Arcadia Homes Limited (in liquidation) v Andrews

[2016] NZHC 198

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-001682

CIV-2014-404-001994 [2016] NZHC 198

BETWEEN

ARCADIA HOMES LIMITED (IN

LIQUIDATION) First Plaintiff

MORE TO THIS LIFE LIMITED AND ANDREW GEORGE CLARK AS TRUSTEES OF THE ULTIMATE LIFESTYLE TRUST

Second Plaintiffs

AND

CRAIG RAYMOND ANDREWS AND ORS TRADING AS MCVEAGH FLEMING

First Defendant

ANDREW JOHN DEXTER GUEST Second Defendant

Hearing:	30 October 2015 and on papers 22 January 2016
Appearances:	C Lucas for Plaintiffs M Atkinson and L Fraser for the First Defendants P Cogswell for Second, Third, Second Named Fourth and Sixth Defendant K Burkhart/ C Robertson for First Named Fourth Defendant
Judgment:	17 February 2016

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE [on Consolidation Application]

This judgment was delivered by me on

17.02.16 at 4 pm, pursuant to

Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar

Date……………

ARCADIA HOMES LIMITED (IN LIQUIDATION)  & Ors v ANDREWS AND ORS [2016] NZHC 198 [17

February 2016]

ANDWILLIAM JAMES DEXTER GUEST Third Defendant

ANDWYNDHAM TRUSTEES LIMITED AND ANDREW JOHN DEXTER GUEST AND JOINT FAMILY TRUSTEES LIMITED

Fourth Defendants

ANDTOMS PROPERTIES LIMITED Sixth Defendant

CIV-2014-404-001994

BETWEEN                ARCADIA HOMES LIMITED (IN LIQUIDATION0

Plaintiff

ANDWYNDHAM TRUSTEES LIMITED and ANDREW JOHN DEXTER GUEST as trustees of the Guest Family Trust

Introduction

[1]      An  application  has  been  made  to  consolidate  two  sets  of  proceedings, CIV-2014-404-1682 and CIV-2014-404-1994.

[2]      A common plaintiff in both proceedings is Arcadia Homes Ltd (in liq) (“Arcadia”).   There is an additional plaintiff in CIV 2014-404-001682, Ultimate Lifestyle   Trust   (“ULT”).      The   plaintiffs   jointly   bring   the   application   for consolidation which is now before the Court.

[3]      The application is opposed by McVeagh Fleming, the first defendant in the first proceeding.

Background

[4]      Rather than recite the  full  background to  the proceedings,  this  judgment should be read as cross-referring to the judgment that I have given in the security for costs application filed by the defendants in CIV-2014-404-001682.1

[5]      This application, however, requires some additional supplementation over and above what appears in the statement of background in CIV-2014-404-001682.

[6]      There have been three sets of proceedings concerning the dispute between Arcadia and Mr A Guest, Mr W Guest, and Mr A Guest’s family trust, Guest Family Trust. The other side to that dispute is represented by Mr A Clark and his trust, ULT.

[7]      In the initial set of proceedings, Mr Clarke/ULT obtained judgment in the High Court in excess of $1 million against Arcadia following wrongful repudiation of contractual obligations. Under the contract  in question, Arcadia undertook to purchase a property identified in previous judgments as the “Waimana property” at Wanaka.

[8]      Arcadia sold four properties that it owned. Subsequently capital distributions were made of $457,906.78 on 18 August 2008, and a further dividend of $534,274 on 15 February 2009. Mr A Guest, and possibly Mr W Guest, arranged for the company to be liquidated by way of a shareholders’ resolution on 2 April 2012.

[9]      As a result of these developments, ULT is unable to satisfy the judgment for damages that it holds against Arcadia. Arcadia is in liquidation.  The company holds no  assets  which  would  be available to  meet  the judgment  that  ULT holds.    In proceeding CIV-2014-404-1682 in which ULT and the liquidator of Arcadia are the plaintiffs, it is essentially asserted that the steps that the directors took to make payments out from the company were undertaken with the intent to defeat the creditors of Arcadia; and that the liquidation which was put in train was improperly carried out, the company not being solvent at the time of the relevant resolution. There is also a claim against the solicitors acting for the company at the time of liquidation, who are the first defendants in CIV-2014-404-1682.  The proceeding has yet to be set down for trial.  It is likely to take two weeks to hear.

[10]     In CIV-1964 (which is actually the third set of proceedings in the overall sequence I have described above), the liquidator of Arcadia seeks to recover from Guest Family Trust the amount of $2,075,000, which is allegedly the price Guest Family Trust paid Arcadia for the properties which Arcadia transferred to it.  That proceeding  is  being  brought  by  Arcadia  in  liquidation.    It  is  alleged  in  that proceeding that as part of the removal of the assets from Arcadia, the Guest trust acquired a liability to Arcadia for the amount mentioned.   In proceeding CIV-2014-

404-1994, the liquidator seeks to recover that debt.

[11]     In answer to the claim for the $2.075 million, Guest Family Trust pleads that the amount was paid, since the purchase price was applied to the payment off of an amount owed to Westpac Banking Corporation (“Westpac”) on Arcadia’s behalf. It is therefore asserted that Guest Family Trust is not liable to pay anything to Arcadia. In answer to that defence, Arcadia disputes that Guest Family Trust paid off any amount  to  Westpac  or  alternatively  submits  that  the  Trust  has  exaggerated  the amount that it paid off to Westpac.

[12]     The plaintiffs now seek to have CIV-2014-404-1682 and CIV-2014-404-1994 consolidated, as I have noted above.

Relevant law

[13]     The rule which is the basis for the application provides as follows:2

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

(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.

Analysis

[14]     It is clear from the wording of the rule that an order may be made that has the effect of constituting one proceeding where two or more previously existed.   The effect of orders under r 10.12 is not restricted to the point in time when trial is being considered.   That is, an order under r 10.12 can take effect during the case management phase of the proceeding.

[15]     The leading case on the interpretation of the rule is the judgment of Rodney Hansen J  in Medlab Hamilton Ltd v Waikato District Health, which stated that factors which will favour an order (if grounds are made out) include the savings that will be achieved in time and cost to the parties and in judicial resources, as well as removing the risk of inconsistent decisions.3

[16]      The opposition filed by the first defendant makes the point that the two sets of  proceedings  are  concerned  with  different  aspects  of  the  dispute  between  the parties.  It is noted that:

3.The  First  Proceeding  is  brought  by  two  separate  plaintiffs  and contains 16 causes of action against five different defendants.

4. The First Proceeding contains serious allegations based upon a complex factual background. Trial will be extensive, expensive and complicated.

5.The Second Proceeding is a debt recovery proceeding seeking the unpaid portion of a $2,075,000.00 debt allegedly owed by the Guest Family Trust to Arcadia Homes Limited (“Arcadia”). The claim is based upon an acknowledgment of debt between the parties that has been called up but not satisfied (or responded to in any way).

6.   This single cause of action involves Arcadia and the Guest Family

Trust only.

7.If Arcadia is successful in the Second Proceeding, then payment of the claimed judgment sum will either satisfy, or substantially satisfy, the debt to the ULT with the likely result that the First Proceeding will not proceed to trial.

[17]     The point is that the resolution of the CIV-2014-404-1994 may render it unnecessary for the Court to consider CIV-2014-404-1682, if the plaintiff obtains a successful outcome in the former case

[18]     But it is not unlikely that any judgment that Arcadia might obtain in the CIV-

2014-404-1994 proceeding could be barren.   The declarations which the plaintiff seeks call into question whether that defence is a genuine one.  It might be that the funds from Guest Family Trust were used to pay liabilities of other entities rather than Arcadia.  Alternatively, it may be that while some liabilities properly owed by Arcadia were paid down, the entire amount of the dividends was not used for that

purpose.  ULT may be able to satisfy the Court that it has, in fact, suffered loss as a result of the activities of the defendants in the first proceeding, because their facilitation of the loss of assets by Arcadia did actually result in loss which is recoverable from those defendants.   That would be because Arcadia has not been able to recover any of the money representing the assets that were disposed of or did not receive the advantage of having its debt reduced.

[19]     It is difficult to envisage the course that the proceedings would take.   The question at issue in CIV-2014-404-1994 which is essentially that the trust satisfied a debt owed to Arcadia would seem to be a relatively straightforward matter to be determined.  By contrast, the issues in proceeding CIV-2014-404-1682 are relatively complex.     If  the  two  proceedings  were  heard  together,  which  would  be  a consequence of a consolidation order, it would seem likely that the greater part of the trial would be concerned with the issues that arise under CIV-2014-404-1682.

[20]    A further matter to be considered is the matter of what damages or compensation the plaintiffs in CIV-2014-404-1682 might be able to recover. Potentially, they would seem to extend to recovery of the amount of the damages awarded in the judgment in the first trial on the basis that the second plaintiffs in CIV-2014-404-1682  would  have  acquired  satisfaction  of  that  claim  but  for  the actions of the directors of Arcadia in hiving off the assets of that company.  As well damage or compensation for costs, which would be a considerable amount, would be recoverable.  It is difficult to know whether on the hypothesis that the liquidator was able to recover the debt owed from the defendants in CIV-2014-404-1994 there would be sufficient to meet the damages and costs that are sought in CIV-2014-404-

1682.   It is further difficult to foresee, in the light of the necessarily restricted argument that has been put forward on the consolidation application, whether recovery of the debt or recognition that it has already been paid by discharging the debt owed to Westpac, would bring to an end the claims for damages and compensation and costs.   Would the defendants in CIV-2014-404-1682 be able to say that the company has suffered no loss from the actions of the directors?

Conclusion

[21]     I am not clear about whether there would be any advantages in having the cases dealt with together in the pre-trial stage.  Discovery, for example, is likely to be quite a separate process in each.

[22]     As to trial, there would not be any great prejudice to the parties in CIV-2014-

404-1682 in having the debt claim dealt with at the same time as the damages claim. The addition of the proceeding in CIV-2014-404-1994 would not greatly elongate the trial.   I come to  that conclusion because the  portion of the trial  attributable to CIV-2014-404-1994  would  be  considerably  less  than  the  part  concerned  with CIV-2014-404-1682.

[23]     From the perspective of the defendants in CIV-2014-404-1994 it is true that they will have to sit through a longer trial if there is consolidation compared with the position that would result if their case was heard separately.  On the other hand, the key trustee/defendant, Mr Andrew Guest, is going to be involved in both sets of proceedings and it is likely that he will have to be at both trials in any event if no consolidation order is made.

[24]     I accept that there is no real risk of inconsistent judgments if the two cases are heard separately.  It would be possible, for example, to schedule the proceeding in CIV-2014-404-1994 to be heard first because the outcome of that proceeding could well affect the damages/compensation issue in CIV-2014-404-1682.  Once a judgment had been given in that case, no doubt the Judge hearing CIV-2014-404-

1994 would proceed on the basis that the conclusions reached in the first trial were binding.   The outcome of CIV-2014-404-1682 would be affected by whether any additional resources were going to be available to the liquidator of Arcadia for distribution amongst the creditors including the plaintiffs in CIV-2014-404-1682.  It could affect the question of whether any loss had been suffered and if that question was answered in the affirmative, the extent of the loss suffered.

[25]     On the other hand, there is an overlapping of the subject matter of both cases and there will be a reduction in the judicial resources required if the two cases are

heard together.   The two trials consolidated are likely not to take so long as they would if dealt with separately.  It would also be of assistance to the presiding Judge in either case to have a reasonably detailed knowledge of the matters on the other proceeding. That points to the advantage of a consolidation order.

[26]     For all of these reasons I consider on balance that it is appropriate to grant the application dated 2 October 2015.

[27]     I consider that costs ought to follow the event and that costs ought to be on a

2B basis so that there will be an order that the respondents are to pay 2B costs to the applicants together with disbursements as fixed by the registrar.

J.P. Doogue

Associate Judge