Action Media Limited (in liquidation) v Mitchell
[2014] NZHC 3143
•10 December 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-2358 [2014] NZHC 3143
UNDER rule 19.2 of the High Court Rules IN THE MATTER
of an application for transfer under s 43(6)
of the District Courts Act 1947BETWEEN
ACTION MEDIA LIMITED (in liquidation)
Applicant
AND
SEAN WESLEY MITCHELL Respondent
Hearing: 4 December 2014 Appearances:
K C Francis and J V Angelson for the Applicant
P Cogswell for the RespondentJudgment:
10 December 2014
JUDGMENT OF ELLIS J
This judgment was delivered by me on Wednesday 10 December 2014 at 11.00 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Counsel/Solicitors:
K C Francis, Meredith Connell, Auckland
J V Angelson, Meredith Connell, AucklandP Cogswell, Cogswell Law, Auckland
ACTION MEDIA LIMITED v MITCHELL [2014] NZHC 3143 [10 December 2014]
[1] The applicant, Action Media Limited (AML) is in liquidation. At all material times the respondent, Mr Mitchell, was the sole director and joint shareholder of AML.
[2] In December 2012 AML instituted proceedings in the District Court against Mr Mitchell alleging that he had taken significant amounts of money from the company’s bank account to meet his personal expenses, amounting to $90,364.52.1
Mr Mitchell claims that, for a variety of reasons, the payments represented legitimate company expenses of the company.
[3] In May 2014, the liquidators of AML filed a claim in this Court against Mr
Mitchell for breaches of his director’s duties under the Companies Act 1993.
[4] AML applies to transfer the debt proceeding in the District Court and to have it consolidated with the Companies Act proceedings brought by the liquidators. Mr Mitchell opposes.
Background
[5] AML was placed into liquidation on 4 May 2010 following a special resolution of its shareholders. The liquidators then conducted an investigation into the financial affairs of the company.
[6] One of the liquidators, Mr Levin, has deposed that the liquidators discovered that Mr Mitchell had taken significant amounts of money from the company’s bank account to meet his personal expenses. He says that on 3 October 2012 the liquidators made demand on Mr Mitchell for repayment of this amount. The District Court proceedings were issued by AML shortly thereafter.
[7] Following the exchange of information capsules, the requisite “notice of pursuit” was filed in June 2013. Although in September 2013 Mr Mitchell elected
the “simplified trial” procedure it seems that progress has been somewhat delayed by
1 This amount may now have been reduced somewhat. Mr Cogswell advised that only $68,000 is now at issue because the liquidators accept that $18,000 of the $90,000 sought comprised transfers of funds between the company’s own accounts.
his application for security for costs (which was declined on 17 February 2014) and AML’s more recent change of solicitors. In any event, I am advised that the pleadings have now closed and the allocation of the (mandatory) judicial settlement conference (JSC) is awaited. In the ordinary course, if that JSC was unsuccessful the matter would then be timetabled to a hearing. Under the simplified trial procedure evidence in chief is given by affidavit, but with cross-examination.
[8] Following the commencement of the District Court proceedings, the liquidators’ investigation continued and they formed the view that the company had been trading while insolvent from at least 31 July 2007 until the date of its liquidation. Mr Levin says that by allowing the company to trade while insolvent, Mr Mitchell caused the company to incur significant tax arrears and further debts to unsecured creditors.
[9] The High Court Companies Act proceeding was commenced by the liquidators on 30 May 2014 and served on Mr Mitchell on 2 July. It contains six causes of action, namely breaches of director’s duties:
(a) not to engage in reckless trading (s 135);
(b)not to incur obligations unless the director believes on reasonable grounds that the company will be able to perform the obligation (s 136);
(c) to exercise the care, diligence, and skill that a reasonable director would exercise in the same circumstances (s 137);
(d) to exercise power for a proper purpose (s 133);
(e) to act in good faith and in the best interests of the company (s 131(1));
and
(f) not to act, or agree to the company acting, in a manner that contravenes the Act or constitution of the company (s 134).
[10] Mr Mitchell’s statement of defence was served on 11 August 2014. The first case management conference has been adjourned pending resolution of the present application.
Relevant law
[11] Section 43(6) of the District Courts Act 1947 provides:
Notwithstanding the foregoing provisions of this section, the High Court or a Judge thereof on the application of any party to the proceeding may order the removal into the High Court, by order for certiorari or otherwise, of any proceeding commenced in a District Court, if the High Court or Judge thereof thinks it desirable that the proceeding should be heard and determined in the High Court. Any such removal shall be on such terms as to payment of costs, giving security, or otherwise as the High Court or a Judge thereof thinks fit to impose.
[12] Thus an applicant must first establish the “desirability” of the proceedings being heard in the High Court. Relevant considerations ordinarily include the amount of the claim; its nature and complexity; the type of issue raised by the pleadings; and whether the issue is of public or other importance.2
[13] Once that threshold has been crossed, the Court must decide whether to exercise its discretion to permit a transfer. Issues “more directly to the justice of the case in the particular circumstances” should be considered, such as delay in making the application, the stage the proceedings have reached, and the prejudice, if any, occasioned to the party opposing the application.3
[14] As far as consolidation is concerned, r 10.12 of the High Court Rules provides:
10.12 When order may be made
The court may order that 2 or more proceedings be consolidated on terms it thinks just, or may order them to be tried at the same time or one immediately after another, or may order any of them to be stayed until after the determination of any other of them, if the court is satisfied—
(a) that some common question of law or fact arises in both or all of them; or
2 Fuehrer v Thomson [1981] 1 NZLR 699 (CA).
3 At 701.
(b) that the rights to relief claimed therein are in respect of or arise out of—
(i) the same event; or
(ii) the same transaction; or
(iii) the same event and the same transaction; or
(iv) the same series of events; or
(v) the same series of transactions; or
(vi) the same series of events and the same series of transactions; or
(c) that for some other reason it is desirable to make an order under this rule.
[15] The Court of Appeal has observed that it is “difficult to conceive of a wider procedural discretion”.4 Considerations relevant to the exercise of the discretion include whether:
(a) time and cost for the parties will be saved;
(b) judicial resources will be used more efficiently;
(c) the risk of inconsistent findings (of fact and/or law) will be reduced or eliminated;
(d)confusion or prejudice might result to one of the parties from the size and complexity of a consolidated proceeding. For example, disadvantage may result from the admission of evidence that would not be heard but for the consolidation order;
(e) the two proceedings are at similar stages. The fact that one proceeding is ready and the other not weighs against a consolidation order.
4 Regan v Gill [2011] NZCA 607 at [10].
The respective positions of the parties
[16] The matters commonly considered relevant to an application for transfer (and noted at [13] above) are not relied on by AML here. Rather, its application is based squarely on the advantages in consolidating the two sets of proceedings. I am prepared to accept that the potential expedition and efficiency resulting from combining the proceedings could render transfer “desirable” in terms of s 43(6).
[17] More particularly, counsel for AML submitted that:
(a) the District Court and the High Court proceedings are closely connected because both arise from the insolvency of the AML and Mr Mitchell’s conduct as director;
(b)the only reason the debt proceeding was filed in the District Court was because the amount claimed to be owed by Mr Mitchell to AML was under the $200,000 jurisdictional threshold;
(c) a claim involving allegations of breach of directors’ duties is required to be commenced in the High Court;
(d)the proceedings involve overlapping factual and legal issues and any finding that Mr Mitchell is liable in the District Court proceeding will have a bearing on whether he breached his duties to the company. There is a related risk of inconsistent findings;
(e) both proceedings are likely to require evidence from common witnesses, in particular from Mr Levin and Mr Mitchell;
(f) although the District Court proceedings are brought by the company and the High Court proceedings are brought by the liquidators personally, in reality, both proceedings involve the same parties. Both the liquidators and the company are represented by common counsel;
(g)the cost of maintaining two proceedings in separate courts will increase the strain on the resources of the parties and the court system.
[18] For Mr Mitchell, Mr Cogswell submitted that:
(a) the two proceedings involve different parties;
(b) there are no common questions of law involved in the two claims;
(c) there is only a very partial factual crossover as the High Court claim traverses a far wider factual landscape;
(d) the District Court claim is straightforward and Mr Mitchell’s status as
a director is irrelevant to that claim;
(e) should judgment be entered against him in the District Court proceeding, the judgment can quite easily be taken into account in the High Court proceeding;
(f) there is no justification for the High Court being required to deal with the minute detail of the myriad small transactions at issue in the District Court.
[19] Mr Cogswell disputed AML’s contention that both claims are at an early stage and says that the District Court proceeding is effectively ready for determination. He said that if the transfer application is granted, it will deprive him of the benefit of the JSC that, by virtue of r 2.40.6 of the District Court Rules 2009, is mandatory.5 He
also submitted that it would not be in the interests of justice to transfer or consolidate
5 Rule 2.40.6 of the district Court Rules 2009 provides:
2.40.6 If the court or Registrar decides not to allocate a short trial -
(a) a judicial settlement conference must be held by a Judge under rule 2.47:
(b) if the parties do not settle the proceedings at the judicial settlement conference stage, rule 2.48 provides that the judicial settlement conference becomes a judicial directions conference, and at that conference a simplified trial or full trial is allocated.
the two proceedings as to do so would be to expose Mr Mitchell to costs at the High
Court scale in relation to a simple, low-level, debt claim.
Discussion
[20] I accept that the two claims involve the same broad factual context and that there will be a commonality of witnesses. But despite AML’s attempt to list a number of specific issues that are said to be common to both proceedings I have reservations that any of them significantly overlap or (accordingly) that there is a risk of inconsistent factual findings. While the outcome of the debt proceeding might (depending on what that outcome is) be of some interest or relevance in the Companies Act proceeding it will certainly not be determinative of it. It was not suggested (for example) that any question of issue estoppel might arise.
[21] No information was placed before the Court as to the likely progress of each claim or the dates upon which hearings might occur were the proceedings to remain in separate jurisdictions. But the reality is that the District Court matter is now two years old and has made some progress. I do not consider that any failure to move that matter along more quickly is something for which Mr Mitchell is responsible, and note that AML did not seek to base its application on delays in the District Court in any event.
[22] I acknowledge that there might have been some efficiency in combining the two proceedings had they been commenced in the same court and at more or less the same time. But in the absence of such circumstances, I think the clear reality is that the debt claim is precisely the sort of claim that should be heard in the District Court. Moreover, it is quite possible that granting AML’s applications will merely cause unnecessary delays in advancing either, or both, of the separate proceedings. By way of example only it seems to me that if transfer was ordered, a formal statement of claim and defence would need to be filed (or a combined omnibus claim); the District Court proceeding would essentially need to be commenced afresh.
[23] And although transfer would only deprive Mr Mitchell of the chance to settle the debt claim by way of a JSC, it is a chance that (in the absence of any compelling countervailing considerations) he is entitled to exercise. While JSCs may be ordered
in this Court under High Court Rule 7.79, those orders are now seldom made. It seems unlikely that ordering such a conference for what is now a $68,000 debt claim6 would be regarded as an appropriate use of High Court judicial resources.
[24] For the reasons I have given I do not consider it is desirable to transfer the District Court debt proceeding to the High Court. That application is dismissed accordingly. It follows that the application for consolidation is also dismissed.
[25] Mr Mitchell is entitled to his costs on a 2B basis. I trust these can be agreed.
Rebecca Ellis J
6 See n 1 above.