Chean v De Alwis

[2009] NZCA 98

IN THE COURT OF APPEAL OF NEW ZEALAND

CA458/2008
[2009] NZCA 98

BETWEENAI NEE CHEAN

Appellant

ANDHERALD VICTOR DE ALWIS

First Respondent

ANDMARGARET ELIZABETH & HERALD VICTOR DE ALWIS

Second Respondents

ANDJOHN WAH KUM

Third Respondent

ANDCONNIE FAY LING KUM

Fourth Respondent

ANDMARSHA ADRIENNE TAI PING TAN

Fifth Respondent

ANDPETER WEE

Sixth Respondent

ANDPAUL SENG POH KHOR

Seventh Respondent

Hearing:4 March 2009

Court:Glazebrook, Ellen France and Baragwanath JJ

Counsel:E Orlov and L Serrick for Appellant

G A D Neil for Respondents

Judgment:25 March 2009 at 3.30 pm

JUDGMENT OF THE COURT

AThe application to extend the time for filing the case on appeal is granted.

BThe application to strike out the appeal is declined.

CCosts are reserved.

____________________________________________________________________

REASONS OF THE COURT

(Given by Glazebrook J)

Introduction

[1]       Mrs Chean appeals against a judgment of Associate Judge Faire of 4 July 2008 granting summary judgment in favour of the respondents. The respondents apply to strike out the appeal on the basis that security for costs has not been paid.  Mrs Chean applies for an extension of time to file the case on appeal.

Background

[2]       Security for costs was not paid within 20 days of the bringing of the appeal because Mrs Chean had applied for legal aid:  r 36(3) of the Court of Appeal (Civil) Rules 2005.  Mrs Chean’s legal aid application was rejected in late 2008.  Mrs Chean did not advise the Registrar or the respondents of the rejection of her legal aid application or pay security for costs within 20 days of being notified of the refusal.  This was contrary to rr 36(4) and (6) of the Rules. 

[3]       In the meantime, the respondents paid the setting down fee and requested a fixture.  The Registry fixed the date of hearing for 4 March 2009, presumably on the understanding that Mrs Chean was in receipt of legal aid and therefore not liable to pay security for costs. 

[4]       Aside from the question of security for costs, the appeal was not ready for hearing on 4 March. There was not even a case on appeal as Mrs Chean had failed to file it within the six month period prescribed.  As a result the appeal was deemed abandoned:  see rr 40(2) and 43(1) of the Rules.

[5] Instead of hearing the appeal on 4 March, we heard instead the two applications referred to above at [1]. We note that, if the appeal remains on foot, Mrs Chean has filed an application to adduce new evidence.

Associate Judge Faire’s decision

[6]       With regard to Mr Wee, the sixth respondent, the Associate Judge gave judgment for $150,000 plus interest at the rate of 10 percent per annum in accordance with s 37(6) of the Securities Act 1978.  This sum related to the repayment by Mrs Chean, in her capacity as director of Luvit Foods International Ltd (Luvit), of share subscription monies paid by Mr Wee with regard to shares issued on 27 September 2001.

[7]       With regard to all of the respondents, summary judgment was granted in their favour on the basis of the knowing receipt of trust funds by Mrs Chean.  This related to share subscription payments (relating to shares that had been issued contrary to the Securities Act made between 6 March 2000 and 6 June 2001 by the respondents), which had been transferred to Mrs Chean’s bank account (a joint account with her husband).  By supplementary judgment of 15 October 2008 the sum of $573,195.49 (relating to the knowing receipt cause of action) was apportioned among the respondents.

[8]       The essential elements of the Securities Act breaches had been determined by Courtney J in De Alwis & Ors v Luvit Foods International Ltd [2007] 10 NZCLC 264, 304.  While Mrs Chean was not a party to those proceedings, Associate Judge Faire held that issue estoppel applied with regard to the relevant matters decided by Courtney J.

Submissions

[9]       Mr Neal, on behalf of the respondents, submits that there is no valid excuse for not providing security for costs or for not filing the case on appeal.  Further, he submits that the appeal is wholly without merit.

[10]     Mr Orlov, for Mrs Chean, accepts that there have been delays but says they are due to him being ill at the end of last year and Mrs Chean’s impecuniosity.  He maintains that he kept the Court informed by memoranda once he had recovered from his illness and that the appeal has merit.

Discussion

[11]     While Mr Orlov was ill at the end of last year and Mrs Chean’s funds are subject to a preservation order, we do not consider that the issue of security has been addressed in a timely fashion by Mrs Chean.  The Registry (and the respondents) were not even informed of the denial of legal aid.  While it is true that Mr Orlov was ill when the advice was received, there were others involved who (at the least) should have informed the Registry that legal aid had been declined.  We note further that no application for review of the legal aid decision was filed within the proper timeframe.  Neither was any application made to the Registrar to dispense with security and no application has been made to release the funds, which are subject to the asset preservation order, to pay security for costs.  With regard to the case on appeal, it does not appear that proper efforts have been made on behalf of Mrs Chean even to agree on the contents of the case with the respondents.  The filing of long memoranda, without any accompanying applications where these are required, does not suffice to excuse the delays.

[12]     Turning now to the merits of the proposed appeal, we would have been in agreement with the respondents that the appeal is wholly without merit if Mrs Chean had been a director of Luvit at the time of the issuing of the relevant shares.  However, that was not the case.  She was only appointed formally as a director on 15 October 2001.  (We understand that the respondents maintain that Mrs Chean was a de facto director of Luvit before that date but accept that this contention could not be determined on a summary judgment application).

[13]     In the circumstances, the date of Mrs Chean’s appointment as a director may be relevant to the application of the Canadian cases applied by the Associate Judge at [55] of his summary judgment decision.  These cases held that, in cases of trusts imposed by statute, a person receiving funds will be deemed to have knowledge of the trust as ignorance of the law is no defence.  There is also the question, in relation to s 37(6) of the Securities Act, of the extent to which there may or may not be a duty to inquire into previous share issues on becoming a director and whether that is relevant to the question of whether the proviso is engaged.  Further, there may be an issue regarding the extent to which issue estoppel in relation to Courtney J’s judgment applies, given that Mrs Chean was not a director at the time of the share allotments (although she was a director at the time of the judgment).

[14]     Although the timing of Mrs Chean becoming a director of Luvit was mentioned by the Associate Judge, it does not appear to have been specifically focussed on, particularly with regard to the knowing receipt cause of action.  In the circumstances, we consider that it is in the interests of justice that the issue as to the date of Mrs Chean’s appointment be canvassed on appeal and thus that an extension of time for filing the case on appeal should be granted and that the respondents’ application to strike out the appeal be declined.  However, an application may be made again should the timetable set out below not be adhered to.

[15]     There are other issues, including with regard to $50,000 out of the $150,000 provided by Mr Wee (referred to above at [6]), which Mrs Chean wishes to raise on appeal.  It is inappropriate for us to comment at this stage on these issues.  However, we do signal that the main issue appears to us to be the date of Mrs Chean’s appointment as a director.

[16]     Mr Orlov, in his further submissions of 20 March 2009, indicates that he intends to ask this Court’s leave to apply on behalf of Luvit for Courtney J’s judgment to be set aside.  For the avoidance of doubt, Courtney J’s judgment is not before this Court.

Timetable

[17]     Mrs Chean must pursue with vigour the application for reconsideration of legal aid.  (We are not to be taken as commenting one way or the other on the merits or otherwise of that application.)

[18]     The following timetable must be adhered to:

(a)The case on appeal must be filed by Mrs Chean on or before 5.00 pm on Friday 3 April 2009;

(b)Any further proposed evidence must be filed and served by Mrs Chean on or before 5.00 pm on Friday 3 April 2009;

(c)Any evidence in reply by the respondents must be filed and served on or before 5.00 pm on Thursday 16 April 2009;  and

(d)Any application to dispense with security for costs must be filed with the Registrar on or before 5.00 pm on Friday 3 April 2009 (unless legal aid has been granted by that date).  Mrs Chean would also be well advised to apply for the release of funds held under the asset preservation order in order to pay security for costs in case the application to the Registrar is unsuccessful.  (We are not to be taken as commenting in any way on the merits of the applications referred to in this paragraph.)

[19]     The appeal is to be set down for hearing as soon as possible after the issue of security has been resolved.  The application to file new evidence will be heard at the same time as the appeal.

[20]     The parties are to confer and provide an estimate of the hearing time for the appeal on or before 5.00 pm on Monday 20 April 2009. 

Result and costs

[21]     The application for an extension of time to file the case on appeal is granted on the terms set out in this judgment.

[22]     The application to strike out the appeal is declined but may be renewed if the timetable set out in this judgment is not adhered to.

[23]     We would normally award costs against Mrs Chean with regard to these applications as it is her inaction that has required them to be made.  As Mrs Chean’s legal aid position is unresolved, however, costs are reserved.

[24]     Mr Orlov may, of course, provide a copy of this judgment to the Legal Services Agency.

Solicitors:
Botany Law, Auckland for Appellant
Meredith Connell, Auckland for Respondents