Avon Parnell Limited v Chevin
[2019] NZHC 2582
•11 October 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1119
[2019] NZHC 2582
BETWEEN AVON PARNELL LIMITED
First Plaintiff
RYAN MATTHEW LEGGATT
Second PlaintiffAND
PETER LOUIS CHEVIN
First Defendant
CLARK VINCENT VALMONT AND RUSSELL PKR TRUSTEE LIMITED
Second Defendants
…/cont
Hearing: 9 October 2019 Appearances:
D Chisholm QC for the Plaintiffs
M A Corlett QC for the First Defendant
S Lowry for the Second, Fourth and Fifth Defendants M A Cavanaugh for the Third Defendant
Judgment:
11 October 2019
JUDGMENT OF GORDON J
This judgment was delivered by me on 11 October 2019 at 10 am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Solicitors: Peter Nolan, Auckland
I M Vodanovich, Auckland Greenwood Roche, Auckland Wootton Kearney, Auckland Evans Bailey, Hamilton
Counsel:D Chisholm QC, Auckland M Corlett QC, Auckland
S Lowery, Auckland
D M O’Neill, Hamilton
AVON PARNELL LTD v CHEVIN [2019] NZHC 2582 [11 October 2019]
GRAEME HAYWARD SKEATES
Third Defendant
NORTHERN INVESTORS TRUSTEE LIMITED
Fourth Defendant
VIADUCT HARBOUR NOMINEES LIMITED
Fifth Defendant
BASECORP FINANCE LIMITED
Sixth Defendant
[1] The plaintiffs, Avon Parnell Ltd (APL) and its director Ryan Leggatt, commenced proceedings alleging that the first defendant, Peter Chevin, had made fraudulent amendments to the Companies Office particulars of APL to incorrectly represent that the first named second defendant, Clark Valmont, was the sole director and the second named second defendant, Russell PKR Trustees Ltd (Russell PKR), was the sole shareholder; and that Mr Chevin then procured a loan in the name of APL from the sixth defendant, Basecorp Finance Ltd (Basecorp), secured against APL’s properties.
[2] Mr Chevin did not file a statement of defence in the prescribed time. Accordingly, the plaintiffs applied for formal proof against Mr Chevin. Mr Chevin now applies for leave to file a statement of defence out of time. The plaintiffs oppose leave being granted.
[3] Both applications were for hearing before me. The parties agreed that the application for leave to file a statement of defence should proceed first. If that application were to succeed, then the formal proof application would be dismissed.
[4] I granted Mr Chevin’s application (on conditions) and accordingly dismissed the application for formal proof. These are my reasons.
Background
[5] The facts which give rise to these proceedings were succinctly summarised by Palmer J in his judgment of 19 June 2019 granting freezing orders. I adopt that summary for the purposes of this judgment:1
[1] The first plaintiff, Avon Parnell Ltd (APL), owns two properties in Parnell, Auckland, on trust for Waihapu Ltd. Mr Tim Edney is the principal of Waihapu Ltd. The second plaintiff, Mr Ryan Leggatt, is the sole shareholder and director of APL and is Mr Edney’s son in law.
[2] Mr Peter Chevin [the first defendant] has been made bankrupt on four occasions and has criminal convictions for dishonesty offences. The plaintiffs believe Mr Chevin, who assisted with the incorporation of APL in April 2015, retained APL's log in and/or password details to the Companies Office website for APL. They believe Mr Chevin has fraudulently presented documents concerning APL to the Companies Office, representing that a company,
1 Avon Parnell Ltd v Chevin [2019] NZHC 1398.
Russell PKR Trustee Ltd, controlled by his associate, Mr Clark Valmont [the second defendants], is now the shareholder of APL. They also believe Mr Chevin and/or Mr Valmont purported to mortgage APL's two properties to Basecorp Finance Ltd. They believe Mr Skeates [the third defendant], of Skeates Law, was involved with these actions. The plaintiffs provide evidence consistent with their beliefs.
[3] The plaintiffs complained to Mr Skeates, the Police and to the New Zealand Law Society. On Saturday 15 June 2019, Mr Leggatt discovered information suggesting $990,000 was paid by Mr Skeates to a Kiwibank account in the name of APL, with a notation referring to Basecorp Finance Ltd. On the same day the same amount was paid from the Kiwibank account to another account with the notation “PAY Northern Investors Trust”. Mr Valmont is the sole shareholder and director of Northern Investors Trustee Ltd (NIT) [the fourth defendant] and Mr Chevin was a director until he was disqualified.
The pleaded claims against Mr Chevin
[6] The plaintiffs bring two alternative causes of action against Mr Chevin; misrepresenting himself to be the agent of APL in presenting certain documents to the Companies Office, and constructive trust. As noted above, the case against Mr Chevin is, in short, that he fraudulently presented documents to the Companies Office transferring APL from Mr Leggatt’s control into the control of the second defendants, Russell PKR and Mr Valmont. Once the control of the company had been transferred, Mr Chevin and other defendants mortgaged two of APL’s properties.
Breach of warranty of authority
[7] Here, the plaintiffs plead that Mr Chevin (and the second and third defendants, Mr Valmont/Russell PKR and Mr Skeates) had no authority to act on behalf of APL.
[8] In respect of Mr Chevin in particular, they accept that he had authority to lodge documents with the Companies Office while assisting Mr Edney and Mr Leggatt with the incorporation of APL, and while filing an annual return of APL’s on 7 July 2016. However, they say he ceased to have authority to lodge documents with the Companies Office from 7 July 2016.
[9] The plaintiffs say that on 21 and 22 May 2019, Mr Chevin presented the following documents to the Companies Office, purporting to do so on behalf of APL, but lacked the authority to do so:
(a)A document which purported to show Mr Leggatt’s shareholding being held by Russell PKR and Mr Leggatt;
(b)A document which purported to show Russell PKR was the sole shareholder in APL;
(c)A document showing Mr Valmont’s consent to act as director;
(d)A document purporting to show Mr Valmont had been appointed as a director; and
(e)A document purporting to show Mr Leggatt had ceased to be a director.
[10] The plaintiffs plead that there was no underlying transfer of shares, or shareholder’s resolutions appointing Mr Valmont as a director and no shareholder resolution removing Mr Leggatt as a director.
Constructive trust
[11] The plaintiffs say that Mr Chevin (alongside Russell PRK and Mr Valmont) then opened a bank account in APL’s name. The plaintiffs say Mr Chevin also granted a mortgage over APL’s two properties in favour of Basecorp. Basecorp advanced
$1,000,000 to Skeates Law Ltd, who then transferred $990,000 to the bank account Mr Chevin and the second defendants had set up. Those funds were in turn transferred to interests associated with Mr Chevin.
[12] The plaintiffs therefore claim in constructive trust. They say that the funds were received by Mr Chevin (and the second defendants) as part of a fraudulent scheme, and APL never received any funds. They say Basecorp is likely to still consider the mortgage and loan agreement to be binding upon APL.
[13] Accordingly, the plaintiffs claim that Mr Chevin holds a sum equivalent to the liability APL has assumed under Basecorp’s mortgage and loan documentation on constructive trust for the plaintiffs.
Procedural history
[14] The plaintiffs filed their statement of claim on 18 June 2019. That statement pleaded:
(a)Breach of warranty of authority/restraining defendants from purporting to act on behalf of APL;
(b)Constructive trust (the first to third defendants held funds secured by APL’s properties on trust for APL); and
(c)Knowing receipt (against the fourth defendant, Northern Investors Trustee Ltd).
[15] At the same time as filing their statement of claim, the plaintiffs made an application for freezing orders restraining the defendants from dealing with any funds received that were secured by mortgages granted over APL’s properties, which, as already noted, were granted by Palmer J.
[16] Mr Chevin participated in the proceeding through his then counsel Mr Stewart QC. An interim injunction was granted by consent by Davison J on 24 June 2019, which, inter alia, prevented Mr Chevin from holding himself out as an agent of APL.
[17] The plaintiffs filed an amended statement of claim on 8 July 2019. That amended statement of claim did not raise any new causes of action against Mr Chevin (changes related to causes of action raised against new defendants).
[18] On 12 July 2019, a memorandum was filed with the Court advising that Mr Chevin was now represented by Mr Corlett QC.
[19] On 14 August 2019, a letter was sent by counsel for the plaintiffs to Vodanovich Law, solicitors for Mr Chevin, noting a statement of defence had not been filed and advising that if one was not filed by 15 August 2019, they intended to apply for a formal proof hearing. Such application was made by memorandum on Friday, 16 August 2019.
[20] On 23 August 2019, Mr Chevin purported to file a statement of defence (without leave). The application for leave to file a statement of defence states that an attempt was made to file the statement of defence on Monday 19 August 2019, but there were issues with intituling. The statement of defence responded to the statement of claim rather than the amended statement of claim, although, as noted, the amended statement of claim did not add any new cause of action against Mr Chevin.
Law
[21]Rule 15.9(3) of the High Court Rules 2016 provides:
After a proceeding is listed for a formal proof hearing, no statement of defence may be filed without the leave of a Judge granted on the ground that there will or may be a miscarriage of justice if judgment by default is entered, and on such terms as to time or otherwise as the Judge thinks just.
[22] There are three key considerations in whether leave should be granted to file a defence out of time:2
(a)Whether the defendant has a substantial ground of defence;
(b)Whether the delay is reasonably explained; and
(c)Whether the plaintiff will suffer irreparable injury if judgment is set aside (or in this instance if leave to defend is belatedly granted).
[23] Where the delay is substantial, the Court can more readily conclude that injury would be caused.3
Submissions
[24] Mr Chevin submits that any delay has been minimal. He says his statement of defence was filed only a week out of time (basing his calculations from the date the amended statement of claim was filed). In an affidavit dated 9 September 2019, he
2 Neumayer v Kapiti Coast District Council [2014] NZHC 417 at [8], citing Shoye Venture Ltd v Wilson [2013] NZHC 2339.
3 Shoye Venture Ltd v Wilson, above n 2, at [12].
states that he was out of New Zealand on a business trip between 4 and 14 August 2019, and that “inadvertence and human error” caused the late filing.
[25] The plaintiffs submit that there has been substantial delay (some 21 working days after the due date) for which there has been no adequate explanation.
[26] They further submit that the statement of defence which was filed discloses no substantial ground for defence. They note that, in his statement of defence, Mr Chevin admits that there were no underlying share transfers or shareholders resolutions giving rise to the changes made to the Companies Office records (see [10] above). This is, the plaintiffs say, an effective admission of the matters necessary to prove the claims.
Discussion
How late did Mr Chevin file?
[27] A preliminary point of disagreement between the parties is how much out of time Mr Chevin is. A party has 25 working days after the statement of claim is served on them to file a statement of defence.4 Mr Chevin says that time starts to run from 8 July 2019, when the plaintiffs’ amended statement of claim was filed. The plaintiffs instead say that time should run from 18 June 2019, when their original statement of claim was filed.
[28] The High Court Rules are silent on the position where a statement of claim is amended before a defendant has even filed a statement of defence. However, in my view, it is likely the plaintiffs are correct. Rule 7.77 provides that where an amended statement of claim does not introduce a new cause of action, the other party has only five working days to serve and file an amended defence. This indicates the timeframes are based on the time needed to consider the substantive case being presented. Because the amended statement of claim did not alter the case against Mr Chevin, I consider that time runs from the original statement of claim filed 18 June (Mr Chevin being served 19 June 2019, his statement of defence was therefore due on 25 July 2019).
4 High Court Rules 2016, r 5.47(2)(b).
Should leave to file a statement of defence be granted?
[29] Court timetables must be complied with. If Mr Chevin could not file his statement of defence in time, he should have applied for leave to extend the filing period. However, in my view, Mr Chevin’s failure to comply with the due date for his statement of defence should sound against him in costs, rather than preclude him from bringing a defence at all. I say this for the following reasons:
(a)First, the delay is not lengthy; by the plaintiffs’ own calculation, some 21 working days. During this time, the disputed funds have been subject to freezing orders, and an interim injunction was made by consent. It cannot be said, therefore, that the plaintiffs have suffered injury from the delay, let alone irreparable injury (they will have to proceed to trial in relation to the other defendants in any case).
(b)Second, Mr Chevin had participated in the proceedings before he failed to file his statement of defence, including by filing an affidavit on 12 July 2019 which set out his version of events. The plaintiffs therefore must have had some indication of what Mr Chevin’s case would be even in the absence of his statement of defence. This further reduces the prejudice to them.
(c)Finally, without commenting on the merits of the defence or whether it will succeed at trial, Mr Chevin’s case is, in short, that Mr Edney was effectively a director of APL, APL was formed by Mr Chevin to purchase his family home, and there was an agreement between Mr Chevin and Mr Edney that he was entitled to replace Mr Leggatt as a director and shareholder in favour of his nominee. He accepts he did not proceed in accordance with the requirements of the Companies Act 1993 but says his conduct was not fraudulent. I note the plaintiffs’ submission that there is an inherent plausibility issue for Mr Chevin to overcome in his claim that he and Mr Edney made no written recording of a deal involving large sums of money and valuable properties. However, in my view, the defence pleaded is sufficient for the purposes
of this application. Although I note the plaintiffs’ submissions that it is not necessary for the plaintiffs to prove fraud, their claim is in fact based on an alleged fraudulent scheme.
[30] Given these reasons, on balance, I granted leave to file a statement of defence but on conditions.
[31]The terms of my order were as follows:
(a)The first defendant is to file and serve a statement of defence in response to the amended statement of claim and to issue a third party notice, both by 5 pm on Friday 18 October 2019;
(b)The first defendant is to pay the plaintiffs’ costs on a 2B basis, on both the first defendant’s application for leave to file a statement of defence and the plaintiffs’ application for formal proof;
(i)For that purpose, the plaintiff is to file and serve a memorandum setting out scale costs by 5 pm on Monday 14 October 2019;
(ii)If the first defendant takes issue with the plaintiffs’ claim, he may respond by filing and serving a memorandum no later than 12 pm on Wednesday 16 October 2019;
(iii)If the first defendant takes issue with the plaintiffs’ claim, I will determine the matter on the papers;
(iv)If the first defendant does not take issue with the plaintiffs’ claim for costs, then costs are to be paid by 5 pm on Wednesday 23 October 2019; and
(v)If it is necessary for me to determine costs, then costs are to be paid within five working days of my determination.
[32]I dismissed the plaintiffs’ application for formal proof.
Gordon J
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