forward by GLW was dismissed and any former orders placed in the Court of Appeal rescinded.

The judgement also stated it would be "inequitable" to set aside the Lepionka purchase contracts.

However, the issue of possible damages was not readily ascertainable.

"This will turn on a final assessment of the cost to complete the subdivision and any other costs incurred in order to settle the Lepionka Purchase Contracts."

The subdivision should be complete within 12 months.

Justice Fitzgerald put the value of the property at $4.3m to allow for the possibility of there being special purchasers.

The court will have a telephone conference between parties in February 2018 to consider the next steps.

A statement from Lepionka said he was very pleased the court upheld the Lepionka contracts, said that LCIL should complete the subdivision quickly and found that the developer (whose principal is bankrupt in Australia and New Zealand) was not credible and had misused the Lepionka deposits.

He could not make further comment given that some issues remained before the court.