Ballantyne Trustees Limited v HFK Limited
[2019] NZHC 906
•29 April 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2015-409-173
[2019] NZHC 906
BETWEEN BALLANTYNE TRUSTEES LIMITED, AVERILL NOELINE HEAD and BRUCE RAYMOND HEAD, CALMWATER ENTERPRISES PTY
LIMITED and
SENG BOU KEUNG as trustee of the GBR Trust
First plaintiffs
SENG BOU KEUNG
Second plaintiffAND
HFK LIMITED
First defendant
KEIRAN A HORNE
Second defendant
Hearing: 2 April 2019 Appearances:
M Tingey for first and second plaintiffs
M Parker and J Eckford for first and second defendants
Judgment:
29 April 2019
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction
[1] This is an application pursuant to r 15.2 of the High Court Rules 2016 by the defendants for an order striking out the plaintiffs’ claim for want of prosecution.
BALLANTYNE TRUSTEES LIMITED v HFK LIMITED [2019] NZHC 906 [29 April 2019]
[2] The dispositive issues are whether the defendants would be prejudiced in the event of the case proceeding to trial by relevant delay on the plaintiffs’ part, and whether the case can still be tried fairly.
Background
[3] On 31 March 2009, Goose Bay Ranch Holdings Ltd (GBR) was put into interim liquidation on the application of a minority shareholder. GBR was then put into liquidation on 27 November 2009 under s 241(4)(d) of the Companies Act 1993 due to an irretrievable breakdown of the relationship between the shareholders.1
[4] The first plaintiffs in this proceeding are the majority shareholders of GBR. The second plaintiff, Mr Keung, was the sole director of the company and is personally involved in this proceeding on account of having guaranteed the company’s obligations. Mr Keung is also named as one of the first plaintiffs, although there is an issue as to the size of his shareholding. Nothing turns on this. Between them, the first plaintiffs command a majority shareholding.
[5] Mr David Crichton and the second defendant, Ms Kieran Horne, were appointed as the interim and later final liquidators. At the time of their original appointment, both were principals of, or otherwise associated with, the first defendant, HFK Ltd, then a company providing accountancy services. Whilst HFK apparently still exists, its former business or practice has been amalgamated with that of another company. The amalgamated concern now trades as Nexia New Zealand. Mr Creighton has apparently retired. Ms Horne too has moved on. She is no longer connected with Nexia New Zealand and is no longer practising in the insolvency area.
[6] As the majority shareholders of GBR, the first plaintiffs object to aspects of the way in which the liquidators discharged their responsibilities. They say the liquidators were negligent. They say that the net result of the liquidators’ negligence was that the company’s value (including the value of various subsidiaries), which they say was formerly in the order of $33.5 million, was seriously diminished. They seek
1 GBR Investment Ltd v Goose Bay Ranch Holdings Ltd HC Christchurch CIV-2009-409-613, 27 November 2009.
an enquiry as to damages. During the course of the hearing, Mr Tingey told me that the claim may be for something like $10 million. The second plaintiff says the liquidators’ actions resulted in him being declared bankrupt on 20 September 2010 and caused him financial harm.
[7] The actions of the liquidators that are the subject of attack by the plaintiffs all appear to have occurred between the date of their original appointment and September 2011.
[8] This proceeding was commenced on 31 March 2015 (six years to the day after that original appointment). An amended statement of claim was filed and served on 25 November 2015. Defences were entered on 9 February 2016.
[9] Some interlocutory skirmishing followed. On 6 May 2016, Associate Judge Osborne (as he was) issued a judgment in which he declined the plaintiffs leave to pursue an aspect of their claim, ordered that the plaintiffs pay security for costs in the sum $25,000, and ordered that the plaintiffs pay the costs of the interlocutory hearing.
[10] In a subsequent costs judgment dated 24 June 2016, Associate Judge Osborne fixed the costs and disbursements payable by the plaintiffs.
[11] On 2 August 2016, the parties filed a joint memorandum saying that they had agreed that the plaintiffs would pay the defendants’ costs and disbursements and that if these were not paid by 31 August 2016 the proceeding would be stayed. An order was sealed in those terms.
[12] That date came and went. The costs and disbursements were unpaid. Accordingly, the claim was stayed. The costs and disbursements were paid a day or two later.
[13] The argument before me proceeded on the basis that the stay continued in force notwithstanding the payment of the costs, and Associate Judge Osborne certainly viewed it as necessary to lift the stay in order to enable this application to be made. He did so in a minute dated 9 November 2018.
[14]The security for costs is still held by the plaintiffs’ solicitors.
Principles
[15] Counsel were largely on common ground as to the principles involved. They are well settled. The leading case is Lovie v Medical Assurance Society New Zealand Ltd.2
[16] In Lovie, Eichelbaum CJ reconfirmed the three elements that must be present before the court takes the drastic step of striking out a proceeding for want of prosecution:
(a)there must be inordinate delay;
(b)the delay must be inexcusable; and
(c)the delay must be such that the defendant would suffer serious prejudice if the matter were to proceed to trial.
Delay
[17] In the end, there was no contest as to whether the first component of the test was made out in this case.
[18] In his submissions, Mr Parker contended that there was no evidence of the plaintiffs having initiated any substantive step in the proceeding after filing and serving their amended statement of claim on 25 November 2015 right through until the defendants filed this application on 2 October 2018.
[19] He pointed to the fact that there was substantial pre-commencement delay, the causes of action on which the plaintiffs rely having all occurred prior to September 2011 and the plaintiffs not commencing proceedings until 31 March 2015. He submitted that, coupled with the post-commencement delay already referred to, this amounted to inordinate delay.
2 Lovie v Medical Assurance Society New Zealand Ltd [1992] 2 NZLR 244 (HC).
[20] As Mr Tingey submitted in response, it is not altogether fair to say that the plaintiffs were entirely inactive from 25 November 2015. For a start, they were involved in the application for leave to pursue causes of action under the Companies Act which was heard on 11 April 2016. They were a party to the joint memorandum that ultimately gave rise to the stay. Steps were taken by them in relation to a change of representation. Admittedly in response to an initiative taken by the defendants, they also provided an unsworn list of documents. Through their solicitors. They engaged in correspondence about the adequacy of their discovery. Some attempt was made on their behalves by Mr Keung to initiate settlement discussions.
[21] Those things said, Mr Tingey responsibly accepted that, against the background of the pre-commencement delay, at least uncontextualized, the lack of action for substantial periods of time after the commencement of the proceeding amounted to inordinate delay.
[22]I agree.
Excusability
[23] Mr Tingey submitted that the plaintiffs were able to explain their delay. His submission in this regard began from the premise that Mr Keung was the individual primarily responsible for the litigation. On his evidence, he owned or controlled the majority of the shares in the company and has played a pivotal role in the litigation.
[24] Mr Tingey then pointed to Mr Keung’s affidavit evidence to the effect that he was the person responsible for opposing the proceeding directed at winding up GBR in the first place and that one of the consequences of this was that a substantial costs award was made against him personally, which he was not in a position to pay. As a result, on 20 October 2010, Mr Keung was adjudicated bankrupt and of course the result of that was that his affairs were placed in the hands of the Official Assignee. He was not discharged from bankruptcy until 9 November 2013. Mr Tingey submitted that Mr Keung — and therefore the plaintiffs generally — were handicapped in terms of their ability to prosecute this proceeding during the period of Mr Keung’s bankruptcy.
[25] Next, Mr Tingey referred to Mr Keung’s evidence that having been discharged from his bankruptcy in November 2013 he took steps to marshal the plaintiffs’ case and that the proceeding was commenced fourteen months later.
[26] In relation to post-commencement delay, Mr Tingey repeated his submission that the period of delay was not, as Mr Parker had invited the Court to conclude, uninterrupted from 25 November 2015.
[27] He accepted that there was a substantial period of delay between 22 August 2016 and 2 October 2018. As to this, he pointed to Mr Keung’s evidence that the Kaikoura earthquake on 14 November 2016 had been seriously disruptive for him and his family, coupled with his evidence that, at about the same time, he was having difficulty securing legal representation. The evidence relating to these claimed impediments is thin. Here is what Mr Keung says on the subject:
19.In November 2016 the Kaikoura earthquakes occurred and I was not able to attend to various legal matters including a strike out application to our claims against GBRI [GBR Investments Ltd — the minority shareholder that originally applied to place GBR into liquidation] coming before the High Court in February 2017. This was due to having extensive damage on our farm causing the closure of the farm operation around August 2017 and repairs being required to all our buildings and investments in Kaikoura. Access to Christchurch was a further issue.
20.Also in November 2016 I was notified by our lawyers Bell Gully that two of the key personnel working on our files, including the partner Mr Tingey, who was intimately involved in our procedures had left the firm and was unable to communicate to us until February 2017, due to a non-solicitation agreement.
[28] Mr Tingey submitted that the Court should infer that just as Mr Keung got to the point of being able to focus his attention on reinvigorating this litigation, the defendants made the current application.
[29]In response, Mr Parker made two broad submissions.
[30] First, he made the point that Mr Keung is one of a number of plaintiffs, the only one who has offered evidence in opposition to the application and there is no indication of the other plaintiffs taking any interest in the litigation. That is not an
unfair submission. However, in the context of this case, Mr Keung was plainly the plaintiff party with the strongest interest in the claim and primary responsibility amongst the plaintiffs for prosecuting it. In my view, it is his actions that should be the key focus.
[31] Mr Parker then submitted that it was not open to the plaintiffs to rely on difficulties they might or might not have been having securing legal representation; that those are irrelevant. That submission derives largely from observations made in Lovie to the effect that a plaintiff cannot excuse inordinate delay by saying that the delays were occasioned by his, her or its legal advisers.3 That is a different point from saying that where a plaintiff has had difficulty obtaining representation, as Mr Keung deposes was the case here, the plaintiff ought necessarily to bear the weight of that.
[32] This issue appears to me to be finely balanced. However, against the background of the pre-commencement delay, the substantial post-commencement delay, and the relatively weak explanations offered, in my judgment, the plaintiffs have not demonstrated that their delay is excusable.
Prejudice
[33] What then is the prejudice the defendants say results from the cumulative periods of delay and on which they rely for the purposes of their application?
[34] Essentially, they rely on the effect that the passage of time will have on the memories of those involved and the consequential reliability of their evidence. Relevantly, those involved are the liquidators and their staff.
[35] In Lovie, Eichelbaum CJ, having observed that in that case the outcome would be “heavily dependent on oral testimony” and that in such cases the “likelihood of prejudice through delay … is well known and has been recognised in many decisions”, went on to say that it was necessary “to guard oneself against the danger of discounting the arguments based on the dimming of memories simply because often they cannot be adequately demonstrated”.4
3 Lovie v Medical Assurance Society New Zealand Ltd, above n 2, at 253.
4 Lovie v Medical Assurance Society New Zealand Ltd, above n 2, at 254.
[36] As Mr Tingey submitted, that approach stands rather in contrast to the observations made by Lang J in LHL Leasing Solutions Ltd v Pinto Ltd (formerly MPL Pinto Ltd).5
[37] For myself, I am inclined to prefer the approach adopted in Lovie. It seems to me that it would be a mistake to treat as unimportant or discount the impact of the passage of time on the ability for the issues between the parties to be tried fairly. Current scientific evidence demonstrates the unreliability of human memory generally, and the evidence points to the passage of time having an adverse impact on the capacity of our brains accurately to recollect events.6
[38] Those things said, there is, as Mr Tingey submitted, a clear difference between a case such as Lovie and the present case. In Lovie, the Court took the view that viva voce evidence of the parties to a telephone conversation as to the contents of their discussion would be critical. On the other hand, as I perceive it, what is in question in this case is whether the liquidators discharged their statutory and other responsibilities to the company (and by extension its shareholders). The actions of the liquidators will have been recorded in their files, which will be available for examination at trial. I do not mean to suggest that viva voce evidence will not play a part at trial. But the availability of comprehensive records, as liquidators are bound by their statutory obligations to keep,7 will have the dual effects of providing a formal record of steps taken in the course of the liquidation and also enable the liquidators to refresh their memories.
[39] The plaintiffs were entitled to commence proceedings any time prior to the expiry of the limitation period. The view I take is that additional prejudice caused by delays after the commencement of the proceeding is likely to be minimal. In short, in this case, I am not persuaded by the contention that the mere passage of time, resulting from relevant delay on the plaintiffs’ parts, entitles the defendants to say they will be prejudiced.
5 LHL Leasing Solutions Ltd v Pinto Ltd (formerly MPL Pinto Ltd) [2016] NZHC 1777 at [50].
6 See, for instance, Joyce Lacy and Craig Stark “The Neuroscience of Memory: Implications for the Courtroom” (2013) 14 Nat. Rev Neurosci 649.
7 Companies Act 1993, s 256(1).
[40] The defendants also point specifically to the fact that, since the events in question, both of the liquidators have parted company with their former firm, so that there is no longer anyone within the (amalgamated) firm who had any involvement in the liquidation. They refer to the fact that the liquidators themselves have either retired (Mr Creighton) or moved into other areas of practice (Ms Horne). Those circumstances are simply another way of describing or particularising the effects of the passage of time. They do not strengthen the defendants’ application. If indeed, as seems likely, Mr Creighton and Ms Horne will have to give evidence at trial, they will of course have access to their former files, as will any former members of their staff who were involved.
Fairness
[41] As Eichelbaum CJ emphasised in Lovie, in the end, the overarching consideration is whether justice can be done despite any delay. Both pre-commencement and post-commencement delay and prejudice are relevant in addressing this issue. Having regard to the nature of the case and to the views I have reached about the impact of the effluxion of time, I am satisfied that this proceeding can still be tried fairly.
[42] The defendants’ application for an order pursuant to r 15.2 to strike out the case for want of prosecution is dismissed.
Costs
[43] Counsel did not address me on costs. My preliminary view is that there is no reason in this case why costs should not follow the event and that costs on a 2B basis are appropriate. Obviously, those preliminary views are subject to anything that counsel might say and in the circumstances it is proper to reserve costs, which I do. If counsel are unable to sort costs out between them — as I expect they will do — then they may come back to me by memorandum and I will deal with them on the papers.
I direct the Registrar to liaise with counsel with a view to this matter being set down for a case management teleconference as soon as possible. In my view, it calls for close case management, to ensure that there are no further unnecessary delays, and
should be given some priority in terms of the allocation of a fixture. Counsel are to confer and file a joint memorandum, or if necessary memoranda, for the teleconference in the usual way.
Associate Judge Johnston
Solicitors:
Ronald W Angland & Son, Leeston for first and second plaintiffs Parker Cowan, Queenstown for first and second defendants
1
0