Antoniou v KLS International Finance Limited
[2015] NZHC 1195
•29 May 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2014-409-000905 [2015] NZHC 1195
UNDER Section 91 of the Companies Act 1993 BETWEEN
NEOKLIS ANTONIOU First Plaintiff
AND
KLITOS THE FIRST PYLA MONARCH LIMITED
Second Plaintiff
AND
KLS INTERNATIONAL FINANCE LIMITED
Defendant
Hearing: 21 May 2015 Appearances:
D M Lester for Applicant (Defendant)
R B J Hern for Respondents (Plaintiffs)Judgment:
29 May 2015
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
in relation to stay application
Introduction
[1] This proceeding concerns a company, the defendant, KLS International Finance Ltd (KLS), which is registered on the New Zealand Companies Register and has its registered office at Christchurch.
[2] The first plaintiff, Mr Antoniou, appeared on the register as KLS’s director until 10 May 2013, when he was removed pursuant to a purported notice of resignation. The second plaintiff, Klitos The First Pyla Monarch Ltd (Klitos), held
shares in the defendant, of which 750 were purportedly transferred by a transfer form
ANTONIOU v KLS INTERNATIONAL FINANCE LIMITED [2015] NZHC 1195 [29 May 2015]
executed on 10 May 2013 and a further 250 were purportedly transferred by an instrument of transfer dated 10 July 2013.
The plaintiffs’ case
[3] Mr Antoniou and Klitos (together “the plaintiffs”) say that the changes to the share register were made without either of their authority or consent. The evidence now filed goes further by providing the opinions of expert document examiners. Their affidavits lay a foundation for the proposition that documents used in effecting changes to KLS’s register contained forgeries.
[4] The plaintiffs assert that KLS has not maintained accurately the share register it is required to maintain under s 87 of the Companies Act 1993. They seek an order for rectification of the share register pursuant to s 91(1)(a) of the Act. They do not, in this proceeding, seek compensation for any loss sustained.1
KLS’s position
[5] KLS has filed a statement of defence containing admissions of a number of allegations but (bare) denials of key allegations made by the plaintiffs. In particular, KLS denies the allegations that the register changes were made without the authority or consent of the plaintiffs and further denies that the share register is inaccurate.
[6] To date KLS has not engaged with the plaintiffs’ evidence, including that as to forgery.
The stay application
[7] KLS has applied for an order staying the proceeding having regard to a proceeding which the plaintiffs (and one other) have issued in the District Court of
Nicosia in the Republic of Cyprus.
1 Compensation for losses sustained may be claimed pursuant to s 91(1)(b) of the Companies Act
1993.
[8] The grounds of the application are:
1.The plaintiffs in July 2014 commenced proceedings in the Nicosia District Court of Cyprus raising the same issues as the issues raised in this proceeding.
2.It is an abuse of process to maintain two sets of proceedings raising substantially the same issues.
3.A stay will not deprive the plaintiffs of the ability to pursue the matters in issue in this proceeding, those issues being capable of resolution by the Court in Cyprus.
4.The plaintiffs have obtained freezing orders in Cyprus over the assets of the defendant, restricting the defendant’s ability to defend proceedings in two jurisdictions.
5.In the event the plaintiffs obtain relief from the Court in Cyprus, that Court is capable of making orders that can be given effect to in New Zealand or the stay of these proceedings could be lifted at that time.
The Cypriot proceeding
[9] KLS’s fourth ground of application (that its ability to defend proceedings in two jurisdictions has been restricted by freezing orders obtained in the Cypriot proceeding) has fallen away because an interim injunction issued on 16 July 2014 was lifted by the Cypriot Court on 27 March 2015. That issue requires no further discussion.
[10] Nicolas Clerides, a barrister of Cyprus, who acts for the plaintiffs in the
Cypriot proceedings, has provided evidence as to the Cypriot proceeding.
[11] The plaintiffs in the Cypriot proceeding allege criminal conversion of assets and a fraudulent scheme to misappropriate property belonging to KLS by one Loizos Loizou, acting in collaboration with other persons and entities. They have been named as (eight) defendants in the Cypriot proceeding. The plaintiffs allege that Loizos Loizou was entrusted by them as accountant and auditor to handle the affairs of KLS. They allege that he misused the trust imposed in him and defrauded them by taking control of KLS through forged documents.
[12] The plaintiffs in the Cypriot proceeding seek damages for criminal conversion of KLS’s property and other relief, including what appears to be in the
nature of a declaration that documents purporting to be executed by the plaintiffs were forgeries and are null and void.
The stay jurisdiction
Rule 15.1 of the High Court Rules
[13] Mr Lester, for KLS, invokes the power of the Court under r 15.1 of the High
Court Rules to stay a proceeding. Rule 15.1(1) provides:
15.1 Dismissing or staying all or part of proceeding
(1) The court may strike out all or part of a pleading if it—
…
(d) is otherwise an abuse of the process of the court.
Duplicated proceedings – an abuse of process?
[14] At the heart of Mr Lester’s submissions is the proposition identified in the second ground of application, namely that it is an abuse of process for the plaintiffs to maintain both this proceeding and the Cypriot proceeding. That is said to be so because “both proceedings raise substantially the same issues”.2
[15] The duplication of proceedings has been recognised by the Courts as a situation which may give rise to an abuse of process. The authors of McGechan on Procedure cite the cases of Otis Elevator Co Ltd v Linnel Builders Ltd and Cowley v Shortland Publications Ltd as being examples of stays in relation to duplicated
proceedings.3
[16] In Mackay Refined Sugars (NZ) Ltd v New Zealand Sugar Co Ltd, Williams J considered the principles applicable to a stay of proceedings where similar proceedings had been issued in two countries (Australia and New Zealand).4 His
Honour adopted a passage from the judgment of Lockhart J in Sterling
2 This is a basis for an order striking out a claim by reason of r 15.1(1)(d) of the High Court Rules.
3 McGechan on Procedure (online looseleaf ed, Brookers) at [HR 15.1.05(2)(c)], citing Otis Elevator Co Ltd v Linnel Builders Ltd (1991) 5 PRNZ 72 (HC); Cowley v Shortland Publications Ltd (1991) 5 PRNZ 76 (HC).
4 Mackay Refined Sugars (NZ) Ltd v New Zealand Sugar Co Ltd [1997] 3 NZLR 476 (HC).
Pharmaceuticals Pty Ltd v Boots Co (Aust) Ltd as containing the relevant considerations:5
Which proceeding was commenced first.
Whether the termination of one proceeding is likely to have a material effect on the other.
The public interest.
The undesirability of two courts competing to see which of them determines common facts first.
Consideration of circumstances relating to witnesses.
Whether work done on pleadings, particulars, discovery, interrogatories and preparation might be wasted.
The undesirability of substantial waste of time and effort if it becomes a common practice to bring actions in two courts involving substantially the same issues.
How far advanced the proceedings are in each court.
The law should strive against permitting multiplicity of proceedings in relation to similar issues.
Generally balancing the advantages and disadvantages to each party.
[17] Mr Lester relies particularly on the formulation of “abuse of process” in the judgment of the English Court of Appeal in Buckland v Palmer, which is correctly summarised in the headnote which begins, as quoted by Mr Lester:6
It was an abuse of the process of the court to bring two actions in respect of the same cause of action …
[18] The fact that two sets of proceedings derive from the same set of circumstances does not of itself constitute an abuse of this Court’s process. To constitute an abuse of process there needs to be an element of misuse of the Court’s
process.7
5 Sterling Pharmaceuticals Pty Ltd v Boots Co (Aust) Ltd (1992) 34 FCR 287 (FCA) at 482.
Sterling Pharmaceuticals has been applied in New Zealand; Snowdon v Radio New Zealand Ltd (2006) 7 NZELC 98,494 (HC) at 98,497; Rooney Earthmoving Ltd v McTague HC Christchurch CIV-2009-476-471, 30 April 2010 at [14].
6 Buckland v Palmer [1984] 3 All ER 554 (CA). This passage of the headnote was cited with approval in Otis Elevator Co Ltd v Linnel Builders Ltd, above n 3, at 74.
7 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2
NZLR 679 at [89].
[19] In this case, the plaintiffs seek to deal with a registration matter in this Court’s companies jurisdiction (the High Court of New Zealand being the “Court” with power to rectify the share register),8 while resolving what are predominantly tortious issues in Cyprus.
[20] The decision in Otis Elevator Co Ltd v Linnel Builders Ltd flowed not solely from the fact that there was a separate proceeding (an arbitral proceeding) but that the separate proceeding had been stayed. The judgment in Buckland v Palmer had similarly involved a first proceeding which was the subject of a continuing stay.9
The full headnote to the report of Buckland v Palmer reflects the particular situation before the Court in that case. The full head note passage, reflecting the significance of the stay which had been imposed on the first proceeding reads:10
Held – It was an abuse of the process of the court to bring two actions in respect of the same cause of action, but where there had been no judgment in the first action, that action could in appropriate circumstances be revived and amended to enable an adjudication to be made on the whole of the plaintiff's claim. Furthermore, where the original claim was brought in the county court and the second claim was enlarged so that it was outside the county court's jurisdiction, the whole matter could be transferred to the High Court. Since it was open to the insurers to apply for a removal of the stay on the first action and to amend the plaintiff's claim in that action they would suffer no injustice if the court were to exercise its discretion by refusing to permit them to commence a fresh action. Accordingly, an order striking out the second action would be made but without prejudice to an application to remove the stay on the first action and for leave to amend the particulars of claim in that action. The appeal would therefore be allowed …
[21] This is a different case to those to Otis Elevator and Buckland v Palmer. In this case both the Cypriot and New Zealand proceedings are in their early stages. Neither is the subject of a stay. As I have stated, the mere fact that the two proceedings exist does not of itself constitute a misuse of process.
[22] Furthermore, despite Mr Lester’s submission that this proceeding and the Cypriot proceeding are, as in the case of proceedings in Buckland v Palmer, based on the same cause of action, the causes of action in the two present proceedings are
different. Mr Lester characterises the single cause of action as being “in respect of
8 Companies Act 1993, ss 2 and 91.
9 Buckland v Palmer, above n 6.
10 At 555.
the alleged forgeries”. But the alleged forgeries are, in the New Zealand proceeding, matters of evidence. The cause of action relates to the failure of KLS to accurately maintain its share register. Significantly, having regard to counsel’s responsibility to plead facts material to the cause of action, the plaintiffs in their claim in this Court did not plead the existence of a forgery. Its cause of action lies in the absence of the plaintiffs’ consent or authorities in relation to changes of shareholding and directorship. The alleged forgeries may exacerbate any findings made against KLS in relation to the core allegations, but they are not a necessary element of the cause of action. The Cypriot proceeding, on the other hand, is centrally a claim in conversion. Most of the claimed relief is in the nature of compensation for tortious conduct.
[23] For the plaintiffs, Mr Hern noted that the relief sought in the two proceedings was different, in that the Cypriot proceeding does not pursue rectification of KLS’s share register. That said, part of the relief sought by the plaintiffs in the Cypriot proceeding is in the nature of a declaration of the invalidity of the transfers and other documents. The need for examination of the documents and conclusions as to their authenticity is the connecting feature or point of overlap between the two proceedings.
[24] I now turn to the consideration recognised as relevant when the same circumstances are involved in two proceedings. Some of these considerations overlap. I will consider some of them together.
Which proceeding was commenced first? How far advanced are they? Will termination of one affect the other?
[25] The Cypriot proceeding was commenced approximately five months before this proceeding. The papers indicate that it is a far more expansive proceeding than this. On the other hand, the evidence does not indicate that it has been significantly advanced towards trial. The evidence filed for KLS simply establishes that the Cypriot proceeding has been served on it.
[26] The order in which the two proceedings were commenced is a relatively neutral factor in this case. More significant is the likelihood that the question of
rectification of the New Zealand register will be determined promptly by this Court. This proceeding has not been the subject of significant interlocutory attendances or case management to date, and it is a proceeding which should be capable of being readied for a prompt hearing. Given the importance of the share register, the parties may reasonably anticipate that its hearing will be accorded some priority by the Court. The issues appear to be narrow and lend themselves to expeditious resolution on that basis also.
[27] The range of issues and the number of defendants in the Cypriot proceeding make prompt resolution in the District Court of Nicosia much less likely. If the consideration in relation to the rectification of the above register is determined in New Zealand, that is unlikely to involve the Cypriot proceeding in a large duplication of evidence or issues. There are aspects of the relief sought in the Cypriot proceeding which would appear likely to fall away if the plaintiffs obtain rectification of the New Zealand share register. In particular, this applies to relief in the nature of a declaration that the first plaintiff’s removal from the register as a director was null and void. To that extent, the determination of the New Zealand proceeding may have the effect of reducing the scope of relief which the plaintiffs wish to pursue in the Cypriot proceeding when it comes to trial.
[28] On the other hand, a final adjudication in the Cypriot proceeding is unlikely to have any direct impact on the New Zealand share register which is the subject matter of this proceeding. Under New Zealand law, the jurisdiction to rectify the register lies solely with this Court. Unsurprisingly, there is no expert evidence before the Court as to whether the Cypriot court might be prepared to make declarations as to events which affect the New Zealand share register. But even assuming the Cypriot court were to make some orders which purport to have extra- territorial effect, any enforcement or application of such orders in New Zealand would appear problematic.
[29] The Reciprocal Enforcement of Judgments Act 1934 does not apply to judgments of the Court of the Republic of Cyprus. If judgment based on a foreign judgment were subsequently to be pursued in New Zealand in relation to rectification of the New Zealand share register, there are likely to be significant
jurisdictional arguments against such a judgment. An outcome in the Cypriot court seems unlikely to lead to a determination of matters affecting the New Zealand share register.
[30] New Zealand is the obviously appropriate jurisdiction in which to determine a claim for rectification under the Companies Act 1993. It would produce an inefficient outcome to require these plaintiffs to seek to obtain in due course some form of order in a Cypriot court, only then to have to render that Court’s order enforceable in New Zealand.11
Public interest - competition to determine common facts first
[31] No evidence has been adduced as to particular progress in the Cypriot proceeding. On the other hand, key evidence in relation to the alleged forgeries is already well advanced on the part of the plaintiffs in the New Zealand proceeding. Relevant documents, including originals, have been obtained and produced to New Zealand document examiners. Where original documents are not available, copies have been examined. Affidavit evidence has been produced. KLS has been in a position to advance such evidence if it wishes.
[32] The issues in the New Zealand proceeding appear to be narrow (although I recognise that KLS’s denials in its statement of defence at this point are bare denials and that a more particularised defence might conceivably expand the issues for trial). That said, it appears probable that the issues will remain within a relatively narrow compass. To that extent, there is no sense of “competition” between the two jurisdictions at this point.
Circumstances relating to witnesses – wastage of interlocutory work
[33] Neither counsel has raised the availability of witnesses as a particular aspect for consideration in this case. The increased use of audio visual technology for the taking of evidence has the effect of making this consideration less significant than it
was some years ago. To the extent that experts are likely to be involved, it is clear
11 The Reciprocal Enforcement of Judgments Act 1934 not applying to judgments of the Cypriot court.
that the plaintiff ’s experts are New Zealand-based. On the other hand, some or all of the factual witnesses are likely to be overseas, and most likely to be in Cyprus. There may be a need for travel by key factual witnesses in relation to a New Zealand trial.
[34] I view the circumstances relating to witnesses as relatively evenly balanced. To the extent that those involved with KLS chose to register it in New Zealand under the Companies Act, any inconvenience to the company through bringing its witnesses to New Zealand cannot count significantly – the company’s affairs under the Companies Act, upon the registration of the company, fall to be dealt with by the New Zealand High Court.
[35] A substantial volume of documentation from the Cypriot proceeding has been exhibited. The bulk of it relates to the interlocutory application by which a freezing order was initially obtained. There is nothing to suggest that a refusal to stay the New Zealand proceeding will result in wastage of interlocutory progress which has occurred in the Cypriot proceeding.
Time spent on overlapping issues
[36] I have already considered Mr Lester’s emphasis on the duplication of proceedings. There is a degree of overlap in the factual issues in the two proceedings, in that a focus of the New Zealand proceeding (the alleged forgeries and resulting incorrectness of the share register as it now stands) is one aspect of the complaints filed by the plaintiffs in the Cypriot proceeding and leads to one aspect of the relief sought in the Cypriot proceeding. The degree of overlap is a live consideration but, as I have noted, the causes of action are different.
The public interest – Alleged forgery affecting a New Zealand public register
[37] There is a particular aspect of public interest which affects this case.
[38] Mr Hern correctly submitted that there is a significant public interest in relation to public registers, such as share registers, the Land Transfer Register and Birth, Deaths and Marriages registers. It lies in the need for reliability and the ability
of the public, and those dealing with entities the subject of the register, to be able to identify relevant ownership, governance and other matters. Incorrect registers need to be corrected. It is this Court which has the sole jurisdiction to correct them.
[39] One of the offences covered by s 373(4) of the Companies Act is the offence of falsifying registers and other records (under s 379). Section 373 of the Companies Act 1993 provides a graduated range of penalties for offences committed in relation to Companies Act matters. The most serious level of penalty arises under s 373(4) and permits the Court to impose a term of imprisonment not exceeding five years or a fine not exceeding $200,000. Such penalties indicate the importance which Parliament ascribes to ensuring that company registers are maintained accurately.
[40] The fact that the pleaded need for rectification of the register in this proceeding is alleged to arise from forged documents adds a further element of public interest. It is reasonable, in relation to alleged forgeries which affect New Zealand entities that affected persons should be able to have the New Zealand courts determine the facts and legal consequences. The exclusive jurisdiction of the High Court in relation to Companies Act matters, including the share register, reinforces that public interest.
[41] Matters of public interest in the case weigh strongly against a stay of the New
Zealand proceeding.
An obligation to make an election?
[42] Mr Lester referred to the judgment of Sir Nicolas Browne-Wilkinson V-C in Australian Commercial Research and Development Ltd v ANZ McCaughan Merchant Bank Limited.12 The decision is discussed by the authors of The Conflict of Laws in the following passage cited by Mr Lester:13
In Australian Commercial Research and Development Ltd v ANZ McCaughan Merchant Bank Ltd Sir Nicolas Browne-Wilkinson V-C
12 Australian Commercial Research and Development Ltd v ANZ McCaughan Merchant Bank
Limited [1989] 3 All ER 65 (Ch).
13 Lord Collins (ed-in-chief) Dicey, Morris and Collins: The Conflict of Laws: Volume 1 (15th ed, Sweet & Maxwell, London, 2012) at [12.044] to [12.045] (citations omitted).
approved the statement in the eleventh edition of this work that where the same plaintiff sues the same defendant in England and abroad it is not likely that the court would allow, except in very unusual circumstances, the continuation of proceedings in two different jurisdictions. The court would put the plaintiff to his election. In that case the Vice-Chancellor said that if the plaintiff opted to continue the foreign proceedings the English proceedings could not merely be stayed; the plaintiff would have to discontinue them. But there may be cases (e.g. where one of the actions is brought to obtain security by way of an attachment of assets) where a stay rather than an order for discontinuance of English proceedings, or an injunction requiring foreign proceedings to be discontinued, or by an order made in the context of case management, would be appropriate.
But there will be other cases in which the claimant may justify the bringing of proceedings in more than one court. For example, the claimant may have founded jurisdiction by the attachment of assets in two countries in circumstances where he claims to be entitled to both sets of assets; it may be necessary to bring parallel proceedings in order to prevent the cross-border infringement of an intellectual property right, it may be necessary or desirable to bring proceedings in two jurisdictions, in order to be able to enforce both judgments locally, where this appears to be the only way to obtain full satisfaction of the claim against the defendant. In such cases the allegation that the claimant is acting oppressively, and the submission that he should be put to his election, or other relief granted, will be sufficiently answered. The same analysis is likely to be applied where the parties have agreed by contract that multiple of parallel proceedings may be brought by (say) the lender against a borrower, at least where the agreement can be shown to be commercially rational. Though there may be instances in which such a contractual right may be invoked in an inequitable way, and be so liable to restraint, the court will be likely to wish to hold the parties to their agreement and to refrain from the granting of relief which would restrict the exercise of a freely-negotiated contractual right.
[43] Mr Lester submitted that the Vice Chancellor’s identification of a requirement of election should be followed in this case because of the overlapping of the Cypriot and New Zealand proceedings. However I do not read the Vice- Chancellor’s observations as applying to every situation where there are some overlapping issues between the two proceedings. That approach may well apply in New Zealand where the proceedings are identical in terms of the cause of action and the relief sought. But where proceedings are not identical in nature, the task of the Court is to consider as aspects of the relevant considerations, the degree of similarity, and the various consequences that may flow from that conclusion. The similarity of issues is correctly identified as one consideration amongst the listed considerations identified by Lockhart J in Sterling Pharmaceuticals Pty Ltd v Boots Co (Aust) Ltd and applied by Williams J in Mackay Refined Sugars (NZ) Ltd v New Zealand Sugar Co Ltd.
[44] The second paragraph from Dicey cited by Mr Lester in fact reinforces the need to look at all the relevant circumstances of the two proceedings. One of the examples given by the authors is where it may be necessary to bring two proceedings in order to enforce both judgments locally, where that appears to be the only way to obtain full satisfaction of the claim against KLS. In other words, the Court must consider whether requiring the plaintiff to sue only in the foreign jurisdiction will leave the plaintiff without a suitable, and enforceable, remedy in the local jurisdiction. Such examples lead the authors of Dicey to recognise that the claimant in such situations overcomes the suggestion of “oppressive” (or abusive) process.
Standing back - balancing advantages and disadvantages
[45] I therefore stand back to balance the various considerations and to assess the justice of granting or refusing the stay. The balance in this case is overwhelmingly in favour of dismissing the application for stay.
[46] It is the plaintiffs’ case that events have occurred in relation to the New Zealand company in which they were involved, leading to incorrect entries in the share register. The public nature of the share register reinforces the importance recognised by r 1.2 of the High Court Rules of providing a just, speedy, and inexpensive determination of the rectification application. This Court can provide such a determination. The alternative route of factual findings by the Cypriot court, combined with remedies in the nature of declaration, to be followed (if not appealed) by enforcement steps taken in New Zealand, is unlikely to be speedy.
[47] The plaintiffs have provided expert evidence which, without reservation, identifies forgeries in a document relied upon when KLS’s share register was altered. In the absence of responsive evidence from KLS as to an alternative explanation of what has occurred, the Court has no evidential basis for anticipating particular complications in the fact finding required in the New Zealand proceeding.
Outcome
[48] KLS has not established that the plaintiffs’ maintenance of this proceeding would amount to an abuse of the Court’s process. The application must fail.
Costs
[49] Costs must follow the event. I will fix the incidence of costs in favour of the plaintiffs, to be paid in any event. It is appropriate that for now the costs be fixed on a 2B basis but with leave reserved to the plaintiffs to seek a supplement to the costs award in the event the plaintiff’s central allegations as to forgery are upheld at trial.14
It is appropriate that there be a certificate for counsel’s reasonable costs of travel and
accommodation. Mr Hern travelled from Auckland where the plaintiffs’ representation lies. Mr Lester noted that it was initially indicated that local counsel would appear for the plaintiff at this hearing. I am, however, satisfied that the involvement of counsel with primary responsibility for the case justifies recovery of travel expenses. The issues raised by this application required a good degree of understanding of both proceedings. The evidence (particularly as to forgery) was developing as the interlocutory application neared its hearing. An expectation that the plaintiffs incur the costs of briefing for this interlocutory hearing, counsel not already versed in the proceedings, would be unreasonable in the circumstances.
Order
[50] I order:
(a) The application of the defendant for an order staying the proceedings is dismissed;
(b)The defendant shall pay to the plaintiff the costs of this application on a 2B basis, together with disbursements.
Associate Judge Osborne
Solicitors:
Wynn Williams, Auckland
Young Hunter, Christchurch
Counsel: D M Lester, Christchurch
14 In its effect this approach simply recognises the right of the trial Court, pursuant to r 14.9(2) of the High Court Rules, to later amend an interlocutory costs order if it proves to have been inappropriate.