Daisley v Ark Contractors Limited
[2020] NZHC 1432
•23 June 2020
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2015-404-002799
[2020] NZHC 1432
BETWEEN MALCOLM JAMES DAISLEY
First Plaintiff
AND
SDD LIMITED
Second Plaintiff
AND
ARK CONTRACTORS LIMITED
First Defendant
AND
PAUL GERRARD KELLER and KAREN ELIZABETH KELLER
Second Defendants
AND
THOMSON WILSON LAW (a firm)
Third Defendant
Hearing: 19 June 2020 Appearances:
E Smith for Plaintiff (via telephone)
J Browne for First and Second Defendants (via telephone)
Judgment:
23 June 2020
JUDGMENT OF WALKER J
This judgment was delivered by me on 23 June 2020 at 4.00 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
DAISLEY v ARK CONTRACTORS LTD [2020] NZHC 1432 [23 June 2020]
Introduction
[1] The first plaintiff (Mr Daisley), first defendant (Ark) and second defendants (the Kellers) have been in dispute for over a decade. The dispute has also drawn in several business entities owned by Mr Daisley. The genesis was a business venture which went sour within days and has proved a financial and emotional drain for all parties.
[2] There are three High Court proceedings on foot. Following a two-week trial in the Whangārei High Court, I issued judgment for Mr Daisley against the Kellers and Ark and dismissed the claim against the third defendant. I awarded compensation to Mr Daisley of $541,721 which represented his initial contribution to the business venture through transfer to Ark of equity in property he owned.1 Costs have not yet been fixed.
[3] The two remaining proceedings are to be heard later this year. They are a claim by Ark against Mr Daisley and companies he owns, and a claim by one of Mr Daisley’s companies against the Kellers.
[4] Ark and the Kellers have appealed my judgment on various grounds captured in the comprehensive notice of appeal dated 19 May 2020. The appeal was promptly filed. Mr Daisley has cross-appealed in respect of my determination on the issue of interest.
[5] Ark and the Kellers now apply for an order that my judgment (as it relates to them) be stayed pending determination of the appeal. They also seek a direction that the security for costs paid by Mr Daisley is held by the High Court pending the appeal.2 The application for stay relies on rule 12(3)(a) of the Court of Appeal (Civil) Rules 2005 and rule 20.10 of the High Court Rules 2016.
1 Daisley & Anor v Ark Contractors Ltd & Ors [2020] NZHC 793.
2 There are two sums held by way of security. The first in respect of the claims against Ark and the Kellers and the second in respect of the claims against the third defendant. The costs claim of the third defendant is yet to be fixed.
Legal principles
[6] A successful party is ordinarily entitled to the fruits of judgment and an appeal does not automatically operate as a stay of either a proceeding or of execution.3 These principles are uncontroversial and regarded as the starting point in the analysis.
[7] This Court has a discretion to stay execution where the circumstances warrant exercise of the discretion. The relevant factors are crisply set out in Brook Valley Community Group Inc. v Brook Waimarama Sanctuary Trust.4 They include:
(a)Whether the appeal may be rendered nugatory by the lack of a stay;
(b)The bona fides of the appellant as to the prosecution of the appeal;
(c)Whether the successful party will be injuriously affected by the stay;
(d)The effect on third parties;
(e)The novelty and importance of questions involved;
(f)The public interest in the proceeding;
(g)The overall balance of convenience; and
(h)The apparent strength of the appeal.
[8] These factors must be weighed and the right balance struck between the entitlement of a successful litigant and preservation of the position in case the appeal is successful.5
3 Court of Appeal (Civil) Rules 2005, r 12(1); Brook Valley Community Group Inc. v Brook Waimarama Sanctuary Trust [2017] NZCA 377 at [10].
4 Brook Valley Community Group Inc. v Brook Waimarama Sanctuary Trust [2017] NZCA 377 at [10].
5 Duncan v Osborne Buildings Limited (1992) 6 PRNZ 85 (CA) at 87 as cited in Dymocks Franchise Systems (NSW) Pty Limited v Bilgola Enterprises Limited (1999) 13 PRNZ 48 at [8].
[9] The overarching consideration is where the justice of the given case lies.6 This is informed by the factors set out in [7] above.
Grounds for the application
[10]The application is based on the following grounds:
(a)If a stay is not granted a substantial miscarriage of justice is likely to result;
(b)The only means of payment of the judgment debt is sale of the Knight Road property owned by Ark;
(c)Mr Daisley has a charging order of the Knight Road property which is otherwise unencumbered;
(d)In the event of a successful appeal it is doubtful that Mr Daisley will be able to repay the judgment sum;
(e)As a consequence of the COVID-19 pandemic, the current prospects of selling the Knight Road property at value is seriously diminished;
(f)The appeal has merit and will be diligently pursued;
(g)The claims in which judgment were entered against the first and second defendants was progressed in a dilatory fashion;
(h)There are unresolved other proceedings, including a claim by Ark against Mr Daisley; and
6 Walker (As Liquidator of Gibbston Water Holdings Ltd) v Castlelreagh Properties Ltd [2015] NZHC 907, [2015] NZAR 944 at [23]; Dymocks Franchise Systems (NSW) Pty Limited v Bilgola Enterprises Limited (1999) 13 PRNZ 48 at [8].
(i)Granting a stay will not deprive Mr Daisley of the benefit of judgment, but refusing a stay may well prevent the first and second defendants from obtaining the benefit of a successful appeal.
[11] Mr Keller has filed evidence in support of the application (and in reply) confirming the financial status of Ark, and explaining the circumstances surrounding the property at Knight Road where quarrying operations have not generated any income for some years. The property is currently leased to a farmer to use as a run- off block but has serious gorse problems. Mr Keller deposes that he and his wife own few assets apart from the shares in Ark, a debt owed by their Family Trust and a small shareholding in Electrical Marine Systems Limited. The remaining shares in that enterprise are owned by the trustees of their Family Trust. The Family Trust owns various properties, including a family home.
[12] Mr Keller deposes that the only way the judgment debt can be currently paid is by sale of the Knight Road property. This was purchased by Ark as part of the transactions underpinning this proceeding for $688,950. This figure was arrived at based on a valuation at the peak of the market before the GFC, with a 25 per cent discount. In the intervening years, Ark has put the Knight Road property on the market for sale, but the only offer received was a “low-ball” offer from a neighbouring farmer for $395,000. In 2018, the Whangārei District Council valued the Knight Road property for rating purposes as having a capital value of $575,000. Mr Keller avers this is insufficient to enable borrowing of a sum to pay the judgment. Materially he states:
Depending on how the global and national situation unfolds, I would not be opposed to placing the Knight Road property on the market in the future so long (sic) the market is appropriate to do so. The judgment sum could then be held in a solicitor’s trust account pending the appeal.
[13] In opposition, Mr Daisley asserts that the Kellers are merely seeking to delay settlement of the judgment sum. He points out that the value of Ark’s claims made in associated proceedings against him personally and his business entities are significantly less than the judgment sum, and potentially only sufficient to meet a claim for costs in the proceeding. He also points out that his own company, Action Fencing Limited, has a claim against Ark and the Kellers for conversion of assets
which effectively offsets those claims. It is worth noting that all the remaining claims between the associated parties are being vigorously defended.
[14] Materially, Mr Daisley’s affidavit does not set out his financial position. He does not provide any evidence of his ability to repay the judgment sum in the event of a successful appeal. He references litigation against the Whangārei District Council in which he claims in excess of $30M. He also deposes that he would be prepared to accept the Knight Road property in partial settlement of the judgment sum. He says the property has the capacity to be operated as a commercial quarry and potential for a significant subdivision.
Discussion
[15]The parties largely agree on the legal test.
[16] I am well satisfied as to the Kellers’ bona fides in respect of the appeal and its prosecution. I am further satisfied that there are aspects of the judgment which merit appellate review. It is unnecessary to cavass the relative merits because, in my assessment the balance of convenience lies squarely in favour of the grant of a stay even if the relative merits only meet the “serious question to be tried” threshold.7 My reasons for this now follow.
[17] First, Mr Daisley has a charging order over the Knight Road property which, at the rateable value in 2018, exceeds the damages sum. There is no more up to date valuation, but this is unsurprising in the context of the uncertainties post COVID 19. Ms Smith correctly points out that the land is owned by Ark. In the event that Ark succeeds in its appeal but the Kellers do not, the property is not directly available to meet the damages. Mr Brown’s submission answers this point. The Kellers are Ark’s only shareholders. In this scenario, they as shareholders and directors would be faced with the decision to wind up the company and liquidate the assets or face potential bankruptcy.
7 Walker (As Liquidator of Gibbston Water Holdings Ltd) v Castlelreagh Properties Ltd [2015] NZHC 907, [2015] NZAR 944 at [31].
[18] Mr Daisley also has a charging order over personal assets of the Kellers which presumably includes the debt of $200,000 owed by the Trust.
[19] Secondly, there is nothing in Mr Daisley’s evidence which assuages concerns about his ability to repay the sum in the event the appeal succeeds. He has been silent as to his financial position. There is no proposal for security or even an assurance proffered (other than a payment into a solicitor’s trust account pending the appeal). The Kellers would be significantly injuriously affected if no stay is granted and they ultimately are successful in their appeal.
[20] Thirdly, it can be inferred that the forced sale of the Knight Road property at this juncture may well result in a sale at an undervalue which is ultimately cannot be compensated if the appeal succeeds.
[21] Fourthly, post-judgment interest will be payable on the judgment sum irrespective of whether a stay is granted. This protects Mr Daisley’s interests and incentivises diligent prosecution of the appeal.
[22] Fifthly, Ms Smith submits that the judgment sum could be paid by the Kellers, potentially by raising the sum via borrowing from the Keller Family Trust (in part or in full). However, a prudent trustee is unlikely to adjudge this to be in the best interests of the beneficiaries if there is no security for the return of the judgment sum if the appeal succeeds. Ms Smith counters that the sum could be paid into a solicitor’s trust account rather than paid to Mr Daisley. This may be warranted if there was a cogent concern about the Kellers’ ability to meet the judgment sum but in my assessment, there is none. There is little practical benefit if this proposal results in the sale of the Knight Road property at an undervalue. This has to be viewed in the light of the fact that Mr Daisley has not identified any specific prejudice beyond the ordinary disadvantage of not having the fruits of judgment.
[23] Of lesser import is the history and context of the proceedings to date. The fact that Mr Daisley waited until the eve of the limitation period and then did not pursue the litigation with any haste are factors which only slightly support the grant of a stay.
[24] For the sake of completeness, I record that there is no identified public interest in the proceeding. Nor is there any impact on third parties of a stay limited to the judgment vis a vis the first and second defendants.8
[25] Weighing these factors, I am well satisfied that the overall interests of justice favour the grant of a stay.
[26] Accordingly, I order that execution of the judgment against the first and second defendants be stayed pending the outcome of the appeal. I reserve leave to Mr Daisley to vary or review this order in the event that the Kellers and Ark do not prosecute their appeal with due diligence.
[27] My provisional view is that the applicants are entitled to costs on a 2B basis but these should be left over to be dealt with in the round with the determination of the costs of the substantive judgment. However, as I did not hear submissions from the parties on this issue, memoranda may be filed if they take a different view.
Security for costs
[28] As things stand, there is currently $90,000 paid into Court by Mr Daisley for security for costs. This has been apportioned as $45,000 on account of the claims against the first and second defendants and $45,000 in respect of the claim against the third defendant, Thomson Wilson. Mr Brown submits that the Court has the power to retain funds held as security for costs pending the determination of an appeal.9 I propose to defer this aspect of the application since no orders as to costs have been made, and indeed the plaintiff has not yet made a claim for costs. These are matters in which Thomson Wilson has an interest. It is premature to decide them now.
[29]I apprehend the parties are at idem on deferring this aspect of the application.
...............................................
Walker J
8 The third defendant is neutral in respect of a limited stay and opposes any release of security.
9 New Zealand Meat Board v Paramount Export Ltd (2003) 16 PRNZ 942 (CA) at [11]-[12]; Sim’s Court Practice NZ (online loose-leaf ed, LexisNexis) at HCR5.45.16.